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When it comes to tariffs and their potential economic impact, the energy sector is not the first to come to mind. However, as European Union countries have been hit hard by rising energy costs in recent years, particularly following Russia’s invasion of Ukraine, high energy bills remain a sensitive issue for governments and citizens across Europe. For this reason, one of the feared consequences of the imposition of US tariffs is a return to uncontrolled energy prices, with tangible effects on domestic and industrial consumption and a general backlash for the entire European economic system, especially for those countries that are already more vulnerable to such dynamics due to structural problems. The balance that many EU member states have found since 2022, by giving up low-cost supplies from Russia and looking for new partners for the supply of oil and natural gas, could be upset again by the impact that the duties decided by Donald Trump will have on global chains, in a context of interconnection that does not only depend on geopolitical dynamics but also on the simple principle of seeking the best cost-benefit ratio. If the European Union also decides to respond equally to US duties, the advantages that have been created in recent years by importing hydrocarbons from the United States, in particular liquefied natural gas, could also disappear. This would clearly be a problem also and above all for Washington, which would lose its most profitable market, but at the same time this dynamic would leave part of the European industry dry, in a phase of difficult recovery following the various crises that have already characterised these 2020s.

Looking at specific sectors, the energy storage industry would face great challenges due to increased costs of components and limited access to low-cost suppliers, and this could as well slow the deployment of energy storage systems in Europe, which are crucial for integrating renewable energy sources into the grid and promoting the green transition all over the continent. Plus, as S&P recently stated, citing a Jefferies analysis, “the tariffs are expected to raise cost pressures on firms with US renewable energy exposure, leading to lower margins in the near term despite potential offsets from rising offtake prices.” According to analysts at Jefferies, Portugal-headquartered EDP Renovaveis could be the most exposed, alongside Denmark’s Orsted and Germany’s RWE, which also have significant US operations, both in onshore renewables and offshore wind. At this point, it is probably too early to have a general picture of the impact of US tariffs on the European economy, also considering the time that the 27 member states and the Brussels authorities will need to coordinate a possible counter-tariff response. The energy sector certainly risks a significant backlash and could need support from above to regain momentum in order to allow the green transition to continue in Europe. The European Commission has no interest or intention in taking any steps backwards on the issue, also considering what has happened in recent years in the automotive sector and the ongoing debate to smooth out as much as possible some previously set objectives. A U-turn on the energy transition for industry and consumption would be a very hard blow to the credibility of Brussels and its guidelines, as well as damaging to those who have already invested extensively to anticipate the times and reach the required targets.

Written by: Francesco Marino