Carbon transition bumped, but not derailed, by Russia

In the short term, fallout from the Russian invasion of Ukraine will slow Europe’s efforts to transition to a low-carbon economy — but, big picture, the trend to reduce carbon emissions will prevail, says Moody’s Investors Service .

In a new report, the rating agency said that the conflict in Ukraine is prompting European countries — which are reliant on Russia for energy supplies — to prioritize energy security and affordability over their decarbonization efforts.

“In the current environment, governments will gravitate towards readily available fossil fuels before spending additional money and resources to accelerate a strategic shift away from fossil fuels,” the report said.

Amid growing political pressure to protect consumers from rising energy costs, Moody’s said that, “European countries can’t switch to renewables fast enough to address energy needs or protect consumers from high energy prices in the short term.”

Even before the invasion, rising energy costs were prompting governments to take steps, such as tax cuts, rebates and price caps, to protect households from the effects of higher prices.

Yet, existing energy needs can’t be quickly met with renewables.

Increasing the production and consumption of renewable energy, “has been a slow and gradual process, requiring policy changes and significant infrastructure investments,” the report said.

“The only viable, near-term alternatives to Russian hydrocarbon imports are other hydrocarbons,” the report said.

Longer term however, Moody’s said that the shift to low-carbon will persist.

“Once the initial energy crisis and focus on energy security has subsided, there will be a renewed long-term focus on clean energy and efficiency policies and further investments in renewable infrastructure projects,” Moody’s said.

Ultimately, the transition will require longer-term policy changes, infrastructure investments, and improvements in capacity and storage capabilities.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.