Transatlantic divide: US and EU chart different energy transition paths

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Eklavya Gupte:

Welcome to Energy Evolution, a podcast brought to you by S&P Global Commodity Insights, where we examine the pivotal forces reshaping our energy landscape. I'm your host, Eklavya Gupte, and today we're diving into one of the most significant shifts in global energy policy, the growing divergence between European and US approaches to climate action and the energy transition.

We're nearly a year into Donald Trump's second term as US President, and we're seeing remarkable contrasts emerge between the two economic powerhouses that once seemed aligned on climate goals. The US has pivoted sharply towards fossil fuel expansion and rolled back many clean energy initiatives, while Europe finds itself in a more nuanced position, still committed to its climate ambitions, but increasingly concerned about economic competitiveness and affordability. This divergence raises profound questions. Is Europe's gradual recalibration of its transition pace, a response to economic realities, water concerns or influence from across the Atlantic? And how are these shifts affecting industrial competitiveness, energy markets, and energy security and investment flows?

To help us understand these complex dynamics at play, I'm joined by two experts who track these developments closely. We have Laurent Ruseckas, who is the Executive Director of [inaudible 00:01:54], Gas, Geopolitics and Finance at S&P Global Commodity Insights, and we also have Coralie Laurencin, Director of European Gas, Power and Carbon Policy also at S&P Global Commodity Insights to give more of a European perspective. So let's head straight into this freewheeling conversation on the shifts in energy policy globally. Welcome to the podcast Laurent and Coralie. Great to have you here. And now we are recording this in mid-October, almost a year into President Donald Trump's second term. So quick fire question, Coralie and Laurent, when you wake up and you look at your inbox every morning, what are some of the biggest wait and what moments you've been seeing?

Laurent Ruseckas:

Maybe I'll start on the United States.

Coralie Laurencin:

Go ahead. Yep.

Laurent Ruseckas:

President Trump's reelection and the energy and climate policies he put forward since then have really obviously transformed the situation and the conversation in the United States. A lot of the clean energy credits and support under the Biden administration have been rolled back and it's also changed the discussion. It's made it more acceptable, I think, in other parts of the world, including in Europe, to talk about oil and gas and being against a certain elements of the energy transition. But it's having a practical effect mostly in the US, but I think it is affecting the mood music in Europe to a certain extent.

Coralie Laurencin:

In Europe, what I'm thinking is really interesting at the moment is this, as you were saying, mood music about how much or how fast in the energy transition does Europe want to go. Europe now is implementing the regulations that were delivered to create the 2030 target and is starting to think about its 2040 target. And what we're seeing is that in every area of policy, we're seeing a little bit of pushback. So on decarbonization of heat, a little bit of pushback, the pace of decarbonization of transport pushback, we're seeing that as well in other sectors in power, even, in industry, most certainly with hydrogen. So when I look in my inbox, I'm interested to see what member states or heads of government are saying about what they want to be doing or how they're reacting to regulations they have, in most cases, approved a couple of years ago, but are having a little bit of second thoughts about.

Eklavya Gupte:

Yeah. And now some of this, how much is this related to Europe waking up and saying, "Hey, our economy is not as strong as it was, our industry is not in a healthy shape?"

Coralie Laurencin:

So I think it's mostly a cost and affordability thing. I think that the fossil fuel agenda that is very strong in the US is not in Europe because of security of supply reasons. Europe's overriding fear is for another 2022 situation, where gas prices went through the roof and that had huge impact on costs across the economy. So for that reason, Europe isn't really looking forward to push fossil fuels. However, it is focused on the cost of the energy transition, wants to pace that so that it can be manageable for stakeholders. And really what's behind this is that voters are telling governments, "This is too much. We think this has gone too far."

Laurent Ruseckas:

And big business has said the same thing, and you can't talk about competitiveness of European industry without talking about the Draghi report, which the president of the commission for her second term, Ursula von der Leyen, used Mario Draghi and his credibility and this report, identifying all of the problems to European industrial competitiveness. And this was not at all against the energy transition. It was really against two prescriptive regulation. And you can see some of the changes that they're starting to move on in Europe are not focusing on targets. They're not talking at all about scaling back the energy transition, but what they're doing is there's something called the omnibus package, which is taking three of the bills that are really at the furthest end of prescriptive regulation. They're more about climate reporting and they're scaling those back. That's something that's going through the legislative process right now.

Eklavya Gupte:

Yeah, definitely. You've seen, obviously a lot of energy companies talk about how some of these are having an impact. So from an energy perspective, what are some of the big changes that you've seen?

Laurent Ruseckas:

Well, we can start with the methane regulation. This is an EU law that will regulate, first of all, require identifying the methane intensity of gas that's imported into Europe, whether by pipeline or as LNG. And then at a certain point, it'll start to set limits on that. And this, I think on the one hand, there's a lot of gas supplying countries that are saying, "Why is the EU interfering in my supply chain and how we do business in our country?" Whether it's the US or Qatar or anywhere else.

Secondly, there's also tremendous confusion and concern about how this is going to be implemented because it's not that easy. I think a lot of people in Europe can see the potential for the regulations to be written or there to be enough uncertainty about the regulations that it starts to constrain companies from signing long-term contracts to deliver LNG to Europe. So I think a lot of people in the EU understand this and there's a lot of effort going on to try to see how it can be implemented in a way that does not either constrain countries from exporting LNG to Europe or doesn't create, the worst case scenario for Europe would be a two tier LNG market where, if you're in Europe, you pay more for low methane intensity gas and everywhere else, you get cheaper gas. That's not the goal.

Eklavya Gupte:

Interesting, because obviously Europe wrote some of these regulations a few years ago, when the mood music was completely different, but now we're in 2025 and things have changed quite a bit. We've seen it with CBAM, with the Carbon Border Adjustment Mechanism. So maybe something for you, Coralie, how is the EU or the commission managing this because they've had to tweak quite a few of their regulations and directives?

Coralie Laurencin:

Yeah, definitely. So I mean, as Laurent was saying, there's some tweaking that's ongoing and that's with the omnibus, and part of that includes some tweaking on CBAM to make it a little bit less impactful for a smaller range of companies as opposed to many, many companies. But I think most of the tweaking is ahead of us and we're going to see a lot more of that. So definitely, where I don't agree sometimes with what people are saying is CBAM is not going away. CBAM is one of the biggest tools that the EU has to protect industrial competitiveness. It needs to address the cost of energy. That's a tough one, but we've had this chat with Laurent and maybe the LNG market can help there.

So CBAM is really important for Europe. Some tweaks there, yes. I would expect we'll see more. I think the new carbon that's going to apply to buildings and transport looks like it is ripe for a review, but what's quite certain is a lot of people in Europe feel that this extra carbon tax that would apply to you and me when we buy fuel at the petrol station or when we use gas to heat our homes is not welcome. I think there's also a discussion that's ongoing about the regulation for emissions of cars. So there's been some softening there already.

I think we could see some more. Definitely some countries, Italy, Germany, pushing very hard. We also have the view with our colleagues here that the carbon market, the traditional carbon market for power and industry, may be when the rules post-2030 are decided, it could be made a little bit softer. So we're not saying we're going to have a low carbon price. We're saying the rules might be changed a bit so that we have a lower carbon price than the 200 plus euros that we're staring at for the next two or three decades.

Laurent Ruseckas:

If I could pick up on, Coralie mentioned LNG and gas prices, all of this is taking place against a backdrop where it's becoming increasingly clear, and I think policymakers across Europe are starting to accept this, that natural gas prices are coming down. And let's remember that what caused this crisis of affordability in 2022 and 2023 in Europe, a severe crisis, was not the energy transition. It was Russia cutting off the gas for political reasons, natural gas wholesale prices rising to very high levels, and then electricity prices doing the same.

So that affordability crisis, no matter what else happens in our view, and I think in the view of most observers, as a surge of LNG from the United States and other countries comes into the market and over the course of the rest of this year, next year, 2027, that natural gas prices in Europe, TTF and other benchmarks are going to be coming down to, I'd say, quite comfortable levels and with them, wholesale electricity prices. So that's going to put a different spin on the debate because affordability is going to come like manna from heaven.

Coralie Laurencin:

And that's an excellent point because once this gas comes in, we're looking at power prices, which will be much closer to the pre-COVID levels, so the 2015, 2019 level. But again, the issue is that'll be wholesale prices. What is the consumer going to pay? So you and I, retail electricity consumers, we're going to be paying more because we need to strengthen their grids because there are environmental costs, all of these things. The question is what are the energy intensive users pay and how close can they get to that price? Because that's a much more attractive price. And it's a price, because the price of gas in Europe will have less of a gap with the price of gas in the US, you are lowering that differential and you're lowering the uncompetitiveness of Europe for gas, and the same goes for power. So it's really important, if Europe can make this happen, to really translate the gas price and the implications for power to energy-intensive consumers to boost industry. And I think that's the next challenge for Europe.

Eklavya Gupte:

Staying on gas, and especially on LNG, the US is going to be playing a bigger role as a LNG and gas exporter in the coming years. And there's been a bit of outreach, especially to the EU, which is going to be less reliant on Russian gas. So it needs gas from somewhere. And we've seen the EU and the US sign this big energy deal. So how does that play into this relationship between the two blocs changing course on some of the energy transition?

Laurent Ruseckas:

Well, the deal you refer to, which is part of the overall US-EU trade agreement, says that Europe will, over the course of three years, spend $750 billion on American energy, which is much more than it's been spending, even with imports of some US oil and imports of US LNG and some coal as well. It's a target. The two parties are going to try to determine what numbers you use to feed into this, but it's a very, very, very big number. And remember, I said prices are going down. So I think the tangible thing that the EU has done is the EU is now phasing out Russian gas. So there's a piece of legislation going through the process in Europe, which will make short-term and spot sales of Russian pipeline gas and LNG will be phased out in 2026 and then by the end of 2027, phasing out all imports. And that gas will essentially be replaced by US LNG.

So Europe is coming more and more reliant on LNG and well over half of that LNG is going to be coming from the United States. But if the price is coming down, as I said, and that's, I think, pretty much, we can argue about the timing of that and to what levels prices will settle at. But if prices are going down over this three year period, even if you expand the volumes, it's not quantities, it's dollar figures. So something that's going to really benefit Europe and, in fact, strengthen the relationship between the US and EU, may cause it, at least on the LNG, side to fall a bit short of those commitments.

Eklavya Gupte:

Obviously we've talked a lot about how the European industry's under pressure, but how is the US industry doing currently, since we've obviously had a lot of tariffs?

Laurent Ruseckas:

Well, maybe I'll start on the tariffs. Obviously, the goal of the tariffs coming from the administration are to rebuild American industry and make American industry in places where the US has lost jobs, has lost capacity, to bring that back by putting tariffs on imports. It's too early to tell. We know what the goal is, but I think it'll take a few years to see how that plays out. But in terms of energy prices, the US still benefits from relatively low energy prices. Now in terms of moving from broader industry just to clean tech, which was the focus of the Biden administration's IRA legislation, a lot of the support there for clean hydrogen-

Coralie Laurencin:

Renewables.

Laurent Ruseckas:

Renewables, batteries, some of it has stayed, some of it has been repealed. So there were whole mountains of capital getting ready to be deployed in the energy transition in the US. And part of it has stayed, batteries have stayed, carbon capture and storage have stayed, but other parts of it have been removed. And so that was, in a certain sector, was a boom that was coming and now it's been put largely on hold.

Eklavya Gupte:

And maybe now moving to Europe. How is the investment in some of these sectors? Is there a lot of uncertainty still?

Coralie Laurencin:

So I think the first thing is Europe is still committed to the energy transition. Certain sectors are really doing very well. For example, power sector is decarbonizing very, very fast. If you look, it's 74, 75% decarbonized, if you include nuclear right now, and that's going to increase. So power, very decarbonized. If you look at other sectors, this is where we think you're going to need a little bit more time and that has an impact on the investments that we are seeing. There's less interest in investment in hydrogen. There's some questions around CCS, simply because of the costs of what they are. And if you combine that with the fact that there's not very much power demand at the moment, so all of this electrification of heat, electrification of transport, hydrogen, all that's delayed or late or happening slower, and that means that there's less power demand. So the need for these investment, at least in the power sector, is less. It doesn't mean the power sector isn't decarbonizing, it just means how much investment we'll see in this sector might be less than we would've thought a few years ago.

Eklavya Gupte:

Are other countries outside of Europe and the US also slowing the energy transition.

Laurent Ruseckas:

Well, maybe I'll start just for China. I think China approaches climate and energy from a different perspective, whereas they have sought to build and have succeeded in building a tremendous capacity, world-leading capacity in many of the things that you need to do the energy transition, whether we're talking electrolyzers for hydrogen or solar PV cells, they're starting to get into things like wind turbines as well, and obviously the big one is batteries for EVs and for storage. And so they're undergoing their own energy transition in China, but the focus of it is keeping the Chinese economy going. They've moved a lot of state investment from the property sector, which went through a bubble and moved that into manufacturing. China has driven, to a very large extent, the reduction in costs of especially of solar PV and now batteries that have supported the global energy transition.

So I mean, maybe I'll turn it to you to talk about Europe, but for the US now, looking at some of the, in the OBBBA as it's called, the legislation President Trump led to scale back a lot of the Biden administration policies, there are specific elements there to restrict Chinese goods coming in. And of course for Chinese EVs, which are starting to see more and more of them all around the world, they're simply not allowed to be imported into the United States. So US is going to cut itself off and try to forge another path and cut itself off from cheap Chinese clean technology. What about Europe?

Coralie Laurencin:

Yeah, Europe, it's a bit different. As you say, China has been a huge source of equipment for the energy transition, a cheaper source of equipment and a threat to EU industry. How Europe deals with this is not fully clear. I don't think there is the same clarity of vision as there is in the US at the moment. Certainly there is some willingness, especially in the area of cars, to ensure that the European producers of automobiles are protected in some way and that they are allowed to develop and to be able to compete in the European market and alongside, not instead of, I would say, Chinese automobiles. In terms of the rest of the energy transition kit, there are some discussions about should we look at carbon content? Should we be more restrictive? And this goes from, I think, the solar PV discussion is done and dusted. You can't go back on that, but what about heat pumps? What about electrolyzers? What about other kit? I don't think, as yet, the EU has decided. Finally, the cost issue is a big one. It might be that that will decide a lot of it.

Eklavya Gupte:

And one of the things we've seen, again, with the US, with Europe and even other parts of the world, is a slight rise in protectionist measures, whether they're tariffs, whether they're something like CBAM. So is energy policy globally going to see more protectionist measures coming in?

Laurent Ruseckas:

Well, I think at a macro level, what the Trump administration has done is they've changed the game completely. There was a consensus globally that free trade was good, we should have low tariff barriers, and protectionism was unusual and in many cases, it was legally constrained by a WTO that used to function properly. Now that's all gone. Other countries, protection has been appealing to a lot of governments at a lot of different times in history, but now they can all look to the United States and say, "Well, that's what we're doing now." So I think for sure, I don't know how it applies specifically to energy, but for sure that's the road we're on right now.

Coralie Laurencin:

Yeah, definitely in Europe. I don't think Europe is ready to say, "Oh, we're going all in for protectionism," but you do see a little bit of changes of how Europe wants to do things. So CBAM is obviously one and the EU, I think now because of what's happening in the US, is more confident and comfortable with having introduced CBAM.

Eklavya Gupte:

And maybe one question I wanted to ask was regarding Germany. One of the big things we've seen recently in Germany is this energy reality check, report. So maybe a little bit about how, has there been a big change from the new chancellor in the energy policy? Or again, is it similar to what you just mentioned, a bit of tweaking?

Coralie Laurencin:

So I mean, this is really interesting. It's a great question. I think we've heard a lot of very different things being said, but not a lot of very different things yet being done. So we have heard that maybe power demand's not going increase as much as we thought it could, but we haven't heard, oh, well therefore we need to edit the renewable energy targets or we need to think about the deployment of how much we need to align with this demand. And very recently, German government came out and said, "The carbon markets all well and good, but maybe it doesn't need to be net-zero in 2039," which is if you continue the trend that it's on, it gets to net-zero before 2040. And effectively what the German government is saying there is, "Let's give a little bit more breathing room to our industries."

They've also said, "Let's think a bit more about free allocation. How do we manage that?" So there's a lot that's being said, and it's all preparing the groundwork for discussions at the EU level because, so fine, the renewable auctions are very much a national topic, but a lot of these topics are EU topics. They need to be discussed and dealt with by 27 people in a room, a table and 27 people. And that's true for the carbon market. It's true for hydrogen definitions of renewable fuels of non-biological origin. So there's lots of things that Germany is thinking about, but it's going to take a really long time to do because it doesn't hold the pen. It needs to go through the EU.

Laurent Ruseckas:

And also you said before, Coralie, that Europe is still generally backing the energy transition. And when you read this document that German Energy Ministry has published that reviews and rethinks climate policy, if you come at it from perspective of the American approach and you think it's going to be this anti, no, it isn't at all. It's very moderate. It's saying, "We need to make some changes around the edges to make it more sensible, more affordable." But it's not at all saying, "We're backing away from the energy transition." I think the biggest thing driving the energy transition globally now is cheap solar PV and increasingly cheap battery storage and electrification. And on the basis of those being relatively cheap sources of-

Coralie Laurencin:

Competitive. Yeah.

Laurent Ruseckas:

Of energy, it'll proceed.

Coralie Laurencin:

And this is what's tricky for Europe, going forward. It's still very much committed to climate, but it doesn't feel it can take all of the costs as fast as these costs would need to be borne in the way to deliver these targets. So how does it continue decarbonizing without placing too much of a cost on its citizens? How does it pay for these measures?

Eklavya Gupte:

With solar PVs and a lot of these renewable products becoming cheaper, the environment for oil and gas, especially investing in new oil and gas, has not very lucrative, but we're seeing this change of narrative that you all have mentioned. So do you think there's going to be more investment or more activity in oil and gas?

Laurent Ruseckas:

Well, a lot of that is driven by the biggest oil and gas companies. And one thing that's been very clear over the course of the past five years is the oil and gas companies that have focused on oil and gas, their share prices have done a lot better than the ones who have explicitly said, "We're going to be transitioning to a different side of the energy business." And I think there's an acknowledgement now that, regardless of the pace of the energy transition and a lot of investment is needed, both for oil and for gas. Even for oil, which has a earlier plateau in terms of global demand, fields that are producing oil today are all declining, and you need to spend a lot of money to meet even demand, even if it's going to start declining at a certain point. For gas. We see demand growing well into the long-term, driven primarily by Asia, and driven, to a large extent, by coal to gas switching, which is of course very positive for the climate. So I think those companies will continue to invest.

Eklavya Gupte:

Thank you. Okay, listeners, that's all for this episode. I hope you found this conversation useful. And for additionally timely coverage of global energy policy developments, please make sure to check out many of the pricing, analytics and news offerings from S&P Global Commodity Insights. I'd also like to take a moment to recognize the Energy Evolution podcast team, including Taylor Kirkendall, Christopher Coats, Karen Wilbrecht, Dan Testa, and Camilla Naschert, as well as our agency partner, the 199, and the Commodity Insights digital content team. Also, don't forget to subscribe to Energy Evolution on your preferred platform to stay up-to-date with our future episodes. Thank you for tuning into Energy Evolution, and we'll see you next time.