Special Update: Ukraine, Seeds of Change, and the Law of Unintended Consequences

Seemingly unimaginable events have unfolded in Ukraine. We are overwhelmed by the scale of unnecessary human suffering and tragedy, and we feel it necessary to point out that misguided energy policy may have helped set the stage.

Our most recent Advisor newsletter featured a guest perspective addressing the energy crisis in Europe. Current events compel us to offer this special update.

Germany’s dependency on Russia as a source of natural gas may have contributed to Putin’s calculus before invading Ukraine. Three policy decisions by the government of Germany may have created this unusual and regrettable circumstance. 

1. Beginning in 2005, then-Chancellor Gerhard Schroder supported Gazprom’s proposed Nord Stream 1 pipeline, which offered the Russian government an alternative to transporting gas through the pipeline network that runs through Ukraine. This eliminated a form of economic alignment between Germany and Ukraine, and also eliminated an incentive for Germany to protect Ukraine’s sovereignty; 
2. In 2000, Schroder’s government launched the Energeiwende, a policy that encouraged rapid growth of renewable sources of energy by offering subsidies that eventually increased its share of energy production to 25% of Germany’s total; and
3. Angela Merkel’s administration committed to eliminating nuclear generation from Germany’s energy mix by 2022, which increased the country’s reliance on Russian natural gas. It also committed to eliminating coal-fueled generation by 2030.

Over time, the combination of these policies made the German economy dependent on Russian natural gas and significantly reduced the country’s incentive to align itself with the Ukrainian government during Russia’s threat to its sovereignty. And now, Germany is considering a fourth energy policy decision to unwind the tragic impacts of these three previous policies and extend the operation of its nuclear plants and, ironically, its coal plants so that the country can reduce its reliance on Russian gas.

In our view, Germany’s energy policy was driven in part by an aspiration to lead on climate change, and in part by political necessity. In short, the policy plan was thin, not thick, and lacks economic, political, and environmental sustainability. As current events evidence, the need for Thickness, which considers the long-term implication of climate-related actions, is rather apparent.

In collaboration with the University of Wisconsin Nelson Institute for Environmental Studies, a group of students are assisting us in identifying thick electric utilities in the US. ZCM Sustainability strategies will further evaluate investment in these utilities to help accelerate our country’s energy transition to low/zero carbon. We’ll report back later this year when the results are in.

In closing, thank you for your kind attention. Please reach out with additional thoughts on this matter.

Related Links

• Engaging Students on Electrical Utilities Environmental Analysis
• Thick Sustainable Infrastrucure Finance Yourtube Channel
• Hope For a Common Future (VIDEO)
• Does Green Always Mean Thick? (VIDEO)