Magazine | February 24, 2014, Issue

Europe’s Green Collapse

The EU discovers that it needs affordable energy

Remember when the spin from environmentalists and the Obama administration was that renewable “green”-energy mandates and subsidies would help the economy create millions of “green jobs”? President Obama still trumpets, as he did in his first term, that “the country that harnesses the power of clean, renewable energy will lead the 21st century.” In 2009 he announced in his State of the Union address a plan to “double this nation’s supply of renewable energy in the next three years.”

Maybe he should be lecturing the Europeans. Not long ago nearly all the nations of Europe bought into this same dream of a green-energy free lunch as they legislated tens of billions of dollars in subsidies for solar and wind power while directly and indirectly taxing and capping carbon-based energy. These policies were set in motion about a decade ago to meet strict and self-imposed targets, begun with the Kyoto treaty, for reducing greenhouse-gas emissions. By 2030, the EU promised, its carbon emissions would be 30 to 40 percent below 1990 levels, adding that it would reduce them even further if other nations followed in its green footsteps.

But in recent weeks all of that has come crashing down. In January Brussels announced with little media fanfare that the EU is ditching their renewable-energy standards. What they whisper is that they are doing so as a matter of economic survival.

Under new rules, the EU will still set emission targets, but binding limits on each member nation will be lifted. This means that every country will have a financial incentive to cheat and allow its EU neighbors to pick up the carbon-cutting slack. The environmental ministers are trying to sugarcoat this as a minor setback, but green groups aren’t buying it, as they howl that the climate-change agenda may go up in smoke. They’re right.

The nation that is sprinting fastest away from the green-energy fad is the backbone of the European economy, Germany. Berlin says it will end lavish tax breaks for solar power. German manufacturers, most notably the steel and chemical industries, complain they can’t compete globally if they must rely on expensive green energy. In January, another German wind-energy company went bankrupt, and, before the EU had formally lifted the binding limits on emissions, economics minister Sigmar Gabriel announced that reliance on green energy could lead to a “dramatic deindustrialization” of Germany if such a reform weren’t passed.

Thanks to about $33 billion a year in government subsidies, Germany currently gets 25 percent of its electricity from wind and solar power, and that is scheduled to rise to 40 to 45 percent by 2025. Previously the Germans had promised to generate 80 percent of their electricity from renewables by 2050, and to meet that target would effectively ban the use of all conventional low-cost fuels, including coal and natural gas. But here’s the cold financial reality of these commitments: The EU admits that the cost of electric power in member nations is often 50 to 100 percent higher than in the U.S. “We have reached the limit of what we can ask of our economy,” Gabriel observed.

What seems to have wakened Germany, Britain, France, Spain, and other nations to the perils of the green-energy fad is that manufacturers are starting to move plants out of the EU and even to, of all places, the U.S. Volkswagen, major steel producers, and other landmark European manufacturers, including chemicals giant BASF, are in the process of moving jobs here, citing lower power costs. German Chamber of Commerce president Martin Wansleben was brutally frank about the impact of costly green-energy mandates: “The U.S. has become much more attractive to companies than Europe.” The main reason, he said, is America’s “lower energy costs.” That sentiment was echoed by one of the world’s leading energy experts, Daniel Yergin, who reported from the Davos Conference in Switzerland that this year competitiveness “was calibrated along only one axis — energy. And that measure is creating great angst for European industry.” EU industries now pay double the electric-power costs that the U.S. does, he reports, and this is largely “the result of a pell-mell push toward high-cost renewable electricity (wind and solar).”

While Europe was dumping tax dollars into the green-energy grinder, it fell far behind the U.S. in fracking and other new drilling technologies that have driven down natural-gas prices. Over four years the price of natural gas in the U.S. fell from $12 to $3 per mmBtu. None of the government planners ever saw it coming or could have imagined that fracking would do to the green industry what mobile phones have done to telephone poles. Here is a textbook case of how centralized industrial planning — or “government investment,” as we now say — usually leads to catastrophically wrong bets. While states like Texas and North Dakota are doubling and tripling their oil-and-gas production, and as the U.S. prepares to become a net energy-exporting nation by the end of the decade, Europeans have been forced to finally take a second look at hydraulic fracturing and horizontal drilling to stay competitive. These are the very technologies that a decade ago they thumbed their noses at as producing “dirty fuels.” The green movement is in a state of panic as Europe eschews windmills and eases rules against fracking in its effort to catch up with America’s substantial lead in modern drilling practices.

#page#Europe, in short, wants to frack. British prime minister David Cameron, elected as a conservative climate-change true believer, now warns his European brethren not to stand in the way of “cheap and predictable” modern energy sources. To be precise, he was talking about fracking and drilling, not building 300-foot-high wind turbines or installing solar panels on homes. This new thinking on the merits of “Drill, baby, drill” collides squarely with the anti-carbon religion of the past decade. In EU states with double-digit unemployment, jobs for citizens have just been made a higher priority than saving the planet.

Just as Europe is mothballing its green-energy experiment, the Obama administration wants the U.S. to fully embrace the green-energy future. After taking credit for America’s oil-and-gas boom, Obama in his 2014 State of the Union address said that climate change is “a fact” and that the U.S. must lead the way on green energy. He noted correctly that the U.S. has reduced carbon emissions, but he failed to point out that this is in large part because natural gas from fracking is displacing coal as a source of electricity. Coal also is getting cheaper, thanks to the competition from natural gas. Isn’t capitalism a wonderful thing? Obama wants a continuation of the wind-energy tax credit, and more subsidies to fund solar energy, electric cars, and biofuels, all of which are inefficient.

We’ve seen this movie before. In the late 1970s the Carter administration spent billions of dollars on renewable energy and projects such as the Synthetic Fuels Corporation (the 20th-century version of Solyndra). When Ronald Reagan deregulated energy markets in the early 1980s, the whole green industry went bust.

Despite warnings that we wouldn’t fare any better in this latest episode of taxpayer-funded green-energy “investment,” the U.S. got suckered again — into the renewable-energy fad. As many as half the states have foolishly chained themselves to costly renewable-energy standards. Since 2006 — alas, this started under George W. Bush — about $100 billion has been funneled from taxpayers to producers of renewable energy (including ethanol), though its contribution to total U.S. energy is still below 5 percent.

What saved the U.S. economy from replicating the Euro-industrial malaise was the entirely spontaneous oil-and-gas boom driven by technology and billions in investment from wildcat entrepreneurs like Harold Hamm of Continental Resources. The bountiful output, from the Eagle Ford shale formation in Texas to the Bakken formation in North Dakota to the Marcellus formation in West Virginia and Pennsylvania, was something that no one in government ever saw coming. Obama in 2012 declared that America was “running out” of fossil fuels just as we were discovering hundreds of years’ worth of new supplies of them. Mr. President, we aren’t running out of oil and gas; we are running into it.

The Obama administration acts oblivious to what has happened in Europe, and the president continues to tout green-energy “investment” as a top priority. This is called chasing the losers: spending for medieval energy sources like windmills.

Also suckered into the green-energy fantasy was big labor. It believed Obama when he promised five years ago that the $800 billion stimulus would lead to millions of high-paying green jobs in the U.S. Even the industrial unions joined the Left’s “blue-green alliance.” Either the union bosses didn’t understand or they didn’t care that the more radicalized segment of the green movement is at its core against industrialization. They partnered up with the Sierra Club and the Environmental Defense Fund, which are trying to put tens of thousands of unionized pipefitters, welders, machinists, and coal miners out of work. The unions failed to understand the cold reality that, as energy expert Chris Horner has put it, “you can build windmills with steel, but you can’t build steel with windmills.”

Perhaps the unions will wise up to what the fracking revolution means for industrial unions and their constituents, from tractor operators to truckers. The average oil-and-gas job pays $75,000 a year, and many fully trained blue-collar workers earn over $100,000.

Europe badly wants a piece of that action and is adapting to the reality that the U.S. and soon the world will be awash in cheap and abundant natural gas and oil. In this new paradigm, green energy can’t compete without a permanent umbilical cord to taxpayers’ wallets. “I don’t know any other nation that could bear this burden,” Germany’s Sigmar Gabriel said of green-energy mandates and subsidies. President Obama nonetheless wants the U.S. to give it a try.

– Mr. Moore is the chief economist at the Heritage Foundation and a Fox News contributor.

Stephen Moore is an economic consultant with Freedom Works and served as a senior economic adviser to the Trump campaign. His new book with Arthur Laffer is Trumponomics: Inside the America First Strategy to Revive the Economy.

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