The winter cold has come, and Europe has stayed warm. Since the Russian invasion of Ukraine, the European Union has slashed its reliance on Russian gas, with overall natural gas consumption declining by more than 7% in 2023 compared to 2022. Wind and solar energy generation surpassed fossil fuels for the first time, accounting for a third of the EU’s electricity production.
Importantly, too, the Baltic states of Estonia, Latvia, and Lithuania this month completed a switch from Russia’s electricity grid to the EU’s system, severing Soviet-era ties amid heightened security after the suspected sabotage of several subsea cables and pipelines. European Commission President Ursula von der Leyen hailed the move as marking a new era of freedom for the region, in a speech at a ceremony in Vilnius alongside the leaders of the three countries and the Polish president.
Despite these advancements, European industry continues to face significantly higher costs than those in the United States and China – threatening the continent’s competitiveness and ambitious green goals. The Trump administration’s decision to pull out of the Paris Climate Change Accords and its demands for Europe to buy additional US natural gas and oil add pressure on the continent.
Europe’s energy costs remain a major burden. In 2023, EU industrial electricity prices averaged approximately €186.70 per megawatt-hour (MWh) in the EU, $75,50 (€72,70) per MWh in the US, and around €88 per MWh in China. This EU average conceals disparities between countries, with a MWh of non-household electricity costing now some €94 in Finland and €256 in Italy.
High energy prices and declining industrial competitiveness are forcing a reassessment of the continent’s push for action against climate change, beginning with its ambitious carbon trading system. High carbon prices, which peaked at €100 per ton in 2023, have revived internal European disputes. Steel, cement, and chemical industries demand extended free carbon allowances, while France and Spain push for strict rules. Germany, Poland, and Italy seek flexibility. Europe’s Carbon Border Adjustment Mechanism set for full implementation by 2026, divides member states – some want exemptions to avoid trade retaliation, while others push for expansion. Industrialists are responding by delaying important investments.
Despite the energy cost crunch, the EU is doubling down on the deployment of renewable energy. Italy’s ERG secured a €243 million loan from the European Investment Bank to develop wind and solar energy projects across Italy, France, and Germany, and a 1.5 GW offshore wind farm off the coast of Poland. A new kid on the block is geothermal energy, which the EU has embraced. It arguably has the potential to supply more than 75 % of the heating and cooling consumed in Europe and over 15 % of its electrical power by 2040.
The EU continues to diversify its energy supplies. It still imports Russian liquid natural gas, mainly through terminals in Spain, Belgium, and France. This presents an opportunity for transatlantic energy trade: the Trump administration demands that Europe import additional US energy to avoid tariffs. The US has already become a significant supplier of gas to Europe, accounting for nearly 50% of the EU’s gas imports in 2023. Germany, in particular, has ramped up its import capacity with the commissioning of new regasification terminals. In 2022, Germany imported 1.32 million tons of gas, mainly from the US and Gulf states.
The upshot is a decline in renewable energy investments. In 2023, the EU invested approximately €110 billion in renewable energy generation, but this represented a 6.5% decrease compared to the previous year. China’s green energy investments accounts for 4.5% of its GDP, while the EU’s investment stands at 2% of GDP.
To lower energy bills for both industry and households, the EU must address both microeconomic and macroeconomic factors. On a microeconomic level, it must enhance energy efficiency through technological upgrades and encouraging energy-saving practices.
Another key goal is to integrate the EU electricity market, which can lead to substantial cost savings. A well-integrated market allows for the efficient distribution of low-cost renewable energy across regions, reducing reliance on expensive fossil fuels and minimizing price volatility. Studies suggest that such integration could result in significant savings by harnessing regional renewable advantages and reducing the need for costly backup capacity. A shift to renewables and a fully integrated energy market could save the EU around €40 billion per year by 2030.
No silver bullet solution exists to restore Europe’s competitiveness. But a coherent, effective strategy to lower energy costs would represent an important first step.
Maciej Bukowski is a non-resident fellow with the Tech Policy Program at the Center for European Policy Analysis (CEPA).
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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