Europe’s Energy Market: Lessons From the 2021 Energy Crisis and Recent Shifts

Abstract

The upheavals that struck the energy sector in 2021 were predictable, as early warning signs had begun to emerge three years before the crisis. Each premise alone would not have led to a crisis if other premises had not accompanied it. Prices started to rise in the second half of 2021, because this year there has been a decrease in supply and an increase in demand due to the recovery of production in all sectors of the economy after the isolation caused by the COVID-19 pandemic. Many more factors influenced the decline in supply than the increase in demand. When demand-pull and cost-push inflation occur in the same period, prices increase several times. This study also examines how Europe’s transition to green energy occurs. A comparative analysis of the dynamics of green energy before, during, and after the crisis was carried out. This study explores the premises of the crisis and the lessons that Europe has learned. This study uses multiple methods (comparative analysis and time-series analysis) to examine the antecedents and factors that led to the record rise in European natural gas prices and assess the European energy market’s current state and trajectory (towards increasing the share of green energy). By examining the current state of the European energy market and overall trends, the study provides a comprehensive understanding of how the market has evolved since the crisis and what challenges remain to ensure long-term energy security and price stability. The article highlights the role of energy diversification, reconsidering EU strategies in stabilizing the market and accelerating the transition to a more sustainable energy system. JEL: Q41, Q42.