Quantifying the value of energy security: How Russia's invasion of Ukraine exploded Europe's fossil fuel costs

Abstract

What is the value of energy security? Fossil fuels are subject to interruptions or major price swings based on wars or other geopolitical events. Here, we analyze multiple dimensions of energy security, and quantify the energy security risks of geopolitical volatility in a specific case: we estimate how much Russia's invasion of Ukraine increased Europe's fossil fuel costs above normal. For the excess market costs, we count only the fuel costs beyond our estimates of the counterfactual costs. We find that Europe spent an extra €517–831 billion in excess market costs due to higher prices in the period October 1, 2021, to December 31, 2022, with a best estimate of €643 billion. European governments also announced an additional €908 billion of fiscal spending on energy-related infrastructure and policies. These two categories of costs are not fully commensurable, but the total fossil costs appear over €1 trillion. We then compare these costs to two reference points: Europe's direct material aid to Ukraine in 2022 and the costs of more rapidly decarbonizing Europe's energy system.