In October, the governments of Austria and The Netherlands warned of the risk of a “great blackout.” Soaring natural gas prices, lack of security of supply, and a challenging outlook for pipeline deliveries from Russia made the governments exceedingly nervous about the chances of providing cheap and reliable energy for homes in winter.
However, an unexpected ally prevented an energy crisis in Europe and, ironically, it’s an ally that was banned in most European nations: shale gas.
While most European nations banned the exploration and development of domestic natural gas resources many years ago, the United States has plenty and competitive supplies thanks to the shale oil and gas revolution, which has made the country almost energy independent. Domestic natural gas production has exceeded U.S. demand by about 10 percent, according to Reuters.
There’s a lesson for the United States here. Many European energy policies have been ideologically directed, and massive energy subsidies and political intervention haven’t strengthened the competitiveness of the economy, secured energy supply, or even significantly reduced carbon emissions.
German Economy Minister Robert Habeck recently told Zeit, “We will probably miss our [CO2 emissions] targets also for 2022, even for 2023 it will be difficult enough.”
What has the European policy mistake been? To eliminate or ban cheap and reliable baseload energy (nuclear and development of domestic natural gas) and offset it with intermittent and volatile sources of energy—wind and solar—too early into a technology transition. This, when demand rises or solar and wind output declines, puts security of supply and competitiveness at risk because prices rise to all-time highs.
European power prices have risen to record-highs also because the cost of CO2 emissions—a hidden tax—has soared from 20 euros per metric ton to more than 80. Due to this hidden tax, European governments are collecting tens of billions of euros in tax receipts, and the burden falls on businesses and families.
Europe must understand that technology and competition achieve more in terms of reducing carbon emissions while improving competitiveness than implementing rigid and expensive political mandates.
The energy sector is key in decarbonization but won’t achieve it through constant intervention. To decarbonize, the best technological tool is a combination of natural gas, nuclear, hydro, and renewable energy. But renewables are intermittent, while consumption is continuous. While technology develops, Europe must ensure security of supply and affordable energy by making the most of all the possible options, incentivizing green energy and reducing costs for consumers.
Now that renewable technologies are competitive, the solution can’t come from central planning, restricted markets, subsidies, and regulatory patches. It must come, as in the United States, from tax credits that are gradually phased out, and competition in an open market, with transparent bilateral contracts.
Europe can develop its domestic resources and accelerate clean energy investment with rapid technology innovation. The word to achieve it is competition. It was a mistake to ban the development of natural gas resources, but an even bigger mistake to blame global gas producers for not selling cheaply a product that some governments have rejected. European nations can’t say to global oil and gas producers that they won’t use their products in 10 years, but meanwhile, producers must invest billions in development and export cheap and abundant energy.
Europe can promote competitiveness, lower bills, and advances in clean energy. All it must do is allow industries to find realistic and durable solutions and let markets work.
