Energy Poverty and “Dramatic Deindustrialization”
“A Blunder with Ugly Consequences”
We don’t have to imagine what it would be like if we dramatically cut our fossil fuel production and use here in America. Europe has already moved forward in doing just that, and the results have been painful for European Union businesses and workers. As a result of higher prices, much of Europe is now backing off their decarbonization plans as a means of economic survival. We would be wise to learn from their mistakes.
The European Union set ambitious (that is, impossible) targets for the reduction of carbon emissions. To facilitate such reductions, the EU established a carbon emissions trading system, which has been ineffective and rife with corruption.1 As the Financial Times put it, “Europe made the wrong bet on renewables.”2
Those who believe that industrialized countries can, within a few decades, move from complete dependence on fossil fuels to reliance on wind and solar power need to look closely at the debacle in Germany and the United Kingdom, home of Europe’s most radical green energy policies. Pursuing the goal of virtually eliminating fossil fuels within three decades, these two prosperous, educated countries have embarked on the first energy regression in human history.
The leaders of these countries boast of their green success, vaguely admitting the need for some “adjustment” going forward, but the economic damage and human suffering are impossible to conceal. Major European and American newspapers and periodicals have called Germany’s radical rush to renewables “environmental lunacy,” “a blunder with ugly consequences,” “a green energy basket case,” “a false bet,” “a systematic industrial massacre,” and “a suicide wish.”3
German and British consumers now face electric rates two to three times the average American retail rate, while industries flee to countries with affordable electricity. The German Association of Energy Consumers estimates that hundreds of thousands of families, no longer able to pay their electric bills, are reverting to wood-burning stoves and meager illumination.4 However well-meaning, the green crusade has become a threat to the foundations of human health and welfare.
Green energy policies are a gamble that renewables can supplant fossil fuels without energy scarcity, economic decline, physical suffering, or increased geopolitical vulnerability. The German and British green mandates have demonstrated that wind and solar energy are incapable of performing the tasks that fossil fuels have easily handled on a vast scale in modern industrial economies.
Germany’s Energy Revolution: Money Grows on Trees
Germany’s self-imposed green energy goals—40 percent renewables by 2030 and the virtual elimination of fossil fuels by 2050—are the most extreme in Europe, based on a gross miscalculation of the cost of renewable subsidies and the engineering complexity of integrating large volumes of uncontrollable renewable power. Not only has this policy inflicted heavy losses on both renewable and conventional power companies, but coal-fired electric generation has increased, and along with it carbon dioxide emissions.5
Germany’s Energiewende—“energy transformation”—began in 2000 with subsidies for renewable electric generation and continued in 2011 with the decision to close all nuclear power plants by 2020, a hasty response to the nuclear disaster following Japan’s Fukushima earthquake that will deprive Germany of 25 percent of its reliable electricity, which is also emissions-free.
The escalating costs of Germany’s energy transformation have far exceeded the original projections. German taxpayers paid over $30 billion for renewable subsidies in 2014. The former minister of the environment Peter Altmaier estimates that system-wide costs could approach $1 trillion by 2022.6
The rising price of electricity is taking a heavy toll on the energy-intensive industries for which Germany is famous. In 2014, the Financial Times reported that Germany had incurred a net export loss of $67.6 billion because of high energy costs.7 Energy intensive industries are relocating to countries like the United States, with its low natural gas prices.
A Wealth Transfer from the Poor to the Rich
The costs of most green policies hit low- and middle-income families disproportionately; the wealthy don’t notice the extra digit or two on their energy bills. By design, Germany’s lofty Energiewende protects industry and spares wealthy homeowners, while the average consumer bears the brunt of the cost through high electric rates and renewable levies.8
The German plan subsidizes homeowners’ installation of solar panels, usually provided at a substantial discount or even free, and then subsidizes the sale of any excess household generation to the electric grid at a guaranteed price. Renters, however, who represent a much larger share of families in Germany than in the United States and tend to have lower incomes than owners, are not eligible for these benefits, which they underwrite with their green taxes.9 Dr. Benny Peiser of London’s Global Warming Policy Foundation testified to the U.S. Senate “that hundreds of billions are being paid by ordinary families . . . in what is one of the biggest wealth transfers from the poor to the rich in modern European history.”10 Forcing the poor to subsidize green energy for the rich is a step back from the progress that accompanied industrialization and made the modern middle class.
While most public officials in Germany stick to their story of a successful energy revolution, evidence of a “fatal blunder” mounts from the insiders responsible for carrying out the energy transformation. “Development and Integration of Renewable Energy: Lessons Learned from Germany,” a report prepared by the Swiss consulting firm FAA Financial Advisory, makes for sobering reading: “Over the last decade, well-intentioned policymakers in Germany and other European countries created renewable energy policies with generous subsidies that have slowly revealed themselves to be unsustainable, resulting in profound, unintended consequences for all industry stakeholders.”11
The problems with Germany’s energy transformation go beyond its reverse–Robin Hood economic effects. It is increasing the use of coal and wood and the very carbon dioxide emissions the project was supposed to eliminate. How did this folly come about?
The designers of Germany’s energy revolution overlooked some basic engineering realities about electricity. Modern systems of electric power have achieved phenomenal precision, efficiency, and reliability through the integrated operations of conventional power plants, electric grids, and transmission networks. As a former control engineer for Scotland’s electric grid put it, “There are two essential facts to understand about electrical power. It cannot be stored on any appreciable scale and it cannot be spilled. As a consequence, power must be produced as required instantaneously; any deviation affects system frequency . . . that sustain generation output.”12
Modern systems of electric power are built around “dispatchable”—or controllable—sources of electric generation such as coal, natural gas, and nuclear, which can deliver precisely the amount of electricity needed at the moment, meeting changing demand on the electric grid. Germany now gives priority to electricity generated from renewables, regardless of price or reliability. Weather rather than economics determines which energy source will send electric current down the lines, distorting energy markets. Whenever weather conditions permit wind or solar generation, that green electricity gets on the electric grid, while all conventional generators “stand down,” so to speak. Price, safety, and supply—the historical criteria for dispatch to the grid—go by the wayside.
The stability of an electric grid requires the instantaneous balancing of demand with dispatchable generation and the maintenance of stable voltage throughout the transmission system. Putting uncontrollable renewable power on the grid whenever available requires a totally different engineering system. Germany made a national policy decision to flood “unprecedented, extensive, intermittent and uncontrollable forms of generation supply onto this unforgiving beast of a grid system.”13 In other words, the inherent intermittency and variability of wind and sunshine confound the engineering and economic foundation of modern electric power because the green energy sources cannot be controlled. Conventional electric generation by coal, natural gas, and nuclear fuels provides a continuous, steady-state flow of electricity that can be ramped up or down to meet demand. Fossil fuels and engineering controls have achieved an energy system that meets human needs. When wind and sunshine are the energy fuels, human demand has to adapt to whatever the variable renewables produce.
Wind and clouds constantly fluctuate, but the electric grid must be kept in constant balance in order to keep demand and electric current in balance. When it appears that the balance is weakening, grid operators can intervene to re-establish balance if they anticipate the need early enough and act promptly and correctly. Otherwise, the electric grid can collapse. In 2002, the operator of the German electric grid had to take exceptional measures to correct grid instability in only two instances. In 2013 after aggressive deployment of renewable generation, the instances of grid instability requiring intervention to avoid brown-outs rose to 1,213 instances.14 See Figure 9.1 on the following page.
Europe is finding out that it is nearly impossible to estimate the share of electric generation that wind and sunshine will provide. As Germany and Britain attempt to put more and more renewably generated power on the grid, it appears that twice as much generating capacity is necessary as a back-up source of power to deal with the variability of weather.
FIGURE 9.1
Germany: Interventions to Stabilize Electric Grid
Source: Tennet, Grid and Transmission Systems Operator in “Development and Integration of Renewable Energy: Lessons Learned from Germany,” Hans Poser et al, Finadvice.
An Inconvenient Truth: Green Energy Is Parasitic on Coal
The problem of back-up—or redundant power, as the engineers call it—is the fatal flaw in the future of renewable power under current systems. Imagine that your car had two fuel tanks, and you had to fill them both. One tankful of gas would be burned in your primary engine. The other tankful would be simultaneously burned in an auxiliary engine, an engine that doesn’t power your vehicle but is there in case your primary engine falters. You might waste the gas in the auxiliary tank, or you might have to use it sporadically and thus inefficiently. A car that got twenty miles per gallon would now get ten miles per gallon.
This is how the back-up for renewable power generation works. The back-up must come from controllable and reliable conventional sources of electric generation—coal and natural gas. Imagine winning World War II or resisting an increasingly bold Russia with an electric system that requires twice the energy needed for the task. But it gets absurdly worse.
The generous subsidies and dispatch priority given to renewables have made coal and natural gas power plants unprofitable. Remember that Germany imports most of its natural gas from Russia at two to three times the U.S. price. And many coal- and natural gas–fired power plants in Germany have had to close because they cannot compete with the green subsidies. To avoid black-outs, Germany now has to subsidize coal plants to get them back on line. Coal—the vilified fuel that the green scheme was designed to eliminate—becomes necessary to keep the lights on. Although German families and industries have spent hundreds of billions to support the energy transformation, emissions of carbon dioxide are rising not falling.
Negawatts: The Seller as Buyer
Germany’s green energy scheme rewards mass deployment rather than reliability, efficiency, and affordability.15 One of its strangest flaws is negative pricing, or “negawatts”—sellers paying buyers to purchase their product—an absurdity that results from the generation of electricity by wind or solar plants when it is not needed (e.g., in the middle of the night) or when the grid cannot handle it. Wind operators pay the grid to accept their electric power, although not needed, so the generator can get the subsidy. Because the generous tariff is earned only when wind or solar is actually generating power, renewable generators apparently can still make a profit when they sell negawatts—or more precisely when they pay the buyer to take what the buyer does not need or want. So much for the efficiency of a free market.
Most of the record-setting levels of renewable generation that Germany trumpets depend on negative pricing. On May 11, 2014, Germany reported that renewably generated electric power met 75 percent of the country’s demand for electricity on one day. That sounds like amazing progress, but the rest of the story is more sobering. Most of that 75 percent rapidly became negawatts that Germany paid other countries to accept because the German grid could not handle it.16 Paradoxically this is happening even though the cost of electricity is very high in Germany.
Whether a result of the designers’ energy illiteracy, wishful thinking, or ideological zeal, green schemes on the scale of Germany’s have been counter-productive and economically unsustainable. Rather than modifying the green goals and redesigning the system, it appears Germany is masking the problem by offering more and more subsidies.
The Cradle of Industrialized Civilization Goes Dark
Britain may not be far behind Germany when it comes to green woes. The Climate Change Act of 2008 commits the United Kingdom, over time, to renewable electric power on a scale comparable to Germany’s. British electric prices have accordingly risen to levels around twice those of U.S. rates, inducing German-style energy poverty. Before the British took their vow of carbon chastity, the power supply was never a problem, but as the renewable mandates devoured what had been a privatized, competitive electric market, electricity became scarce. In 2013, over thirty thousand winter deaths were attributed to energy poverty—an increase of more than 30 percent from the previous year.17 Citizens of the most prosperous and advanced countries in the world are freezing to death at home because of their government’s ideological commitment to generating power with windmills.
Energy scarcity in Great Britain and Germany is the result of a deliberate choice to dismantle a well-functioning system of modern electric power and replace it with a system that is more expensive, uncontrollable, and inadequate.
Conventional gas- and coal-fired plants have shut down in Britain—as in Germany, Spain, and other countries—because renewable subsidies make them unprofitable. Overly optimistic estimates of the amount of electric demand that wind and solar could meet, as well as escalating costs and delays, have eroded Britain’s reserve power supply, also known as capacity margin.18
For the first time since World War II, British subjects face the prospect of wintertime blackouts and power rationing. But instead of adopting pragmatic policies to reduce costs and increase the electric power supply, their government is telling them to learn to do without. Officials have urged the populace to schedule laundry and work according to wind conditions and cloud cover.19 The electorate, of course, will put up with only so much cold and inconvenience, so government has to resort to ever more elaborate subsidy schemes to prop up an insupportable system—paying major industries to reduce hours of operation, for example, and paying small business to use diesel generators. And Britain will soon, like Germany, have to subsidize coal plants to come back on line.
Back to the Forest
The European energy regression continues on an increasingly incoherent path. Spain’s early renewable programs, focused on solar power, suffered a major reversal in the brutal recession that began in 2008, but the confidence of the anti-carbon zealots is undiminished. Denmark, ideally situated for the generation of off-shore wind power, insists it can reach a zero-carbon electrical system in the not so distant future, but the Danes depend on nuclear power from Sweden and hydroelectric power from Norway to back up of their variable wind power system.20
The dirty little secret of Europe’s renewable programs is that the fuel most prevalently burned in its cutting-edge green energy system is wood—the pre-industrial fuel that limited man’s economic horizons before the Industrial Revolution. Around 50 percent of the renewable energy used in European countries to meet the EU’s goal of 20 percent renewables by 2020 is wood. Trees, woody sticks, and sawdust are now given the distinguished name “biomass” among renewable energy sources, and the sometime tree-huggers are now tree-burners. Even in Germany, home of the most aggressive wind and solar programs, wood accounts for 38 percent of renewables deployed.21 Poland, perhaps more savvy about the economic pitfalls of wind and solar power, uses wood to achieve 90 percent of its EU renewables obligation.
As a result of the EU’s extremely generous subsidy for biomass and a wholly political decision to declare wood a “carbon-neutral” fuel, a new-old firewood industry is thriving. On the basis of simplistic assumptions, the EU decided that the carbon released when a tree is burned can be completely offset by planting another tree. Burn a tree and plant a tree and you are carbon-neutral. The EU will even give you a tidy subsidy for burning a tree!
More serious analyses demonstrate that burning wood emits at least 40 percent more carbon dioxide than burning coal,22 yet the energy density of wood is less than half that of coal, and the power density of coal is hundreds to thousands of times higher than wood’s. The huge rise in economic productivity that was the distinguishing achievement of the Industrial Revolution hinged on the switch from the diffuse, weak energy in wood to the far denser energy in coal. The deforestation that results from using wood as a fuel eliminates an important function of trees as “carbon sinks,” absorbing perhaps 15 percent of man-made carbon dioxide emissions.23
In an article subtitled “Energy Lunacy in Europe,” The Economist noted in 2013 that wood made it to the EU’s green energy list because it is the only fuel by which European countries can hope to meet (on paper) the EU goal of 20 percent renewables by 2020. Wood also avoids the fatal intermittency of wind and solar generation. Existing coal-fired power plants can be reconfigured to use coal and wood or to burn all wood, but don’t bet on reducing emissions of carbon dioxide.
To understand this lunacy, follow the money. Big government’s idea of market mechanisms to reduce carbon includes many payoffs but nothing resembling a free exchange in a free market. The EU established generous subsidies for “biomass” (wood), independent of market prices and on top of profits.
Drax, one of Europe’s leading electric generators, plans to retrofit three plants to burn wood. CF Partners, the largest carbon trading firm in Europe, estimates that Drax could receive €550 million per year in biomass subsidies after 2016, substantially higher than Drax’s pre-tax profit in 2012 of €190 million. Does anyone wonder why Europe still struggles with economic growth?
In response to subsidies and high electric prices, more households are buying wood-burning stoves for heating and cooking. Germans purchased four hundred thousand wood stoves in 2011.24
Deforested in the long pre-industrial era, when wood was the only heating fuel, Europe now turns to imports from Canada and the southeastern United States to meet the renewed demand for wood. A new U.S. industry has emerged, producing tidy wood pellets (usually wrapped in fossil-fueled plastic packets) for easy export to the Old World. Global trade in the pellets could rise from ten to sixty million tons by 2020 according to the optimistic European Pellet Council.25 Burning wood for fuel has driven its price so high that European sawmills, paper companies, and furniture manufacturers are struggling to stay in business.
Save the World: Burn Wood
Europe is now burning more coal and wood in order to supplant fossil fuels with wind and solar. Will this absurdity ever reach a tipping point? The European Parliament and some member countries have sounded the alarm on these counterproductive and damaging programs, and public sentiment seems to be turning. A poll of Germans in 2014 found that 73 percent question the Energiewende, while 24 percent support the programs.26 The costs and the failures of the renewable initiatives are now undeniable but the Church of Climate Change is not yet interested in a change of dogma.
Consider an interview of the German minister of the environment, Barbara Hendricks, with CNN in late 2014.27 Although a study commissioned by the government recommends that Germany eliminate the main subsidies for renewables, Hendricks declared Energiewende an environmental and economic success, benefiting the average citizen and allowing Germany to make it through the global recession “relatively unscathed.” Germany is on track, she says, to meet its goal of reducing carbon dioxide emissions by 40 percent. One has to admire her optimism, since carbon dioxide emissions have been rising and Germany plans to bring on line ten more coal-fired plants as necessary backups. And remember that the lion’s share of the reductions in emissions claimed by Germany and eastern European countries are attributable to EU carbon credits awarded not for using more wind but for closing decrepit and dirty industrial facilities left over from Soviet communism.
It is difficult to determine what Germany has achieved in the area of renewable energy, so numerous are the accounting tricks available for masking failure. Hendricks claims that renewables now meet almost 30 percent of demand. Most official number crunchers, such as the IEA, arrive at a lower figure. The Germans’ number may be padded by including the generation sold by negative pricing to other countries when a surge of uncontrollable wind overwhelms the German power grid.28
After investing billions of taxpayer euros in the most radical green plan ever undertaken, the German people are left with ballooning subsidies, spiraling electric bills, energy market collapse, industrial flight to other countries, dependence on Russia’s natural gas, energy poverty, and the necessity of increasing coal-fired plants and unavoidably rising emissions of carbon dioxide.
Yet in Germany and other European countries, politicians seem incapable of admitting a mistake. So much money has been spent, so many political careers are at risk, and so much professional integrity and national prestige are at stake that the Europeans are not backing down. Instead, they would like to make their pain and suffering our pain and suffering with a global treaty on climate change. But remember that each country’s “commitment” to a specific amount of carbon cuts in the Paris agreement is a pledge that is not binding. Indeed, this weakening of the EU’s earlier insistence on enforceable commitments is a major reason why the Paris agreement is far weaker than the key players had expected. In the face of the mounting damage from Germany’s and Britain’s ambitious green schemes, the EU transformed renewable mandates into softer targets and goals.29 The increasing share of renewables intended remains ambitious, but it appears that each country’s effort to avert climate change will be voluntary.
The green energy fad has cost the Eurozone its competitiveness over the last decade. The process of force-feeding industry and households green energy has increased utility costs and in some cases crippled manufacturing production. In August 2014, the Wall Street Journal called the German renewable energy push the wrong gamble: “[M]any companies, economists and even Germany’s neighbors worry that the enormous cost to replace a currently working system will undermine the country’s industrial base and weigh on the entire European economy. . . . Average electricity prices for companies have jumped 60% over the past five years because of costs passed along as part of government subsidies of renewable energy producers.”30
Many European nations thought that the rest of the world would follow their lead when they went all-in for renewable energy, observes Daniel Yergin, an international energy expert. That has not happened.31 In fact, some countries have learned their lesson more quickly than Europe. In the mid-2000s, Australia imposed a carbon tax that was supposed to save the planet from rising oceans with no harm to the national economy, but in early 2015, citing lost jobs and higher production costs, Australia repealed the tax.32 The prime minister, Tony Abbott, admitted that the policy was a disaster for family incomes—especially those of the poor.33 A government spokesman also declared what seems obvious: “Getting rid of the carbon tax meant that household electricity bills have been reduced, and it makes us more internationally competitive.”34 Australia had hoped that decarbonizing its economy would bring a cascade of new investment and green jobs. It never happened. Instead, the plunge in oil and natural gas prices undermined the economic viability of wind and solar power in Australia.
Germany, France, Spain, and most other European nations have learned this same lesson the hard way. The United States would be better off learning it the easy way. Abundant, affordable, controllable, reliable, and versatile energy is the sine qua non of modern prosperous countries with upward mobility. As Islamist terrorism spreads, the Middle East roils, and Putin brandishes a fist, the last thing that freedom-loving countries need is self-imposed energy scarcity.