Renewable double-down

June 18, 2012
A reason to be wary of regulation is the activity's compulsion to perpetuate itself. Once in place, regulation remains in place. When confronted with doubt about its necessity, regulation responds with more regulation.

A reason to be wary of regulation is the activity's compulsion to perpetuate itself. Once in place, regulation remains in place. When confronted with doubt about its necessity, regulation responds with more regulation.

Europe has reached advanced stages of this cycle with renewable energy. The European Union decided years ago that its members would lead the world in development and use of solar, wind, and other exotic energy forms. Now, laden with the inevitable cost of this adventure, in some cases borne by consumers tired of expensive electricity, many European governments are trimming or eliminating the required subsidies. The obvious weakening of support raises questions about the regulatory program. So the European Commission is responding with—what else?—more regulation.

Reasserted commitment

On June 6, the EC reasserted a commitment to push renewable forms' total share of EU energy use to 20% by 2020. While hailing advances made so far, it noted that even if the EU meets the 2020 goals, progress might flag afterward. Investors are wary, the EC said. They need "clarity about the future direction of EU policy." They also might need clarity about the solvency of certain European governments, not to mention viability of the euro, but writers of EC statements on the subject chose not to complicate their message with ancillary concerns.

In service to clarity, therefore, the EC recommends the renewable-energy policy framework be extended past 2020, when it now effectively ends. And it proposes three options for the establishment of "milestones" for 2030: new goals for cutting emissions of greenhouse gases (GHG) and reliance on the Europe's emissions trading scheme; national targets for renewable energy, energy efficiency, and GHG emissions; and EU-wide targets for renewables, efficiency, and GHG.

What about immediate problems? The EC acknowledges that "a number of member states have undertaken reforms that have caused disruption to industry and investors." On a list of examples appear "a moratorium on support for new renewable energy production, which has an obvious direct and crushing impact on local renewable-energy investment" and "modifications of feed-in tariffs for existing producers, cutting expected returns to investors significantly." Those would be retreats to which fiscally distressed governments have resorted to engage renewable energy with economic reality.

To strengthen the EU program through 2020, the EC proposes market reforms, support schemes encouraging cost reduction, cooperation mechanisms, and energy cooperation with Mediterranean countries in North Africa. "To reach the 2020 targets," says the EC, "member states have to implement their national action plans and substantially increase the financing of renewable [energy]. Annual capital investment would need to rapidly double to €70 billion. This investment should mainly come from the private sector."

Europe's renewable energy program is quaking under unbearable cost. Individual governments, some on the financial brink, are trimming subsidies. And the EC wants them to double the European investment in uncompetitive energy and somehow get private investors, those poor sheep plagued by uncertainty who also happen to be caught up in an historic financial crisis, to pay for it all.

These are appeals of regulators who don't know they're being swept to sea on the flotsam of wrecked ambition. Europeans can't afford the new attack they propose on inaccessible shores. And renewed calls for energy cooperation among EU members make the regulators seem heedless of heavy weather around them. Wasn't it excessive hope for economic homogenization that unleashed stresses now threatening the euro?

Oil, gas trouble

The oil and gas industry doesn't escape trouble in the EC's doubling-down on overreaching regulation. "It is important that we continue to use every tool at our disposal to drive down costs, to ensure renewable energy technologies become competitive and ultimately market-driven," the EC says. "Policies which hinder investment in renewables should be revised, and, in particular, fossil fuel subsidies should be phased out."

In the world of self-perpetuating regulation, "fossil fuel subsidies" can mean anything, all of it menacing to the oil and gas industry.

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