The global health crisis that erupted in 2020 with the Covid-19 pandemic temporarily overlaid the ongoing global environmental crisis caused by climate change. However, as countries around the world battled to keep the virus under control and their economies afloat, the state of climate emergency became more conspicuous, with the widespread realization that current pledges under the Paris Agreement will do little to prevent global temperatures from rising above the 2ºC threshold. Therefore, a gradual consensus has been emerging around the idea that these two major global crises need to be solved hand in hand, and that their solution requires, first and foremost, the transition to low-carbon energy systems. On the one hand, averting the most catastrophic consequences of climate change can only be achieved if the world sets on a course towards carbon neutrality by the middle of the century. On the other hand, for post-pandemic recovery plans to succeed, they need to be attuned to the “fourth industrial revolution,” based on new digital and energy technologies.
In this context, the green transition figures prominently in the EU’s Renewed partnership with the Southern Neighbourhood adopted in February 2021. Progress towards decarbonization is regarded as a prerequisite to attaining many other goals, such as helping to “mitigate risks to human lives and livelihoods and promote sustainable development, job creation and transition to high value sectors” (European Commission and High Representative, 2021). This is certainly not the first time that the EU has put forward ambitious energy cooperation plans with its southern neighbours. At the turn of the 2000s, the European Commission set the vision for an integrated Euro-Mediterranean energy market through the so-called Euro-Mediterranean electricity and gas rings. The objective of large-scale deployment of renewable energy and South-North green electricity exports was also behind landmark initiatives such as the Mediterranean Solar Plan and Desertec, launched at the end of the 2000s. However, all these initiatives bore little fruit and were widely criticized for being EU-centric and unrealistic, given the manifold economic and (geo)political barriers.
This relatively underwhelming track record in Euromed energy cooperation begs the question of whether anything is different this time around, and, if so, what? In other words, is the renovated focus on the green transition another EU-centred agenda or a shared policy paradigm? To assess these questions, this article reviews recent developments, reflecting on the new spaces for convergence created by the twin health and climate crises, but also on the new sources of divergence that the transition to a post-pandemic and post-carbon world foreshadows.
New spaces for governance
A Growing Climate Ambition
The deep economic and societal changes required to effect the green energy transition demand strong political will and trust in international cooperation. Just a decade ago, such preconditions were largely missing. In Europe, the economic downturn following the 2008 global financial crisis and the political fiasco of the 2009 world climate summit in Copenhagen led to a moderation of the EU’s ambition in its 2030 climate and energy targets. The EU’s energy diplomacy was largely decoupled from climate objectives, by focusing on securing new gas supply routes, given the high oil prices and tense geopolitical relations with the main gas supplier, Russia. Consequently, the EU’s energy agenda for the Southern Neighbourhood also became dominated by energy security concerns and the new gas finds in the eastern Mediterranean. At the same time, supply shortages in southern Mediterranean countries prompted an increase in coal consumption in Egypt, for example, or the construction of three new coal-fired plants in Morocco.
This situation contrasts with the dominant discourse at the turn of the 2020s. In the EU, the rising prominence of climate activism, particularly amongst youth organizations, and the growing competitiveness of renewable energy sources have progressively led to a new consensus for more ambitious climate and energy targets. Accordingly, by 2018, the EU raised its 2030 targets and adopted landmark environmental measures, such as the ban on subsidies to the coal industry. Soon thereafter, the new von der Leyen Commission set the high goal of turning Europe into the first carbon-neutral continent by 2050. To that aim, it adopted the European Green Deal (EGD) initiative – an ambitious plan to mainstream energy and climate goals into all sectors of the EU economy as well as into its foreign policy engagements.
A growing climate ambition has also gradually settled in the southern Mediterranean, with the realization that this part of the world will be one of the worst-hit by the consequences of climate change. Almost all countries in the region have issued emissions reduction pledges in the framework of the Paris Agreement, even if the highest reduction targets are conditional on receiving aid and technical assistance (see Table 1). Most countries have also adopted ambitious renewable energy targets. Morocco stands out with its plans to produce more than 50 percent of its electricity from renewables by 2030, which is nearly the same target as the EU. The ambition is also high amongst fossil fuel rich countries, with Algeria and Egypt planning to achieve the greening of 30 and 42 percent of their electricity mixes, respectively. Similarly remarkable is the progress made by several countries in the region, most notably Morocco, Egypt and Jordan, in reducing fossil fuel subsidies, one of the main drivers of wasteful consumption and a massive fiscal burden, which still impairs both the energy transition and post-pandemic recovery plans. All in all, therefore, the current situation offers a greater window of opportunity for cooperating in climate action measures and green growth strategies than was the case a decade ago.
TABLE 1 Overview of 2030 Climate and Energy Targets
Upgraded Potential for Green Investment and Finance
Despite growing climate ambitions, the investment gap to achieve the 2030 renewable energy targets in the southern Mediterranean remains sobering: USD 16bn a year, about 30 percent more than the investment that was flowing into the region before the Covid-19 crisis (IEA, 2021). The investment gap became even wider as a result of the pandemic, as 2020 brought a sharp decrease in energy investment, which reached its lowest level in over a decade (Ibid. p. 49). In this context, the EU’s recent commitment to increase support for sustainable finance and discontinue assistance to fossil fuel projects brings new opportunities. The concrete impact is still difficult to gauge, given the early stage in the programming of the new Global Europe financial instrument (also known as the Neighbourhood, Development and International Cooperation Instrument or NDICI), but some trends are noticeable.
On the one hand, the overall assistance for the neighbourhood is set to increase by 25 percent, from EUR 17bn (2014-2020) to EUR 22bn (2021-2027), of which one quarter should be earmarked to support climate objectives. Admittedly, EU energy funding in the southern Mediterranean during the 2014-2020 period was already concentrated on renewable energy and energy efficiency projects (see Chart 1). Yet, the investment facility still included 15 percent of funding for gas infrastructure, which should now be redirected to decarbonization goals. Funding for the electricity market and interconnection projects will now also require the clear goal of promoting the green electricity trade.
CHART 1 EU Energy Funding (millions €) towards the Southern Mediterranean (1996-2020)
On the other hand, the key priorities of the upgraded investment facility, through the European Fund for Sustainable Development (EFSD+) and the External Action Guarantee (EAG) are also sustainable growth and climate resilience. To seize this opportunity in the Southern Neighbourhood, the EU envisages a regional initiative to be set up on sustainable finance, together with international financial institutions, to support large-scale investment in the production of renewables and green hydrogen (European Commission & High Representative, 2021: 20). Funding for strategic energy projects could also flow from the EUR 5.8bn funds earmarked for energy within the Connecting Europe Facility 2.0, though so far the track record for including cross-border projects with the Southern Neighbourhood is not encouraging.
The Promise of Hydrogen Cooperation
Prospects for intensified energy cooperation in the Euro-Mediterranean region are also reinvigorated by the development of green hydrogen, a zero carbon fuel produced via the electrolysis of water using renewable energy. The large-scale production of hydrogen and its transport via pipelines could become a viable option to decarbonize the transport sector, as well as energy-intensive industries. With this goal in mind, the first priority listed in the EU’s Renewed partnership with the Southern Neighbourhood is the “massive deployment of renewable energy and clean hydrogen production, contributing to the aspiration to have at least 40 Gigawatts of electrolyser capacity in the EU Neighbourhood by 2030” (European Commission & High Representative, 2021: 19). Such plans are highly uncertain, as South-North trade of hydrogen is still a distant perspective and could experience the same barriers as the trade in green electricity, not least the lack of interconnections between the southern and northern Mediterranean rims, as well as within the EU (cf. Escribano, 2021). However, despite viability concerns, hydrogen cooperation projects in the region are starting to mushroom.
Morocco figures prominently in the emerging hydrogen scene, with its ambition to become a hydrogen hub and a leading global hydrogen producer. To that aim, Morocco has set up a National Commission of Hydrogen, adopted a national hydrogen roadmap and launched a hydrogen research and industrial cluster. Several EU Member States have also established bilateral hydrogen partnerships, most notably the “hydrogen alliances” between Germany and Morocco and Tunisia, respectively. The Germany-Morocco alliance is the most advanced, with a contribution of EUR 90 million for the development of an industrial plant for green hydrogen and other climate-neutral fuels (KfW, 2020). At the regional level, the platform that advanced Desertec in the 2000s launched the MENA Hydrogen Alliance in 2020, bringing together private and public actors to produce joint studies and support pilot projects. Therefore, despite all the uncertainties surrounding hydrogen, the private sector’s considerable political ambition and interest anticipates a new dynamic area of Euromed energy cooperation.
New Sources of Divergence
The Geopoliticization of the Green Transition
Although the energy transition could bring with it a “peace dividend” through the reduction of external dependencies and resource conflicts, it could also become a source of new tensions, such as heightened technological competition, trade wars, new supply risks derived from the scarcity of critical materials or exposure to cyberattacks on digitalized energy systems (cf. Vakulchuk et al. 2019). In recent times, the energy transition has already become a relevant dimension of global power rivalries, particularly in view of China’s rise. The European Green Deal and associated green industrial policy are explicitly aimed at promoting the EU’s leadership in green technologies in a context of global power shifts. Therefore, the growing attention to the geopolitical aspects of the energy transition seems to follow on from the wider “geopoliticization” trends observed in external economic policy, meaning that trade and investment issues have become more embedded in international power rivalries (Meunier and Nicolaïdis, 2019: 107).
In this scenario, the danger is that the European Green Deal remains inward-looking and defensive, focused exclusively on fostering the EU’s competitiveness and autonomy. For example, the EU has recently launched the European Raw Materials Alliance (ERMA) and the European Clean Hydrogen Alliance (Ech2a), to boost the EU’s leadership and reduce vulnerabilities in supply chains in critical raw materials and hydrogen. Membership in these alliances is restricted, particularly the Ech2a, which can only be joined by public and private actors from the EU and a limited range of associated countries (members of EFTA, Western Balkans and Eastern Neighbourhood countries). The EU’s focus on promoting its own technology could also be detrimental to win-win investment projects in the southern Mediterranean, which should be accompanied by technology transfers and promote local employment and expertise. The EU’s goal of strategic autonomy in green technologies could also disrupt the international trade networks that have contributed to the fast development and worldwide diffusion of green technologies over the past decade (Goldthau and Hughes, 2020). Therefore, the geopoliticization and even securitization of renewable energies could have the countereffect of slowing down the green transition.
Economic and Normative Competition
As part of its ambition to lead the green tech revolution, the EU aspires to become a global standard setter in sustainable energy. In its conclusions on the external dimension of the European Green Deal, the Council set the goal of supporting “the uptake of the EU’s energy acquis, rules and standards, as well as furthering energy market integration and interconnectivity in line with the European Green Deal, particularly within the EU’s neighbourhood” (Council of the EU, 2021: 11). However, the EU is not the only game in town as an energy transition model. Other actors such as China and the Gulf countries have also become relevant actors in the energy sectors of the southern Mediterranean countries, both as sources of green finance and investment, and as energy transition role models.
Morocco and Egypt exemplify these trends. For example, the USD 1bn Moroccan Energy Development Fund, which helped launch Morocco’s renewable energy programme in the late 2000s, was mostly sourced by donations from Saudi Arabia and the United Arab Emirates. The Saudi company ACWA was chosen to operate the Moroccan NOOR 1 concentrated solar power plant under a power purchase agreement valued at USD 900 million. In turn, China invested around USD 2 billion in solar energy projects, including in the construction of NOOR 2 and 3. Egypt, as an official member of the Chinese-sponsored Belt and Road Initiative, has also been the recipient of substantial foreign investment, including in the renewable energy sector. For instance, in 2018 and 2020 the China Gezhouba group gained contracts to construct the Benban solar park, including 32 solar power plants and, in collaboration with the Saudi ACWA, several wind power plants with a value of USD 260 million.
The EU’s attempts to “export” its liberal market approach to developing renewable energy technologies and electricity markets is thus challenged by alternative models, such as, for example, China’s success in developing and exporting its green technology via central planning and state-owned companies. Other countries in the region are also sources of best practices and have ambitions to become regional leaders. For example, the United Arab Emirates claims to be a “leader by example” and a “standard-bearer for developing countries” in renewable energy development (Weatherby et al. 2018). In the southern Mediterranean, Morocco is also promoting itself as a model for developing countries, given its successful electrification programme (Ministère de l’Energie, des Mines et de l’Environnement, 2021). In this context, the EU might face additional difficulties for squaring its goal of greater regional energy integration and green trade with the existence of a variety of instruments and regulatory models.
The European Green Deal has revamped concerns over carbon leakage, namely the risk that production sites progressively concentrate in countries with more relaxed climate regulations. To prevent this phenomenon, the EU is planning to introduce a Carbon Border Adjustment Mechanism (CBAM), which would tax carbon-intensive products imported into the EU. The environmental logic behind the CBAM is to contribute to reducing global CO2 emissions by incentivizing other countries to adopt carbon pricing mechanisms comparable to those of the EU. However, from the perspective of the EU’s trading partners, this strategy of negative incentives could be seen as a coercive and illegitimate attempt by the EU to export its environmental regulations. Moreover, the CBAM is sometimes also explicitly justified in terms of avoiding competitive disadvantages for EU producers. For example, in its Hydrogen Strategy, the European Commission mentions carbon leakage as a risk for the EU’s production of green hydrogen, which could be tackled via the CBAM (European Commission, 2020: 13). This might leave the EU exposed to accusations of green protectionism, particularly by neighbouring countries, which are highly dependent on exports to the EU.
Following the Commission’s proposal, leaked in June 2021, the CBAM would cover imports of electricity, iron, steel, cement, aluminium and some fertilizers, with the possibility of an extension to additional sectors at a later stage. Egypt and Algeria, as significant exporters of fertilizers, aluminium and steel to the EU, would be amongst the 15 countries most affected by the CBAM (Cornago and Lowe, 2021: 2). Morocco could also be affected when it comes to trade in electricity. The CBAM was actually demanded by Spain to prevent carbon leakage occurring from Spain’s imports of coal-based electricity from Morocco. No wonder, therefore, that the CBAM has raised concerns, including in neighbouring countries. For example, a paper from a Morocco-based think-tank claims that the CBAM would be unfair, as the certification procedure would increase the administrative costs for small and medium sized companies, and that it would be based on the questionable assumption that developing countries show less commitment to reducing carbon emissions than developed ones (Dadush, 2021).
Instability in Petrostates
The EU’s ambition to achieve carbon neutrality by 2050 is premised on a radical transformation of the energy mix, bringing the share of renewable energy from the current 20% to about 35% by 2030 and 65% by 2050 (European Commission, 2020b: 55). This planned phasing out of fossil fuels, particularly from 2030 onwards, will have an impact on the southern Mediterranean hydrocarbon-dependent economies, most notably Libya and Algeria, and to a lesser extent Egypt (see Table 2). The unprecedented collapse of oil prices in 2020 as a result of both the sharp decrease in demand and the lack of coordination amongst producers was a wake-up call for what awaits fossil fuel producers in the post-carbon era. The socioeconomic and political consequences of the energy transition for oil-based economies is therefore a new source of instability in Euromed relations.
The conundrum for hydrocarbon producers in the coming years is how to accelerate economic diversification in the context of a severely constrained fiscal space. The decline in oil prices since the mid-2010s had already resulted in high budget deficits. For example, since 2014, Algeria’s deficit has remained at over 10 percent and financed mostly from the national oil fund, which was largely depleted by 2017 (IMF, 2018). The situation thus contrasts with other fossil fuel producers in the Gulf, with much larger reserves and powerful sovereign wealth funds. For the southern Mediterranean hydrocarbon producers, the energy transition could also aggravate the already staggeringly high youth unemployment levels (see Table 2), unless there is parallel progress made in terms of the labour transition, through investments in education and re-skilling the workers currently employed in the hydrocarbon sector. Next to economic indicators, the political climate in oil-dependent countries has also deteriorated, with a worsening of human rights and democracy indexes, which makes major reforms less likely.
The EU’s energy cooperation and financial assistance has so far not sufficiently factored in the growing struggles of petrostates. Algeria, Egypt and Libya have been the countries in the Southern Neighbourhood that have received least EU assistance over the past decade, and energy cooperation has focused mostly on assisting the hydrocarbon sector. Internally, the EU has acknowledged the distributional consequences of the energy transition by adopting a Just Transition Fund, sourced with EUR 17.5bn, under the motto of “not leaving anyone behind.” Externally, the EU has only adopted “just transition” projects for the energy community partners in the Balkans and the Eastern Neighbourhood. Similar initiatives could be envisaged for the fossil fuel dependent southern neighbours, together with a reinforced dialogue on energy demand projections and resource governance.
The confluence of the Covid-19 and climate crises has increased the relevance of the energy transition, as a unique opportunity to “build back better.” This is also visible in Euro-Mediterranean energy relations, heralding a change of paradigm, which places the energy transition and climate change at the centre of post-pandemic recovery strategies. These shared policy goals open new spaces of cooperation compared to previous Euromed energy relations, which often hinged on the idea of market integration as an end in itself, rather than as an instrument for sustainable development.
However, a “policy paradigm” encompasses not only the goals, but also the type of instruments needed to attain them. In that regard, the sources of divergence remain paramount. If the new instruments of the European Green Deal diplomacy concentrate exclusively on opening new markets for European businesses and keeping up the EU’s position in the global green tech race, Euro-Mediterranean cooperation in the green transition could become hostage to the same criticism of EU-centrism as previous initiatives. At the same time, if the energy transition in the southern Mediterranean countries is not accompanied by wider political reforms, the abundance of renewable energy resources could end up replicating the economic and democratic pitfalls of hydrocarbon-based rentier states. In sum, while the green transition offers a new positive agenda for Euro-Mediterranean relations, it does not yet amount to the paradigm shift required for effecting a just energy transition.
1. For overviews of Euromed energy cooperation prior to 2020, see e.g. Escribano (2015), Herranz-Surrallés (2018), Proedrou (2019), Rubino (2020), and Tagliapietra and Zachmann (2016).
2. See the Keys section on Climate Change in the Mediterranean in the IEMed Mediterranean Yearbook 2020 (www.iemed.org/med-yearbook/iemed-mediterranean-yearbook-2020/).
3. According to the IEA subsidies tracker (www.iea.org/topics/energy-subsidies), in 2020, Algeria and Egypt ranked 6th and 7th in the list of countries with the highest fossil fuel subsidies in absolute numbers, with over USD 5bn, and Libya the first in relative terms (17.5% of the GDP) (see also table 2). For an overview of the recent evolution of policies on fossil fuel subsidies in the region, see Walsh and Boys (2020).
4. Together with the contribution from the European Recovery Fund, the NDICI investment facility should lever about EUR 130bn for projects promoting the Sustainable Development Goals, including access to sustainable energy.
5. For example, the Tunisia-Italy ELMED interconnection, despite having been awarded the label of Project of Common Interest, has so far failed to obtain the grants of the Connecting Europe Facility which would be necessary to finance the project.
6. Some sources point to goals of supplying between 4 and 8 percent of global hydrogen demand (e.g. “Hydrogène vert: Le Maroc pose les jalons d’une nouvelle industrie énergétique.” Aujourd’hui le Maroc, 27.08.2020).
7. See section on hydrogen of Morocco’s Ministère de l’Énergie, de Mines et de l’Environnement www.mem.gov.ma/Pages/secteur.aspx?e=2&prj=7
8. Investment data was retrieved from the Zephyr database, the China Global Investment Tracker and ACWA website.
9. In comparison to 2017, the 2020 indexes for political rights and civil liberties decreased three points in Algeria, five points in Egypt and four points in Libya (see freedomhouse.org).
10. In percentage of GDP, Algeria, Egypt and Libya received about 2-3% in assistance from the EU, compared to the more than 10% for Lebanon and Morocco and 20% for Tunisia and Syria (EU Aid Explorer data, in Dabrowski and Domínguez-Jiménez, 2021: 21)
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