European Union officials are preparing to implement their so-called Energy Union strategy this year. I have asked ExxonMobil Gas & Power Marketing president Rob Franklin, a native of the United Kingdom, to offer his thoughts on the direction leaders should take. ~Ken
More than 300,000 German households see their power shut off annually due to unpaid bills, according to an article in Der Spiegel. Given that the average German household electric bill has doubled since 2000 with numerous government fees, surcharges, and taxes, it’s no wonder consumers are struggling. As the article suggests, electricity has almost become a “luxury good.”
Meanwhile, throughout the broader European Union, wholesale electricity prices are 30 percent higher than in the United States.
Why do these numbers matter?
Because the European Union may once again be committing to the type of policies that could raise costs even higher for consumers and industry.
EU leaders recently released a new Energy Union strategy embracing elements of a previously announced climate and energy framework. That framework included a greenhouse gas reduction target of at least 40 percent by 2030 and a goal for member states to derive 27 percent of their electricity from renewable sources. Policy prescriptions for achieving those objectives are currently under consideration.
In drafting implementation guidance, policymakers must resist the temptation to mimic previous energy and climate initiatives. Creation of the Energy Union provides a key opportunity for Europe to rethink its approach to balancing energy production with environmental quality.
It’s worth noting one of the Energy Union’s principles: “Our vision is of investor confidence through price signals that reflect long term needs and policy objectives.” Meeting that objective, with limited government intervention, is critical to encouraging future investment.
When the EU adopted its first climate and energy regime in 2008, it sought to achieve its objectives through a mix of top-down policy mechanisms including “cap-and-trade” carbon pricing, subsidies, and mandated emissions-reduction and renewable-energy targets.
One result of this interventionist approach was the aforementioned increase in consumer electricity costs. The industrial sector also suffered, with the mix of new rules and mandates severely impeding competitiveness. Indeed, since the global financial crisis, European economic growth has been extremely sluggish.
As for cutting emissions, it’s true that EU CO2 levels have dropped in recent years. However, this development is due more to the dampened economy than to the use of new technologies or improved efficiencies. Moreover, new worries about meeting emissions reductions targets have arisen given increasing coal use in Germany, Europe’s largest economy.
Now contrast Europe’s experience to the United States, which has seen a genuine total reduction in CO2 emissions. The slow global economy only partly explains this drop. Most experts, including the U.S. Energy Information Administration, give the lion’s share of credit to a more positive development: the American shale energy revolution.
New volumes of natural gas being produced in the U.S. have allowed many utilities to turn to natural gas for power generation. This change helps explain why U.S. emissions have fallen to levels not seen since the 1990s. And these results have come as the economy grew 50 percent and the population by 50 million people.
New gas supplies have also helped invigorate American manufacturing and formerly depressed Rust Belt communities in states like Pennsylvania and Ohio. A recent report from PricewaterhouseCoopers notes that U.S. manufacturers could save $22.3 billion annually by 2030 thanks to shale gas production lowering energy costs as well as boosting demand for manufacturing services.
Abundant natural gas supplies have also helped lower retail electricity prices for most American consumers.
While the U.S. faces its own policy challenges, there are a number of lessons to be taken from the American approach that relies more on market-driven solutions than on top-down directives and government interventions.
As a British citizen who wants to see the EU meet its expressed objectives, I hope European policymakers will consider those lessons carefully as they work toward 2030 framework implementation. Rather than simply repeating history, there is an opportunity to embrace new market-driven approaches that would foster global competitiveness, economic growth and job creation, and true environmental progress.
