“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
– F. A. Hayek: The Fatal Conceit: The Errors of Socialism (1988), p. 76.
The European Commission’s (EC) just-published Energy Roadmap 2050 (Roadmap) updates its last analysis (which I criticized here) of EU forced-energy-transformation projects to 2020 , as well as scenarios reducing greenhouse gas emissions to 80-95% below EU 1990 levels by 2050. The forecast is stated (postmodernism?) as coincident with the need for energy security and affordability.
As one should “follow the money” when it comes to political capitalism, one should “follow the assumptions” when it comes to any roadmap pertaining to a post-carbon-based energy world.
1. Renewables The share of renewable energy sources is projected to be 75% in gross final energy consumption and 97% in electricity consumption by 2050. Electricity is projected to provide a substantially increased share of final energy demand reaching almost 40% by 2050 versus just over 20% today. A chart on page 5 of Roadmap shows renewable targets of 40–60% versus the above-75% as reported on page 4.
Either way the renewables portion is unrealistically high.
2. Costs The costs involved are substantial. Cumulative grid investments alone could be 1.5 to 2.2 trillion Euros between 2011 and 2050 according to the Roadmap. Remember much of this will have to be front-loaded to provide the infrastructure to theoretically support the projected deployment of renewable energy sources, and could easily be under-estimated given the uncertainties of such long term projections.
To this must be added an amount in the same order of magnitude for the renewable generation plants. Then there is also the additional cost of duplicate capacity of conventional generation plants required to compensate for wind’s unreliable and erratic behavior. These very high costs are consistent with those I previously described here and here.
Interestingly, as part of the process, the EC saw fit to establish an ad hoc Advisory Group (Group) to provide independent, expert advice on the proposed Roadmap. The following is a brief review of this energy policy approach in terms of the Group’s report published in December 2011.
Ad Hoc Advisory Group for Expert Advice
The composition of the Advisory Group appears to be appropriately diverse, which it should be. From their report:
By the very nature of the Group’s membership, views on major aspects of the Energy Roadmap inevitably differed, sometimes strongly.
I am not familiar with most of the members, but I note the presence of David MacKay, the Chief Scientific Advisor to the Ministry of Energy and Climate Change in the UK. He is noted for his very rational book Sustainable Energy – Without the Hot Air. The Group chairman, Dieter Helm, holds a number of advisory board appointments in Britain and Europe. During 2011, he was a special advisor to the European Commissioner for Energy. Some earlier comments by Helm critical of EU energy policy can be seen here.
The Group made nineteen recommendations couched in reasonable-sounding general terms that would be expected from such a well qualified, high-level, diverse committee on a very politically charged subject.
The Group’s report shows about the same number (by my count) of caveats, the presence of which should give pause to anyone in the consideration of the EC’s revolutionary plan to overhaul energy systems. The use of the term “revolutionary” is not my characterization of the European energy policy: it is the EC’s own description in its “Background Paper”.
Among the more notable caveats are:
The IEM [Internal Energy Market] and the climate change package confront Europe with an enormous challenge, the scale of which is yet far from apparent to the general public (who will have to pay for the investments) and indeed to many governments. (p. 6 – emphasis added).
These enormous investments must be achieved whilst ensuring security of supply and protecting and enhancing the competitiveness of the European economy – in other words, all three objectives (decarbonisation, security of supply, and competitiveness) need to be met simultaneously (p. 7 – the emphasis is in the original text).
The price implications for consumers would need to be communicated and part of the role of the Roadmap should be to engage with the public on the full costs and implications of the radical transformation that decarbonisation implies (p. 4).
Summary of Caveats
The caveats extend across a number of categories and the following is a generalization of their impact.
1. Picking Winners
The Roadmap is very oriented to picking winners for reduced carbon technologies, specifically renewables and energy efficiency, over the period projected.
Given the period of four decades, a host of uncertainties, new technologies and changes in the nature of the European economy and society as a whole are likely to play out in ways that it would be foolish for anyone to try to predict.
There were very strong differences between members of the Group on the extent to which the Commission should be technology-specific in the Roadmap, especially in respect of renewables and energy efficiency.
There were very strong differences of opinion on the issue of additional intermediate targets. Some members expressed support for a rolling forward of the renewables and energy efficiency targets, highlighting impacts on investors and infrastructure implications. Others argued against such targets, highlighting the problem of “picking winners”, the need to take account of technical change, the role of gas, and the problems of lobbying and capture.
The issue of intermediate targets is an important one. If implemented, it would further reinforce in the ongoing policy direction the questionable approach of picking winners.
Also, the use of the term “Roadmap” was pointed out as a misleading characterization.
Some members of the Group considered the term “Roadmap” as overused, with various organisations giving the term very different meanings. The importance of considering a range of possible transition paths to decarbonisation has the corollary that there is no one single ‘Roadmap’, but rather many” (emphasis is in the original text).
A significant problem with picking winners, and thus relying substantially on their success, is the consequence of having restricted options in the event of their failure to deliver. This is particularly true in the critical energy sector, especially electricity, where long lead times are unavoidable for virtually all alternatives.
2. Coincidence of Objectives
As a reminder, these are decarbonisation, security of supply, and competitiveness. From the Oxford Concise Dictionary: coincidence – a remarkable concurrence of events or circumstances without apparent causal connection.
From the Group report:
Some members of the Group considered that intermittent renewable technologies may, if developed to a substantive or dominating share of the energy market and not complemented by appropriate measures, create issues in respect of security of supply, and for many members of the Group the problem of carbon leakage remains a substantive one, if other countries do not follow the EU’s lead.
The first part of the quote speaks to very valid concerns about the security of supply.
The second speaks to competitiveness, as “carbon leakage” refers to the negative impact of low-carbon policies on EU industries’ competitiveness leading to the export of industrial production to other countries that do not have equivalent carbon restrictions. The EU avoids the carbon emissions, but imports the related products from carbon producing industries elsewhere.
Again from the Group report:
The problem of carbon leakage is not limited to [competition from] China, India and the US. Leakage to countries on the EU’s borders was specifically mentioned, and in this context the importance of the ECT [European Energy Community Treaty] was emphasised. In the absence of appropriate policies and measures, energy intensive industries on Europe’s borders could evade the carbon reduction costs, and export their products back into the EU. Additionally, higher carbon electricity generation could be generated just outside Europe and then fed back in as and when the European-wide electricity grids develop.
3. Electricity Grid Changes
Much of the projected changes to the EU electricity grid are claimed to accommodate volatile renewable electricity production. I have previously commented on the folly of justifying such investments on this basis here. As noted above, the grid “upgrades” could also be taken advantage of by neighbouring countries to facilitate their export of more conventional generation to and within the EU. This would help somewhat to offset the risk to security of supply inherent in the EU electricity policies, but undermines one of the intended objectives of the Roadmap – decarbonization.
It is questionable what such networks will contribute. With wind and solar massively implemented across Europe, the grid “upgrades” provide nothing close to claimed geographic “smoothing” of their electricity production. As a result there is no realistic opportunity to tame their inherent unreliability and volatility by moving unwanted renewables production between different areas.
Also, any added “intelligence” could be used to inappropriately control use by customers. Apart from this undesirable rationing of electricity to accommodate the volatility of new renewables, there are increased severe cyber security risks and other problems associated with this approach as previously described here and here.
In respect of a number of European dimensions, members of the Group drew particular attention to first, the extent to which infrastructure was more cost effective if developed for the internal market as a whole. Insufficient attention has been paid to modelling a European electricity and gas transmission network linked to pan-European production sites (super grids), rather than solely considering links between the member states. Such modelling and the recognition of the impacts of technical change for grids should be explicit in the Roadmap and its role in implementing the IEM should be emphasised….
Second, the gains to security from interconnection, and hence the creation of considerable Europe-wide portfolio effects from new infrastructure, should be explicitly modelled in the Roadmap….
Third, the key role transmission plays in facilitating the development of renewables and support, given their intermittency and their locations (frequently not coincidental with the major load centres), should be incorporated into the scenarios and their implications.
4. PRIMES Model Issues
The PRIMES model was developed for forecasting, scenario construction and policy impact analysis up to the year 2030. It is a simulation used mainly to analyse, for example, impacts of carbon emission trading and of renewable and energy efficiency policies on energy markets within each of the 27 Member States. One obvious comment about this model is: what are the implications of extending this methodology further into a 2050 timeframe?
It should be stressed that it was not the job of the Group to comment on and critique in detail the PRIMES model, but rather to consider how it fed into the scenarios and the Roadmap.
The Group expressed a number of concerns about the model and its use.
Members of the Group raised a host of questions, and as a result a number of key points emerged. Essentially what matters is the assumptions that feed into the modelling of the scenarios, and the Group stressed the need for the Commission to be very explicit about these assumptions, as well as testing sensitivity to changes in these exogenous variables….
The Group was concerned about the transparency of the PRIMES work, and in particular the property rights in the algorithms and detailed internal workings of the model. Whilst assumptions were published, the model remains the private property of the National Technical University of Athens. The consequence is that independent parties cannot replicate the results. This is a commercial matter for the Commission, but members of the Group pointed out that it does have obvious consequences for the credibility of the Roadmap.
5. Incompleteness of Modelling Scenarios
By its nature the modelling process appears to have contributed to pre-determining outcomes.
There was also concern about the extent to which the scenarios chosen might be interpreted as the main or only ones the Commission was considering. Criticism was also made of the possible interpretations of the titles given to the scenarios, and that these might encourage the public debate to focus on particular technologies rather than the broader policy framework. By separating out scenarios, common themes may be lost….
The Group was concerned that under each scenario the implications for security of supply and competitiveness might not be fully explored….
A number of members expressed more general scepticism about the methodology, and in particular the wider tendency to structure the energy policy around these scenarios rather than a wider framework of policy.
6. Broader Energy Planning Needed
Extending the last quote above:
Members raised the question of domain, and the extent to which the Roadmap should focus on energy in the wider sense, rather than place too much emphasis on electricity. The view was expressed that decarbonisation of electricity was more straightforward than other energy sources and uses, and that the Roadmap should explicitly recognise all these other energy dimensions, rather than focussing exclusively on electricity. The role of transport – and in particular the electrification of transport – was emphasised by the Group, with significant consequences for the design and expansion of the electricity networks and almost complete decarbonisation of electricity production. The rationale for separate Roadmaps for transport and energy was therefore questioned, as was the provision of separate finances for the two sectors in the EU’s budgetary arrangements. Recognition of the wider role of the oil and gas sectors in the Roadmap and the avoidance of too narrow an emphasis on the electricity sector was stressed.
7. Market Considerations
In the Background Paper the Roadmap is claimed to be necessary to allow market forces to function.
The Group drew attention to the fact that most of the current low carbon technologies (notably wind and solar) were being supported outside the market, hence reducing the scope and role of the IEM due to be completed by 2014.
Helm has previously commented on this with respect to the 2020 energy policy as follows:
This is where the collision comes with the unbundling and competition agenda. To effect this radical climate change package, electricity systems need to be radically reformed. This requires planning and coordination. It also requires that the planning and coordination integrate generation, networks and supply. But it is at the core of the competition and unbundling agenda that systems are disaggregated and that policy is replaced by market prices and contracts. These two policy approaches—and the two separate EU packages—need to be reconciled.
Also in this category is the view on carbon pricing. The Group appears to acknowledge the need for some aspect of this.
The Group agreed that a carbon price was one necessary and crucial element in the transition, though there were different views as to how central it should be. Some members placed great emphasis on this market-based mechanism, and in particular its role in avoiding picking technological “winners”. Others viewed the role of the carbon price as one component in a package of technology-driven measures.
I personally question the use of carbon pricing because of the complexity of this issue. I suggest that it is fraught with considerable unintended consequences.
Also the EUETS (EU Emissions Trading System) was reviewed as a market-based mechanism.
Members of the Group considered the possible flaws in the EUETS design and some members of the Group expressed a considerable degree of scepticism about the future role of the EUETS. Others regarded the EUETS as central to EU climate change policy….
An alternative under consideration is to give special treatment under the EUETS to energy intensive industries facing international competition. Notwithstanding the appeal to some lobbyists and its broader political appeal, this approach has a number of obvious drawbacks, not only weakening the EUETS, but also implying higher reductions (and less permits) for the rest of industry.
Also from Helm elsewhere, the following:
So whilst a price of carbon is at the core of the package via the EU ETS, the politicians are reluctant to let the market sort out the cheapest option. Wind has its role, but it is not cheap. And it is a mature technology too, so it does not merit special ‘infant industry’ protection.
8. Assumption That Other Countries Will Follow the EC Lead
This is a critical assumption, which emphasizes the questionable foundation of the EC energy policy. The quote from the Group below should not be looked at in the limited geographic context as indicated.
“The Roadmap is being prepared on the assumption that other countries will play their part in addressing what is a global and not just a European problem. The implication is that the Roadmap will influence energy policy beyond the EU’s borders – in the Balkans, North Africa, Eastern Europe, South East Europe and the Caspian states. One member, stressing the importance of universal global access to electricity, regarded this as a core issue for the Roadmap.” (Emphasis is in the original text)
I do not see how one can overlook the cumulative effect of the many concerns raised for such a massive, revolutionary change in the vital area of energy:
One is reminded that, for at least the past 100 years, significant elements in Europe have a notable record of extremist, failed initiatives in many areas, including judicial, political, economic, racial and military affairs. The current EU energy policies should be seen as another example of questionable extremism.
This panel of independent experts has provided sufficient warning.