The Dark Side of Brussels' Energy Policy: the Green Deal’s Death Knell
At the beginning of March, the German Federal Audit Office presented a special report on the implementation of the energy transition regarding the security of supply, affordability and environmental compatibility of the electricity supply. The result is alarming: the security of supply in Germany is massively jeopardised. The report states:
"The measures taken so far to implement the energy transition are inadequate and therefore harbour serious risks for the energy policy goals. The German government is behind schedule in the expansion of renewable energies and the electricity grids as well as in the development of backup capacities. (...) The urgently needed grid expansion is seven years and 6,000 kilometres behind schedule."[1]
For critical observers of the German situation, this harsh judgment is long overdue. For the public, however, it is likely to come as more of a surprise, as energy issues have been at the top of the political agenda in both Brussels and Berlin for years.
Germany's energy transition...
The roots of the German energy transition go back to 2014. At that time, Chancellor Angela Merkel's cabinet decided to reduce carbon emissions to 750 million tonnes by 2020. This would have corresponded to a reduction of 40% compared to 1990. In 2016, the climate protection plan [2] was presented with the even more ambitious target of reducing carbon emissions by 55% by 2030 and 70% by 2040. For the first time, a complete renunciation of carbon and a "neutral" greenhouse gas balance, i.e. a reduction of 100%, was mentioned.
As with so many things in politics, this was a short-term vision. There was neither a cost calculation nor an assessment of the technical feasibility or a study on the effects on the competitiveness of the German economy. At that time, the share of renewable energies in the electricity sector was around 30 %, in the heating market only 13 % and in the fuel market only 5 %.
And yet: the German Academy of Science and Engineering presented a cost estimate at the time [3].
The results were so shocking that they were withheld from the public for good reason: A 90% reduction in emissions would not only double Germany's electricity consumption, but the cost of this would also amount to an incredible 4100 billion euros. In the chemical industry alone, the third largest sector in Germany, the demand for electricity would increase enormously. Instead of the current 54 TWh, this sector would require 600 TWh of electricity.
...and Brussels' Green Deal
In 2019, the Wall Street Journal labelled Germany the country with the "dumbest energy policy in the world" due to its decision to phase out nuclear power and coal.[4]
However, this has not stopped the Commission in Brussels, led by Ursula von der Leyen, from deciding to create a climate-neutral Europe by 2050. Here, too, the ambitious goal is to emit no net greenhouse gases by 2050. The Green Deal is not only intended to protect the environment, but also to promote the economy:
The European Green Deal is also our lifeline out of the COVID-19 pandemic. One third of the 1.8 trillion-euro investments from the NextGenerationEU Recovery Plan, and the EU’s seven-year budget will finance the European Green Deal.[5]
Exactly one month ago, the Commission defined new political goals in this regard: the decarbonisation of industry using wind energy, hydropower, electrolysers, and other existing resources, as well as the expansion of domestic production capacities for the manufacture of batteries, electric vehicles, heat pumps and solar cells.
An EU strategy for industrial CO2 management was also adopted to ensure investment in technologies to capture, store and reuse CO2. These are additional costs that place a massive burden on the private and public economy at a time of economic stagnation - in addition to the high energy costs, which are not least due to the EU's sanctions policy towards the Russian Federation.
The European Union's Green Deal must be criticised for three reasons: it is dogmatic because it does not provide for alternative scenarios; it is economically highly problematic because it burdens industry in Europe with costs and uncertainties and therefore restricts its international competitiveness; and it is technologically immature and unrealistic: neither the market-ready technologies nor the financial means to implement the Commission's goal of reducing net greenhouse gas emissions to zero by 2050 are available.
Exploding costs
30% of the EU’s multiannual budget (2021-2028) and the EU’s unique NextGenerationEU (NGEU) instrument to recover from the COVID-19 pandemic, has been allocated for green investments. EU countries must devote at least 37% of the financing they receive under the 672.5 billion euros Recovery and Resilience Facility to investments and reforms that support climate objectives.[6]
In Germany, the costs of the energy transition alone are estimated to be between 700 and 860 billion euros by 2035. The operators of the German electricity transmission grids are currently demanding an additional 7.8 billion euros from the Federal Ministry for Economic Affairs and Energy. This is intended to secure the financing of renewable energies and reduce risks for grid expansion.
This causes problems for the German government insofar as, following a judgement by the German Federal Constitutional Court, 60 billion euros are missing from the so-called Climate and Transformation Fund, which had already been firmly planned for the coming years - around 13 billion euros in 2024 alone. The court had declared a reallocation in the 2021 budget null and void and ruled that the federal government may not set aside emergency loans (for the Covid-19 pandemic, note) for later years.[7]
However, these measures come at an inopportune time: economic activity in 2023 is expected to have grown by just 0.5% in both the EU and the eurozone. The growth outlook for 2024 has been revised downwards to 0.9% in the EU and 0.8% in the eurozone. Economic growth of 1.7% in the EU and 1.5% in the eurozone is still expected for 2025.[8]
The forecasts for Germany look even worse: overall, real GDP is forecast to increase by 0.3% in 2024 and by 1.2% in 2025. For 2024, this means a downward revision from the 0.8% forecast in the autumn forecast, while the forecast for 2025 remains unchanged.[9]
Now, one could sarcastically remark that deindustrialising Germany and other European countries also helps to reduce carbon emissions. In fact, part of the Green Deal is to remove the exemption of energy-intensive industry from the burden of certificates and levies for renewable energies. This will hit German industry particularly hard. In return, the Commission wants to introduce a border tax on carbon and is seriously considering that it could impose a carbon tax on steel from China or natural gas from the US to offset the competitive disadvantage.
Damage to the economy
In connection with the dark side of the Brussels energy regime, we have already reported on the home-made energy crisis[10] and the lobbying interests behind it[11] :
The European Commission, together with the Council, has been intervening massively in the European energy market for two years - without a proper legislative procedure, without involving the European Parliament and disregarding the Member States' reservations of sovereignty. In doing so, it is utilising a legal clause that presupposes a precarious economic situation that can only be overcome in the form of emergency measures. The events in February 2022, which were to mark the beginning of an "energy crisis", were a major, though certainly not the only, cause.
Under the sanctions, the purchase, import or transfer of crude oil and certain petroleum products by sea from the Russian Federation to the EU has been banned; Member States have set an oil price cap; there is a ban on the import of all types of Russian coal, a ban on new EU investment in the Russian mining sector, a ban on the export of certain oil refining technologies; Germany and Poland no longer import Russian pipeline oil.
The current energy policy in Brussels and Berlin must be judged against this background.
It is currently reflected in
- growing uncertainty in the security of supply due to outdated and inadequate grids.
- persistently high prices due to the sanctions against the Russian Federation and Iran and the associated impact on the energy markets.
- declining competitiveness due to excessive costs with loss of jobs and social welfare; and
- a noticeable promotion of authoritarian structures in the Union due to a systematic abuse of the emergency clause; the competences and political room for manoeuvre of the Commission and Council were massively expanded without democratic backing and without a basis in international law.
The supply of affordable energy to the European economy is becoming essential against the backdrop of growing energy demand resulting from advancing digitalisation and the need for industry to remain competitive.
Any measure that hinders the supply of affordable energy to Europe, such as the continuation of sanctions or a premature withdrawal from long-term gas supply contracts, will cause massive damage to the European economy and set EU Europe back by years, if not decades.
This analysis was first published at Valdai Discussion Club on April 2nd, 2024.
[1] https://www.bundesrechnungshof.de/SharedDocs/Kurzmeldungen/DE/2024/energiewende/kurzmeldung.html
[2] https://www.bmwk.de/Redaktion/DE/Artikel/Industrie/klimaschutz-klimaschutzplan-2050.html
[3] https://www.acatech.de/publikation/sektorkopplung-optionen-fuer-die-naechste-phase-der-energiewende/
[4] https://www.wsj.com/articles/worlds-dumbest-energy-policy-11548807424
[5] https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en
[6] https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal/finance-an...
[7]https://www.bundesverfassungsgericht.de/SharedDocs/Entscheidungen/DE/2023/11/fs20231115_2bvf000122.h...
[8] https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/winter-2024-ec...
[9] https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/germany/economic-forecast-ge...
[10] https://valdaiclub.com/a/highlights/the-dark-side-of-brussels-energy-regime-part-1/?sphrase_id=16256...
[11] https://valdaiclub.com/a/highlights/the-dark-side-of-brussels-energy-regime-part-2/?sphrase_id=16256...