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November 7, 2016

European Energy Policies: A Blueprint for Failure

November 7, 2016
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Many Democratic politicians (President Obama, former Secretary of Energy Stephen Chu, and Senator Bernie Sanders, to name a few) have promoted the U.S. adoption of European energy policies. These policies include reducing fossil-fuel power plants, providing more subsidies for renewable energy, taxing carbon dioxide emissions, and increasing taxes on energy consumption. While these policies may be exactly what these politicians want—to increase taxes and to lower carbon dioxide emissions—the end result is lower gross domestic product (GDP), fewer jobs, and lower household income. European energy policies makes energy less accessible and more expensive.

To demonstrate this with numbers, the U.S. Chamber of Commerce initiated a study to evaluate the impact of European-style energy policies on the United States economy and energy sector. The study found that those policies would result in a $700 billion annual loss to the U.S. economy, almost 8 million fewer jobs, and have Americans pay an extra $4,800 per year on the energy they need to heat their homes, commute to work, run their appliances and enjoy their TV and PCs.[i]

U.S. Chamber of Commerce Report

The study looked at 4 major differences between the EU and US energy systems:

  • EU’s more generous subsidies for otherwise uneconomic alternate energy technologies
  • EU’s restrictions that inhibit access to low-cost, existing electricity supply and potentially abundant oil and gas supplies
  • EU’s policies that impose a tax on carbon emissions
  • EU’s higher taxes on energy consumption

For example, the study found that EU’s electricity, natural gas, and motor fuel energy prices over the past several years have ranged between 1.6 to 2.4 times higher than U.S. prices. The following graphic depicts this difference for gasoline prices, which are 2.4 times higher in the European Union than in the United States.

screen-shot-2016-11-07-at-12-28-33-pm

Source: http://www.energyxxi.org/sites/default/themes/bricktheme/pdfs/EU_Report.pdf

Examples of restricting access to lower-cost energy supplies include Germany’s plan to replace all its nuclear units with renewable energy (wind and solar power), which increases electricity prices. Germany’s residential electricity price is 3 times higher than the U.S. residential electricity price. Also, several EU countries are banning the use of hydraulic fracturing which has resulted in less development of EU oil and gas resources and greater dependence on imports, much of which comes from Russia. EU imported 70 percent of its natural gas in 2014 and 88 percent of its crude oil. That compares to 4 percent and 27 percent, respectively, for imports of those products into the United States.

screen-shot-2016-11-07-at-12-29-50-pm

Source: http://www.energyxxi.org/sites/default/themes/bricktheme/pdfs/EU_Report.pdf

When it comes to renewable energy, the European Union has outspent the United States by a factor of 2.3. Between 2005 and 2015, the EU spent more than $750 billion in renewable energy, compared to $330 billion for the United States. While some EU countries have garnered a substantial amount of generation from renewable energy, such as Germany, it has not come cheaply. In Germany’s replacement of nuclear power with renewable fuels, the country charged its consumers with a renewable fee, which in 2014 accounted for 21 percent of the average consumer’s bill. Further, wind and solar are intermittent technologies, whose output cannot be controlled by the system operator. As a result, Germany has had to back-up the power with fossil fuels, predominately coal, increasing its greenhouse gas emissions.

In 2005, the European Union instituted the ETS—the world’s largest cap-and-trade market, which requires electric utilities and industry to have allowances that cover their greenhouse gas emissions. Allowances are bought and sold on the open market; the cost of the allowances is added to consumer prices. In 2014, carbon dioxide prices averaged $6.47 per metric ton, which added a 17 percent premium on the average, wholesale cost of electricity in Europe. The carbon tax penalizes carbon-emitting technologies (those fueled by fossil fuels) and thereby provides an additional subsidy to renewable energy.

Further the European Union has the highest overall tax rates on energy, which is based on the EU Energy Taxation Directive of 2003 that sets minimum tax rates for a range of energy commodities. The end result is higher prices for consumers and business. The figure below compares the effective energy and carbon dioxide tax rates in a number of European countries and shows that the rates are about 20 times higher than in the United States. For example, in 2013, EU countries taxed residential electricity rates at an average of 31 percent. (The UK’s tax was only 5 percent, but Denmark’s was 57 percent.) Gasoline taxes in the EU averaged $3.36 per gallon—almost 7 times higher than in the United States and diesel taxes averaged $2.38 per gallon—4 times higher than in the United States.

screen-shot-2016-11-07-at-12-31-08-pm

Source: http://www.energyxxi.org/sites/default/themes/bricktheme/pdfs/EU_Report.pdf

Impact of EU Energy Policies on the United States

Instituting the above policies would result in a $676 billion hit to the residential sector and a $31 billion hit to the industrial sector every year. The average household would spend $4,800 more on energy each year. The increase in residential energy prices would eliminate 7.7 million jobs and the increase in industrial energy prices would result in a loss of 273,000 jobs.

The study also examined the impact on several states. For example, the gross state product of Florida would drop by $28.5 billion, Illinois’ gross state product would drop by $17.4 billion and Ohio’s would drop by $14.8 billion. The annual job losses for the states would be: Florida, 377,400; Illinois 201,200; and Ohio 187,200. The table below shows the results for several states.

screen-shot-2016-11-07-at-12-32-24-pm

Source: http://www.energyxxi.org/sites/default/themes/bricktheme/pdfs/EU_Report.pdf

Conclusion

Over the last 8 years, President Obama’s goal has been to move us closer to European policies and prices. The agreement that he made in Paris has the United States committed to reducing between 26 and 28 percent of our carbon dioxide emissions below 2005 levels by 2030. That commitment and the policies to get us there will increase energy prices. As the Chamber of Commerce report shows, higher energy prices will have a negative impact on the economy, lowering GDP, creating fewer jobs, and lowering household income.


[i] U.S. Chamber of Commerce, What If the U.S. was forced to pay EU prices for energy?, October 2016, http://www.energyxxi.org/sites/default/themes/bricktheme/pdfs/EU_Report.pdf

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  • josephtoomey

    The Chamber would have been well to consider a fifth factor, the higher energy intensity of the American economy due to the far lower population density. Because the U.S. is about one fourth as population-dense as Western Europe, workers, shoppers, travelers, goods shippers, and so forth must traverse far greater distances, on average, than their European counterparts to achieve their ends. These ends are accomplished through energy-intensive activities. It is that factor which helps explain why public transport is less economically warranted than rail and bus systems in Europe, because system utilization and freight/passenger density is far higher on a per ton-mile basis, and thus far more economically feasible.

    The Chamber would have also been well advised to consider that Europe is far less blessed with hydrocarbon resources. America, possessing the largest hydrocarbon resources of any nation on earth, has in the past and soon will again satisfy more than 100% of its primary energy consumption with domestic sources of supply. It is difficult to overstate how crucial that fact is to prospects for sustainable economic growth. In 2015, America met more than 90% of its primary energy needs from domestic sources. That’s an improvement from about 69% in 2005. Wind and solar accounted for almost nothing toward that achievement. Nearly all of the improvement was due to enhanced hydrocarbon resource development.

    The Chamber might also have cited the EU’s long-range strategic plan of utilizing climate change politics as a mechanism to level the economic playing field that absence of domestic hydrocarbon resources poses for the Community. The EU was the driving force behind the Kyoto treaty limiting emissions of CO2 by signatory nations. Ever wonder why Kyoto signatories are obligated to reduce emissions below 1990 levels? Why not 1995 or 2000 levels for that matter? Why was 1990 such a magical year? To answer that question is to gain an appreciation of the scam that underlies the EU’s intense support for the Kyoto Protocol and its various hoped-for successor agreements — Johannesburg, Poznan, Copenhagen, Durban, Paris, Marrakesh, etc.

    Without a doubt, the EU has been at the forefront of global climate advocacy, hoping to force adoption of the emissions reduction targets to levels below those in place in 1990. In the year 1990, Europe was in the throes of geopolitical chaos as the regimes of Eastern Europe had begun collapsing, an event touched off by the dramatic dismantling of the Berlin Wall in November 1989. At that time, all of Eastern Europe was still operating under the Soviet production model characterized by massive-scale state-run electrical generation and industrial combines powered by hugely inefficient coal-burning plants. Eastern Europe emitted enormous quantities of CO2 from these inefficient, world-scale plants that consumed copious quantities of coal while generating only modest amounts of electrical power per ton of coal consumed compared to their far more efficient Western counterparts. After the collapse of the Soviet Bloc and economic integration with Western European countries, many of these highly inefficient, uneconomic, state-run plants were shut down in favor of vastly more efficient generation plant and industrial power technology in the West. The EU, during the Kyoto Protocol negotiations, was adamant that the target emission reduction baseline year should be 1990. They were equally adamant that all of Europe be counted as a single entity for compliance purposes. Under the terms of Kyoto, Europe received the credit of CO2 emission reductions that had already taken place by the shuttering of obsolete Soviet-style power and industrial plants whose closures had had absolutely nothing to do with climate change policy. To its EU designers, Kyoto was strictly about obtaining an economic advantage over global competitors. Being largely deprived by nature of bountiful supplies of hydrocarbon resources with which countries like the U.S. are blessed, Europe would forever find itself at a disadvantage if it had to rely upon far more expensive renewable energy.

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