The European rush to expel carbon from energy used by humans is faltering. Two of Europe's governments most committed to renewable energy have slashed crucial subsidies. And the European Union has resorted to market intervention to save its market-based system for reducing greenhouse gas emissions.
The German and Spanish governments apparently have decided their countries' energy consumers have choked enough on the caustic fumes of uneconomic energy. In Germany, the government of Chancellor Angela Merkel proposes limiting until the end of 2014 a surcharge consumers must pay to subsidize electricity generated from renewable fuels. It also wants to reduce exemptions from the surcharge available to some companies in order to shift the burden away from individuals. In Spain, the parliament has passed a law lowering assistance to renewable-energy producers.
Easing hardship
In both cases, the clear aim is to ease the hardship of individual consumers, who also happen to be voters. Generous subsidies have stimulated development of electricity from sunshine and wind, which is what they were designed to do. What governments seem to have come too late to understand is that growth of costly energy means growth of energy costs, which must be paid by people. In Germany and Spain, that painful verity has become politically troublesome for incumbent governments. It should. Politically imposed economic hardship should create political pain. The Bulgarian prime minister has just resigned amid protests over painful energy bills. His government cut renewable-energy subsidies last year but raised energy prices at the consumer level to cover high-cost energy already in the market. To no one's surprise, energy consumers balked.
In the UK, the government hasn't relented—yet. Last November it disclosed a plan to triple public support for renewable energy in power generation by 2020. The official rationale is that public expenditure on renewable energy will increase employment and eventually lower energy bills, now painfully high in the UK. How either outcome can result from the displacement of commercial energy with costlier substitutes remains a mystery. UK voters eventually will have the last word on this matter. Even in a country proudly committed to leading the world in the development of green energy, people won't allow their pockets to be picked forever.
Meanwhile, Europe's pioneering emissions trading system (ETS) for greenhouse gases (GHGs), a complement to renewable-energy subsidies in the war against carbon, is foundering. The ETS, a cap-and-trade scheme, sets limits on GHG emissions and allows companies subject to the limits to buy and sell emission allowances. But the market hasn't behaved the way the politicians expected it to. Markets never do.
ETS carbon allowances are trading at values far below levels needed to affect energy consumption. Activity is low. Attempting to rescue the system, the Environment Committee of the European Parliament on Feb. 19 voted to postpone some auctions of emission allowances, in effect limiting supply to boost price. When the Organization of Petroleum Exporting Countries does this kind of thing, governments of oil-consuming countries cry foul. The full parliament still must vote on some version of the rescue plan.
Supporters of the ETS say the committee's vote represents victory for green energy. But this isn't the first time emission-allowance values under the ETS have had to be officially reset. The system doesn't work. It won't work. It's a framework for buying and selling something people don't need or want: higher energy prices. Real markets trade real goods with real value. The cap-and-trade framework is just a market-like disguise to make consumers think something other than government is raising their energy bills.
Political sparks
In country after European country, official high-mindedness is striking against personal-level economics, making political sparks fly. This is wholly predictable. Lofty goals for green energy and planetary cooling easily win political support—until people in politically potent numbers feel the costs and understand what caused them.
This is the European energy story. Countries elsewhere should avoid the mistakes.
