The European Energy Review has published a comprehensive article on the EU energy policy, entitled “Europe’s green energy chaos” by Andrew MacKillop (sometimes appearing as McKillop), an independent energy analyst and project advisor who has written on energy topics for over 35 years, and who worked for the European Commission’s Directorate-General of Energy as a policy expert in the 1980s.
EU policy can be summarized as 20-20-20 by 2020. Catchy isn’t it? It means 20% improvement in energy efficiency, 20% reduction in emissions, and 20% use of new renewable energy sources – all by 2020.
When publicized, the EU plan was (properly) criticized by the Economist and Dieter Helm, the chairman of the ad-hoc committee established by the EU to provide expert advice. MacKillop’s critical analysis of the current problems of government-heavy energy policy is spot on.
Government Planning in the Name of Markets
The EU energy plan inverts free markets and industrial government planning as discussed by MacKillop:
The climate and energy package makes heavy use of the notion that by preventing pipelines, power transmission lines and electric power stations being controlled by one company or entity, even if this entity is publicly owned and accountable to all democratic procedures for its control, will enable a “free market” that will create an upsurge in activity by small businesses who will gain entrance to the market. The usual way this notion is sold to voters and to the public is the claim this will automatically produce cheaper energy and more jobs, with additional climate and environment protection frills thrown in as needed.
In reality, the climate and energy package favours large industrial conglomerates in the energy sector and, as we know, Europe’s energy market liberalisation since 1996 has coincided with some of the largest energy price rises for final consumers in recent history.
The ideological basis of the energy and climate package remains highly schizophrenic: on the one hand the initiatives are rigorously federalist, integrative and convergent, on the other they are rigidly free-market oriented. The results “on the ground” are however not perceived as positive by the majority of European citizens and increasingly by European national governments, who are more and more opposed to what they see as an unholy alliance between Brussels bureaucrats and profit-gouging, subsidy-gouging private corporations.
Political capitalism writ large, very large. Shades of Enron and government!
The article reports on the failures of the key elements of the energy policy as indicated in the following sections. Extensive quotes are used because MacKillop describes the situations so eloquently.
But this whole CO2-trading scheme seems to have had very little effect so far. The basic objective of cutting CO2 emissions in Europe was in reality more easily obtained by outplacement, delocalisation and deindustrialisation, economic recession and rising unemployment.
How realistic and effective is this climate policy? First of all, it should be noted that the EU27 countries have only significantly cut CO2 emissions on a year-by-year basis during sharp economic downturns, most recently in 2008-2010. During periods of growth, most recently 2004-2007, EU27 emissions increased with economic growth ….
All of these technologies and systems are capital intensive and generate few jobs. In addition, notably in wind power and solar power, European producers are exposed to rising competition from China and India, and Europe’s “green tech” industries are quick to shed their few employees when market conditions sour or government subsidies dry up.
This, or the often used other name the “smart grid,” is not realistic for the foreseeable future as previously discussed here. MacKillop says:
It is nice to talk about “power system integration and 24/7 trading of electricity across Europe”, but before this can become a reality, it is necessary to build a real world European power network, and the costs will be extremely high, if it ever happens. Large capacity on-demand and all-year power transport systems, nicknamed the “Super Grid”, are hugely expensive.
The Commission itself, and ENTSO-E (the electric power transport operators group) indicate that some 40,000 kilometres of new high capacity, low loss, “high tech” power grids are urgently needed and must be built in Europe – at costs as high as 10 million euro per kilometre, i.e. a total cost of €400 billion. Actual current work on the ground in most countries is low or zero, mainly because of the high costs.
Wind plants are the main focus for solutions. Not reviewed is the notable positive correlation in wind plant production across Europe. Even zero correlation would not help substantially. In order for one area’s wind production to offset that of another, significant negative correlation would be needed to justify the large investment required. Where is the unwanted and erratic wind production from any area going to find a willing recipient?
As with the “smart grid” issues, the matter of unmanageably high costs (multiples of $trillions) for little return has been dealt with here. MacKillop’s article says:
In the meantime governments spend massive amounts of money on renewable energy. The main pillars of the EU’s electric power programme are wind power and solar electric power, with as much as 67% of all electric power spending in Europe to 2030 (some €540 billion on a total amount presently estimated at around €900 billion) supposedly going only to these two sources and systems.
This would presumably be through the free play of market forces, but in reality will need extremely high and constant government or EU subsidies, grants, tax exemptions and other aids that have nothing to do with the free market. In particular these include feed-in tariffs (FITs), with state guaranteed prices as high as 20-25 eurocents per kWh for solar power and 16 eurocents per kWh for wind electricity being paid to producers in some countries. These FITs have become increasingly controversial in most European countries, because of their high cost, and are being cut back to a large extent – which will inevitably constrain activity in European wind power and solar power, cause job losses, and cause delocalisation and outplacement outside Europe of manufacturing activity in these two sectors.
Total spending requirements to 2030, for wind power and solar electricity could easily exceed €2000 billion, including the obligatory and massive upgrading of Europe’s electric power grids, according to my analysis of the likely costs, if the policy package continues and is not heavily reformed, or simply abandoned.
MacKillop concludes with the following and calls for a much-needed plan B.
In many countries and in the EU itself climate and energy policies and programmes are already being adjusted or abandoned. This includes the downsizing or cancellation of plans for biofuel production (especially food crop based bioethanol), reduced plans and incentives for massive offshore wind farm development, delays in investments in large-scale electricity grids and interconnections, including so-called smart grid projects, and reduced subsidies and lower feed-in tariffs for solar and wind power.
By and large, Europe has become realistic about offshore wind. To date, Germany has installed much less than 1% of the offshore wind plants projected in 2005 by dena, the German Energy Agency. After initial installations, Denmark stopped implementation in 2003. Against this weak showing by other European countries, the UK has become the leader in offshore wind. Recent stirrings in Denmark and Germany can easily be attributed to a need to stay ahead of the Chinese whose competition in onshore wind is formidable.
Internationally recognized energy experts have already provided the basis for a plan B. This is a major discussion in itself. Those wanting some insights can refer to:
My analysis of their general theme is that we have to make the best use of our existing energy sources in the short to medium term of up to 30 years or so. In so doing, it is essential that we make substantial improvements in extraction means, efficiencies of energy conversions and intelligent use. Many others have written on similar approaches, but these are particularly notable.
In particular, the following quote is a very brief encapsulation of Smil’s views, which I strongly suggest must be understood within the broad context of his writings:
Gradual transition to a civilization running once again on solar radiation and its rapid transforms (but now converted with superior efficiency) is the most obvious solution to energy-induced global environmental change… Such a transition cannot be fast or easy because it will amount to an unprecedented test of worldwide socio-economic arrangements. [vii]
Growing awareness of the substantial flaws of the EU energy policy aside, the present wide-spread European sovereign debt default situation is likely to overwhelm these considerations. The result could be an enforced return to reality in the energy industry sectors, but this is small comfort in terms of the larger economic dislocations that will likely occur in the near term.
One has to ask how much a sensible, realistic European energy policy starting in the latter part of the 20th century might have averted some of the current financial stress, in at least some countries most at risk now, for example Spain. Further, more sensible energy policies would likely have provided more maneuvering room today for the other members of the European Union to rescue consequently fewer countries from the other causes of the current financial crisis.
It is not just the Europeans that are going to suffer the consequences.
[iv] European Energy Review (2011). “The Eurovision Energy Contest 2050”. http://www.europeanenergyreview.eu/site/pagina.php?id=3006
[vi] MacKay, David. “Sustainable Energy: Without the Hot Air”. http://www.withouthotair.com/