The EU's view of energy

Nov. 2, 1998
An important clue to European Union thinking about energy comes from a Nov. 18, 1997, communication on environment and employment. "The economies of the European Union are characterized by 'underuse' of labor resources and 'overuse' of natural resources," says the European Commission statement. "This situation has given rise to high unemployment and a heavy environmental impact."

An important clue to European Union thinking about energy comes from a Nov. 18, 1997, communication on environment and employment. "The economies of the European Union are characterized by 'underuse' of labor resources and 'overuse' of natural resources," says the European Commission statement. "This situation has given rise to high unemployment and a heavy environmental impact."

From such thinking flows the commission's latest initiative on energy. It stresses action on energy efficiency and conservation, renewable fuels in power generation, and the environmental effects of conventional energy. Ultimately, it will require new energy taxes and fuel selection by bureaucrats.

Environmental jobs

If implemented, the proposal would probably be good for the 3.5 million Europeans who, by the EU's reckoning, work in jobs related to the environment. And, as the statement on environment and employment notes, the environmental sector of the European economy certainly has potential to grow, especially if renewable fuels receive the tax advantages and subsidies that most of them need to compete with conventional energy.

But at what cost?

Employment in the environmental sector changes in relation to a labor force of an estimated 150 million job holders plus 17 million unemployed Europeans looking for work. It would be a happy circumstance, indeed, if the environmental economy could grow enough to employ a large portion of that 17 million jobless total without encroaching on the population of the already employed. But that won't happen.

It won't happen because of what governments must do to make pet economic sectors grow. By nature, pet sectors can't compete. If they could compete they would not seek favors from governments. They would not need the tax breaks, market mandates, and price subsidies that characterize pet sectors and would not undertake the political inconvenience essential to the achievement of "pet" status.

To make pet economic sectors grow, governments must destroy some measure of capital. They must, for example, raise taxes on competitive enterprise. Or they must impose costs by forcing consumers into uneconomic behavior-such as buying a costly fuel when a cheaper but politically disfavored one exists, or cutting energy use on command. Manipulations like these lower profits in competitive sectors. And when profits suffer, employment overall suffers. No amount of environmentalist wishful thinking can change the calculus.

So the EC communication errs in its characterization of European economies by applying two-dimensional analysis to a three-dimensional dynamic. Economies hinged only on labor and resources certainly exist. But people in those economies spend all their time hunting food and burning forests to make the job easier. They die young. In such economies, diesel-burning tractors and gas-burning power generators could do much for environmental values.

Elsewhere, labor and natural resources don't tell the whole story. Capital plays an equivalent role.

In a healthy economy, in fact, capital apportions the use of labor and resources. But the EU's bureaucrats would rather make the call. So they ignore capital, pass facile judgment on allocation of officially recognized factors of production, and proceed to construct energy legislation on an incompetent foundation.

Mistreatment of capital

To be sure, 10% unemployment is not something for Europeans to cheer. But the problem stems from the mistreatment of capital by governments, especially where energy is concerned.

The EU should broaden its view of economies. And it should certainly not encourage members to further damage capital by elevating energy costs. Doing so is thermodynamically equivalent to taxing work. In neither economic nor environmental terms can anyone call that progress. Renewable fuels will find their ways to markets where they belong. Governments should let them do so.

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