High Energy Prices Has Europe Rethinking Energy Strategy

Power transmission lines in Emsland, Germany.
 Photographer: Krisztian Bocsi/Bloomberg
Pix Via U.S. Chamber

 by Sean Hackbarth, Contributing Author: Europe is realizing that reliable, affordable energy is critical to economic competitiveness, and policies that pick energy winners and losers can have unintended consequences. This stems from a New York Times story on how the European Union (EU) is rethinking how it deals with greenhouse gas emissions:

On Wednesday, the European Union proposed an end to binding national targets for renewable energy production after 2020. Instead, it substituted an overall European goal that is likely to be much harder to enforce.

It also decided against proposing laws on environmental damage and safety during the extraction of shale gas by a controversial drilling process known as fracking. It opted instead for a series of minimum principles it said it would monitor.

Europe pressed ahead on other fronts, aiming for a cut of 40 percent in Europe’s carbon emissions by 2030, double the current target of 20 percent by 2020. Officials said the new proposals were not evidence of diminished commitment to environmental discipline but reflected the complicated reality of bringing the 28 countries of the European Union together behind a policy.

The “complication” being that high energy prices is one factor that’s holding back Europe’s economic competitiveness.

Take Germany, which is undergoing a energiewende or “energy revolution,” an attempt to drop both nuclear and fossil-fuel energy use from its economy and rely primarily on renewable energy. The Economist explains this audacious goal:

Germany’s last nuclear plant is to be switched off in 2022. The share of renewable energy from sun, wind and biomass is meant to rise to 80% of electricity production, and 60% of overall energy use, by 2050. And emissions of greenhouse gases are supposed to fall, relative to those in 1990, by 70% in 2040 and 80-95% by 2050.

In order to ramp up electricity production, renewable energy is heavily subsidized. So much so that Germany has the highest electricity prices in Europe. As the London Telegraph reports, the result is that German companies are becoming less competitive:

Energy prices are 40% more expensive than in France and the Netherlands, and the bills are 15% higher than the EU average. Even though Germany’s energy-intensive manufacturing sector is given a break with reduced levies, industries such as chemicals and steel are among the hardest hit, with energiewende costs of up to €740m a year.

Ironically, since Germany is giving up nuclear energy, it must turn to new coal-fired power plants for baseload electricity when the wind isn’t blowing and the sun isn’t shining.

These kinds of unintended consequences happen when government stacks the deck for one type of energy source, especially one that’s not yet market competitive.

While Europe wades through its self-inflicted morass, this is also a lesson for environmental groups demanding that the Obama administration stop pushing an “all of the above” energy strategy (which has been lip service) and go solely down the renewable energy path.

Renewable energy has a role in a country’s economy. However, renewable energy that’s more reliable and competitive doesn’t come out of thin air; it needs innovation and investment, and both require a growing economy; and a growing economy needs dependable and affordable energy.

A sound energy policy is one that embraces America’s energy abundance and diversity. America’s energy security needs nuclear, coal, natural gas, and renewables, and a robust energy mix means more certainty for businesses to invest and grow.

Visit Energy Works for US to learn more about the Institute for 21st Century Energy’s proposals on making renewable energy more competitive and making America more energy secure.
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Sean Hackbarth is a policy advocate and blogger at U.S Chamber of Commerce. He is a contributing author at ARRA News Service.

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