European Decline '22: Gradually, Then Suddenly

Two stories dominate the headlines this week in Britain and Western Europe: Will Boris Johnson survive in Downing Street and power? And will the Russians invade Ukraine? They’re very different stories, but both are interwoven with the longer and ultimately larger story of the growing energy crisis in Europe and the world. It’s a larger story because economic growth, living standards, and even civilization itself depend on the availability of reliable cheap energy. It’s a longer story because the current crisis is the delayed outcome of feckless and irresponsible energy policies (camouflaged by dreams of Green utopianism) that European governments have been increasingly pursuing since the end of the Cold War.

A few days ago, Bloomberg’s energy correspondent, Javier Blas, tweeted out that day’s snapshot of the European energy situation:

EUROPEAN ENERGY CRISIS: It’s the kind of morning many feared: cold and windless. Germany is relying on coal for ~45% of its electricity generation (with gas doing an other ~15%). In the UK, gas is doing ~60%, and coal an extra bit. In the Netherlands, gas and coal are doing ~70%

— Javier Blas (@JavierBlas) January 15, 2022

Shocked? Alarmed? But wait. Maybe the Irish who pride themselves on their Green and European virtues tell a better tale? Alas, Blas continued:

Ireland is quite shocking: coal is accounting for 20 percent of power production this cold, windless morning; natural gas is doing another 45 percent, and fuel-oil (yes, you read that right) an extra 16 percent. In total fossil fuels are accounting for almost 90 percent of the country’s electricity now.

There were unhappy responses from the Green twitterati to these home truths along the lines of: Why not tell us about the days on which the sun shone and the winds blew and “renewables” generated lots of cheap energy? But they were missing the point. Renewables, natural gas, oil, coal, hydro, all generate cheap energy (nuclear does not). Except for renewables, however, the energy they provide is also reliable. That’s why they have to be on-stream when wind and sun fail and the energy that renewables then don’t generate has to come from other sources. That’s been happening in Europe a lot in the last few months.

Failure is, in fact, an option.

Why? Europe’s central problem is that its collective policy of switching from cheap fossil fuels to unreliable renewables can work only if the latter get large subsidies. These can be financed either honestly from the taxpayer in higher taxes or sneakily from the consumer in higher electricity bills. Either way they add to the cost of living. In addition, as economists used to know, planning such complex interventions to manipulate market signaling invariably goes wrong at some point and produces either a glut or scarcity. At present it’s scarcity. and therefore energy prices are soaring across the continent afflicting both the wise and the foolish virgins.

Almost all European countries are complicit in these failures. As often happens, though, the biggest countries are the most complicit because they are the most influential. They cause the problems from which everyone suffers.

Take Germany. Former German Chancellor Angela Merkel retired from politics in November last year amid glowing tributes as, in the words of the Economist magazine, “the indispensable European.” In reality she is the European most responsible for the wretched state of Europe’s energy market. She was responsible for five massive policy errors in her years in power, including refugee policy and opposition to reforming the Euro, but her two errors that  concerned energy now look the most damaging and the most consequential.

First, her decision to close down Germany’s nuclear power program—which she took “almost alone”—and replace it with energy from renewables has meant that coal-rich Germany uses more “dirty” coal to handle the problem that renewables don’t provide energy on schedule. It has also ensured that German energy prices are now the highest in Europe. According to one German source, household energy costs will rise by 37 percent by the end of 2022.

Auf Wiedersehen and good riddance.

Second, her determined support of the Nord Stream pipelines under the Baltic Sea over the objections of both Washington and Brussels, increased Germany’s and Europe’s over-reliance on Russian energy. And as we see in the current crisis, that enables Putin to use energy pricing and supplies as weapons against Poland and Ukraine—and to create a European political crisis by setting German economic interests (and now even needs) in opposition to NATO’s strategic unity and dividing the alliance.

It’s difficult to decide which of the two decisions has had the worse consequences.

By comparison French President Emmanuel Macron has a much easier problem to solve because his country “went nuclear” under previous presidents. As a result France has a far more reliable domestic source of energy in nuclear-power stations and is far less vulnerable to shortages of supply and price shocks in the international energy market.

But when prices are rising so sharply in those markets, as they are, France is not entirely invulnerable either. Its finance minister, Bruno Le Maire, warned that without official intervention of some kind, energy prices to the French consumer would rise by 37 percent this year which, inconveniently for the French president, is an election year. Macron has therefore imposed an energy price cap of four per cent.

It’s “naked unashamed populism” according to the Telegraph’s Ben Marlow who goes on to point out that Macron doesn’t want rising fuel prices to invite riots from the gilets jaunes in an election year—the election is due in April.

More to the point, it's a bad economic decision since it will encourage excessive use of energy, build up popular support for the price cap, and make it difficult to abolish it, even after the election, because that would mean accepting responsibility for a large rise in electricity prices. As long as it lasts, however, its huge costs will be borne by the state-supported nuclear supplier, EDF, its investors, the taxpayers, and ultimately by France’s nuclear industry which needs more capital investment to update the very ageing power stations that give France its energy advantage over other European countries. But Macron can afford it, and since he might win an election by doing it, he didn’t hesitate.

Suicide, she wrote.

Boris Johnson can only envy him. He is facing the political crisis of a lifetime amidst an economic crisis of rising energy prices and shrinking energy supplies. That  is the cumulative result of successive governments which pursued the dream of total decarbonization while failing to invest in an energy security guaranteed by many sources of supply, in particular domestic sources of reply as in France. Theresa May inherited the policy of Net-Zero decarbonization but she then made it worse—more expensive and requiring greater sacrifices from the voters.

Boris himself is similarly culpable because, having originally supported the fracking of natural gas—which is plentiful in Britain and the surrounding seas, the greenest fossil fuel, and possesses numerous other advantages—he junked the commitment to license its development in 2019 to win Green votes. He needs his government to reverse that decision if the lights are to stay on and the gas heaters to warm Britons through the winter. If not, he'll be out in the cold himself, perhaps as soon as next week when the Gray Report is slated to be released.

The larger lesson was delivered by Lord Frost, the cabinet minister who negotiated a mainly favorable Brexit deal for Boris, via an interview with the London Times this week: Boris needs to immediately clear out “all the neo-socialists, green fanatics and pro-woke crowd” in Downing Street if he wants to save his premiership. Lesson? Personnel is policy.

And if Boris doesn't keep in Number Ten, the same lesson will need to be read to his successor. Europe's energy policies are a recipe for destroying governments. So far the governments don't seem to have realized that.