One of the European Union’s saving graces is its relatively enlightened climate change policy. The push to decarbonise the European economies may be too slow but at least it is going in the right direction.
In this connection, an important set of E.U. reports, that together form the new climate targets out to the year 2030, was published on 22nd January. You can find them all here. The critical components of the 2030 policy are threefold:
- 40% cut in greenhouse gas emissions (compared to 1990 levels)
- To achieve at least a 27% share of renewable energy consumption
- Energy efficiency to play a vital role, but no specific target at this point.
In this post, I prefer not to delve into the details of the targets, but rather want to take a brief look at energy costs. The dominant meme in the financial price is that renewables and carbon taxes are fatally undermining European competitiveness. As an example, read this article in The Financial Times titled “High Energy Prices Hold Europe Back“.
Whenever I hear a politician or titan of industry reaching for the word “competitiveness” to justify some self-serving policy action I make sure I have a sick bucket near. This is because the mere mention of the word “competitiveness” appears to preclude any further analysis and resort to actual facts.
My point here is that cheap energy prices are neither a necessary nor a sufficient condition for fostering a prosperous economy. Let’s take a chart of wholesale gases prices from the E.U.’s “Energy Prices and Costs Report” that was published along with the new 2030 targets (click for larger image).
The first point to note is that the U.S. price of around $2 dollars was the absolute 2012 nadir in gas prices. We are now back up to around $4 and the U.S. Energy Information Agency see the price trending up toward $6 to $7 in order to make further shale gas development economically viable.
But this is not the key point I want to make. Rather, if you click on the global gas price comparison chart you will see that at the high price end of the spectrum we have three of the Asian Tigers: Singapore, Taiwan and South Korea. And how about that GDP growth monster China, which has been astonishing the world with consecutive 10% year-on-year annual growth rates up until very recently? Well, its gas price looks—how can I put it—European.
OK, what about electricity prices for industrial consumers (click for larger image)?
True, the price paid in some European countries is high, but the average is only marginally above that in China, Brazil and Turkey. And don’t forget that you would expect Europe to be somewhat higher since its advanced economies have higher wages and steeper land prices. So taking such costs into consideration, Europe looks pretty average.
So there are many paths to economic prosperity, and a cheap energy price is not the only one.
To the rational pessimist:
What is your opinion on DESERTEC(http://en.wikipedia.org/wiki/Desertec)? Do you think it’s feasible?