#185 Nature Will Take Its Course

<strong>Global Policy Watch: Europe’s War</strong><br/><br/><em>Global policy issues and their implication for India</em><br/><br/><em>— RSJ</em><br/><br/>There is an energy crisis in Europe. Russia announced this week that it won’t resume supplying gas to Europe via the Nord Stream 1 pipeline until the west lifts the sanctions over its invasion of Ukraine. Till last year, Russia accounted for about 45 percent of the EU's total gas imports. About a third of it flowed through Nord Stream 1. A few months back Russia halted supply via Nord Stream citing maintenance concerns. At least there was a pretense. Now the gloves are off. The weaponising of energy is complete. That apart you may have heard of this being the hottest summer in Europe in living memory. The rivers have run dry and hydel power generation is at an all-time low. The crisis is real. <br/><br/>How bad is it? Well, if you go by estimates an average European household might end up spending over €500/month by March next year on their energy bill. This number was around  €160-170 /month a year back. This will mean an aggregated annual increase in energy spends in EU of about €2 tn. To put this in perspective, the total GDP of the member states is around €14 tn. No economy can take such a price surge in its stride, more so, when the inflation is already running at a multi-decadal high. Typically, they could do a few things to manage this. One option is to cap the prices of imported gas from Russia. The other is for the governments to absorb these price increases and lighten the burden for the people. The last option is to reduce demand by imposing rationing measures on people. The long term option is to move to renewables but that’s not going to help anyone during this winter.  <br/><br/>The idea of capping imported gas prices seems the easiest. Of course, price caps distort markets and will lead to other unintended consequences but you have to choose the lesser devil in scenarios like these. Except any price cap on Russian gas will mean you will have to d