EU Climate Policy Boomerangs: Subsidizes Coal, Gas

As I write, the Senate Environment and Public Works Committee is holding a hearing on climate policy. In his testimony, Dr. Benny Peiser, director of the UK-based Global Warming Policy Foundation, argues that the European Union (EU) badly miscalculated when it decided, in the early 2000s, that development of a low-carbon economy based on renewable sources would make Europe the world’s most dynamic, competitive marketplace.

As a result of Europe’s climate policies, energy prices have risen sharply, putting European manufacturers at a competitive disadvantage in global markets.

European energy prices are now more than double those in the USA.

Peiser discuss the effects of EU climate policy on two industries, chemical manufacturing and steel production. “While Europe’s high cost policies have become an existential threat to the long-term survival of the chemical industry, cheap energy is reviving the fortunes of the industry in the US,” he contends.

High energy costs contribute to Europe’s declining share of global steel production.

EU climate policies also inflate consumer energy costs, transfer wealth from low-income households to special interests, and intensify the problem of fuel poverty:

As wealthy homeowners and business owners install wind turbines on their land and solar panels on their homes and commercial buildings, low-income families all over Europe have had to foot the skyrocketing electric bills. Many can no longer afford to pay, so the utilities are cutting off their power. The German Association of Energy Consumers estimates that up to 800,000 Germans have had their power cut off because they were unable to pay the country’s rising electricity bills.

But at least EU policymakers are saving the planet, right? Nope. Energy-intensive goods EU countries can no longer afford to produce at home they increasingly import from overseas. When we factor in emissions ’embedded’ in imported goods, EU climate policy has achieved no net reduction in CO2 emissions.

And now the best part of Peiser’s testimony. Peiser reveals that EU subsidies for renewable energy have led — via the iron law of unintended consequences — to subsidies for coal- and gas-generation.

The increasing requirement of utilities to back-up renewable power has undermined the profitability of natural-gas-fired plants in much of Europe, leading to the widespread shutdown of combined-cycle gas turbine plants, which are among the cheapest form of low-carbon power generation.

This is not only, or even mainly, because renewables are subsidized. More importantly, “Every 10 new units’ worth of wind power installation has to be backed up with some eight units’ worth of fossil fuel generation,” and ramping gas up and down to balance intermittent wind generation is inefficient and expensive. Here are the results:

Gas-fired power generation has become uneconomic in the EU, even for some of the most efficient and least carbon-intensive plants. At the end of 2013, 14% of the EU’s installed gas-fired plants stood still, had closed or at risk of closure. . . . Almost 20 per cent of gas power plants in Germany have already become unprofitable and face shutdown as renewables flood the electricity grid with preferential energy.

And the most embarrassing boomerang: EU climate policies are promoting reverse fuel-switching — from gas to coal:

Ironically, the EU’s flagship climate policy, its Emissions Trading Scheme, has led to the collapse in carbon prices which is making coal-fired power plants much more economical than gas-fired power plants.

So to keep gas-fired generation in the game, the EU now has to subsidize it too.

“If you think this cannot happen in the US where gas prices are low, think again,” Peiser cautions.

New US gas-fired power plants face the same economic problems, despite low gas prices. As the share of intermittent renewables generation increases in the US, consumers will find that they have to pay through similar mechanisms to insure adequate back-up. . . .Essentially, twice as much generating capacity is needed just to deal with the intermittency of wind and solar energy. In some US state with high renewable mandates, this inevitable rise in cost could happen fairly soon.

Peiser sums up the EU’s dysfunctional — and unsustainable — climate policies as follows:

The EU’s unilateral climate policy is absurd: first consumers are forced to pay ever increasing subsidies for costly wind and solar energy; secondly they are asked to subsidize nuclear energy too; then, thirdly, they are forced to pay increasingly uneconomic coal and gas plants to back up power needed by intermittent wind and solar energy; fourthly, consumers are additionally hit by multi-billion subsidies that become necessary to upgrade the national grids; fifthly, the cost of power is made even more expensive by adding a unilateral Emissions Trading Scheme. Finally, because Europe has created such a foolish scheme that is crippling its heavy industries, consumers are forced to pay even more billions in subsidizing almost the entire manufacturing sector.