News Analysis
Reality is starting to intrude on the Group of Seven (G-7) nations’ ongoing campaign to dismantle the West’s oil and coal industry.
As leaders of the G-7—the United States, Germany, Britain, France, Italy, Canada, and Japan—gathered at the luxurious Castle Elmau in Germany’s Bavarian Alps this week, they were forced to acknowledge privately what now seems obvious to many of their citizens: The green energy industrial policy that they have been working relentlessly to impose on their economies has proven to be disastrous and is rapidly losing support among their electorates.
The G-7 pledged in a communique on June 28 its commitment to “a highly decarbonized road sector by 2030, a fully or predominantly decarbonized power sector by 2035, and prioritizing concrete and timely steps toward the goal of accelerating a phase-out of domestic unabated coal power.” They also pledged to build a “cooperative Climate Club,“ and said, ”We will work with partners toward establishing it by the end of 2022.”
The “decarbonized road sector” refers to an effort to compel people to buy electric vehicles (EVs). “Decarbonized power sector” refers to replacing fossil fuels with wind and solar in the electricity grid. The “cooperative Climate Club” refers to an agreement, first proposed by German Chancellor Olaf Scholz, for G-7 members to work collectively to devise policies, share information, reward countries that transition fastest to wind and solar, and punish slower-moving “free riders” whose industries don’t suffer as much from escalating fuel prices.
German companies have recently warned that they’re losing their competitiveness from having to pay so much for energy versus countries such as China that have largely sidestepped the transition to renewables, though it’s unlikely that China would be punished by the Climate Club.
Behind the scenes, however, there was worry and dissent within the ranks. On June 27, French President Emmanuel Macron pulled U.S. President Joe Biden aside to inform him that, despite all pleas to Saudi Arabia and the United Arab Emirates, the Middle East oil producers declined to boost output enough to make up for energy shortages in Europe. U.S. national security adviser Jake Sullivan quickly stepped in to stop the conversation, telling the two presidents: “Careful. Maybe we should just step inside … because of the cameras.”
Some G-7 members appear to now want to take a step back from their prior climate-change commitments. The commitment to end financing for fossil fuels was amended to a commitment to end financing for “unabated” fossil fuels; the term “abated” refers to production that includes some kind of simultaneous offset to mitigate greenhouse gas emissions. In addition, there was disagreement among summiteers over whether new investment in oil and gas could be acceptable as a “temporary response” to the “exceptional circumstances” created by the Ukraine war.
The current energy crisis, which has triggered price increases and shortages throughout the world, is partly the consequence of embargoes on Russian oil, and partly the result of decades of government industrial policy, working in concert with activist banks, pension funds, and asset managers such as BlackRock, to subsidize wind and solar power while suppressing oil, gas, and coal in the West, even as countries like China invest heavily in coal production. Some countries, including Germany, took their green energy policies even further, shutting down their nuclear power plants and placing an all-in bet on so-called renewables.
Consequently, when the West attempted to boycott Russian oil and gas following its invasion of Ukraine in February, it quickly became apparent that wind and solar were far from capable of filling the gaps. This spring, Germany was forced to backtrack on its “Energiewende,” the green energy industrial policy initiated in 2000, and revive its coal production to compensate for the loss of Russian natural gas and the failure of wind farms and solar panels to produce as expected, telling its citizens to cut back on their use of energy to ease shortages.
As the host of the G-7 summit, Germany was embarrassed by the revelation that it’s now relying on high-emission coal. German Economic Minister Robert Habeck said the decision to burn coal was “bitter but necessary.” Meanwhile, there was simmering discord between those G-7 members who wanted no pause in the transition to wind and solar, and those who have concerns that fuel shortages are sparking public discontent.
During the previous G-7 summit in May, environmental ministers pledged to phase out greenhouse gas emissions from their energy sectors by 2035. At that time, members also pledged that sales of EVs would exceed sales of gasoline-powered cars and trucks by the end of this decade, and reaffirmed their commitment to pay $100 billion per year to poorer countries to help them cope with climate change.
Speaking for the United States at the May summit, John Kerry, the U.S. special envoy for climate change, hailed the joint agreement by the group to end financing for “inefficient” fossil fuels.
“We do call on all G-20 countries now, and all other major economies to join with us,” he said.
Heading into the summer, however, the effects of green energy industrial policies, coupled with the Russian embargo, had taken a heavy toll on Western economies, including fuel shortages and record inflation.
The “exceptional circumstances” referenced in the G-7 communique include a 33 percent spike in annualized producer prices in Germany this month, together with a 148 percent rise in natural gas prices. Companies throughout Europe were faring little better, either boosting their prices to cover higher input costs, making them less competitive against foreign firms, or, in some cases, shutting down due to shortages.
The European Union is now predicting a contraction of its economy this year if Russian gas doesn’t start flowing again. Consumer purchasing power has fallen, and some analysts say that stagflation is on the way. There is talk of possibly rationing energy between companies and households this winter, and that state agencies may be choosing which companies are essential when doling out limited supplies of energy.
Amid their disappointment with wind and solar, European leaders are drafting plans to reclassify nuclear energy and natural gas as “clean” energy. Meanwhile, France has proposed ambitious plans for building up to six new nuclear plants, Belgium is rethinking its program to phase out its nuclear plants, and the Green Party in Finland last month issued a manifesto declaring its support for nuclear energy.
In addition to pausing, at least for the present, the suppression of new fossil fuel investments, summiteers declared in their communique that, if necessary, they would consider imposing “price caps” to “reduce price surges.” When governments impose price controls on an industry, supply is reduced and shortages ensue, often requiring further government intervention.
Despite his campaign pledge to “end fossil fuel” and his efforts since taking office to fulfill that pledge, Biden declared in a June 14 letter to oil company executives that, “there is no question that [Russian President] Vladimir Putin is principally responsible for the intense financial pain the American people and their families are bearing,” while also blaming oil companies for greedy, unpatriotic profiteering during a “time of war.”
On May 23, Biden said America’s historic price inflation is “an incredible transition that is taking place that, God willing, when it’s over, we’ll be stronger and the world will be stronger and less reliant on fossil fuels.” At the same time, White House press secretary Karine Jean-Pierre criticized U.S. oil companies for failing to do their “patriotic duty.”
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