Andrew McKillop: Death Cross Mix for European Energy : No Future

Guest post from Andrew McKillop

Death Cross Mix for European Energy : No Future
by Andrew McKillop 29-03-2014

Play With the Toy Until it Breaks
Commentators have begun to focus on the “moving average” of always-unrealistic energy policy and programs in the European Union, easily finding that they signal a “bearish outlook” for future energy supply in Europe – but certainly not for energy prices.  In fact not only the poster child victim of the EU’s mix and mingle of often-extreme policies – electricity, but also increasingly gas and then oil – faces a supply outlook that almost inevitably has to be down. This is despite, or because of, ever-rising energy prices, led by electricity price rises! Prices are driven up by a death cross convergence of political, economic, financial, technical and even cultural “life style” factors. In the poster child country for European “energy transition”, German household electricity prices are around 25 euro cents per kiloWatthour in early 2014, pricing their power at an oil equivalent (1600 kWh per barrel) of around $540 per barrel equivalent. Can we be surprised that German electricity consumption is falling?

It is no point arguing that when markets are working properly, shortage leads to higher prices, which in turn leads to investment in new supply. In a large number of EU countries, especially the UK, Germany, Spain but in general all EU member states, power generating capacity is expected to fall further as declared-obsolete coal and oil-fired plants close, and made-obsolete gas-fired power plants are either mothballed or demolished. In several countries such as the UK and Germany, the government pleads to no avail with producers to restart their gas plants that are mothballed, and not yet demolished, because they operate at a whopping loss. It pleads with them to invest in the renewables, but to declining avail. Corporate energy in Europe, led by the power companies, is backing off and away – from energy.

Superficially, the “market rational” reasoning can go on to ask why energy companies are not putting their increased profits into building new power plants, and new transmission infrastructures of any kind that can produce power and a profit? Why are the producers “out to lunch”? Are they in fact making real “corporate bottom line” profits and increasing them, or is this additional window dressing?

Eighty Percent Less Emissions of CO2
Following the Dec 2008 European parliament vote in favour of the “climate-energy package”, this was quickly and unquestioningly transposed into the laws, regulations and policies of all the member states. By or before March 2009 only a very few countries had not yet “enshrined” the goals of the package – and more important the potential or possible forward extensions of these goals, political of course.

Whatever the “liberal politics” ruling in the member states, whether pale blue or slightly pink, political leaders leapt on board with their own national extensions of the Dec 2008 goals. In the UK, during the 2010 election campaign, the Conservative Party endorsed the low-carbon rhetoric of the package, which had so thrilled the Greens and Ecologists, and UK Tory party leader David Cameron belted out the slogan “Vote blue, Go green.” After winning the mandate, the Tories continued to support the UK’s almost instant adoption of the European parliament resolution, by the previous New Labour government which in its own 2008 Climate Change Act committed the U.K. to reducing greenhouse gas emissions 80% by 2050. In some countries preaching holier-than-thou (but rarely practicing it), such as Germany, the 80-percent-goal was soon drawn back towards the 2030s.

Shifting the definition of emissions, and above all outplacing national CO2 emissions to supplier countries of its uranium fuel, France was able to brandish nuclear power as the clean-green solution for achieving at least an 80% reduction by the 2040s. Several EU politicians such as former Spanish PM Jose Luis Rodriguez Zapatero before he was massively voted out of power, had brandished the possibility of a 100% reduction in Spanish CO2 emissions “by about 2045”.

Although called “Stalinist type politics” by some ( http://www.marketoracle.co.uk/Article43680.html) the governments of EU states, whether Liberal Left or Liberal Right, have started to accuse the power producers and distributors with profit-gouging, market rigging and a general “failure to invest”, of course destroying any regulatory predictability for electric power and further depressing the “will to invest”. The UK is a classic example:

Both the UK government and Opposition continue to make green promises, and now threaten to “break-up the energy cartels” that they imagine, firstly exist, and secondly, imagine are thwarting their political goals.

Former UK Conservative Prime Minister John Major has proposed a windfall profits tax on the power companies. Labour leader Ed Miliband promises to freeze power prices for 20 months if he wins next year’s election. With zero surprise, this has made the word “investment” equivalent to “leprosy” for the UK’s electricity sector, more especially when both government and opposition, as in other EU states, threatens to further tax “fossil energy”, to fund and cross-subsidize renewables. Newspeak jargon used for this not so much creeping, but rapidly accelerating, government takeover of electric power in Europe includes, in the UK, the key term “contracts for difference” with the stock exchange-friendly buzzword of “strike prices” for electricity added. At the same time, UK power producers (and similar legislation is creeping forward at a very fast snail’s pace, say a hungry snake’s pace in other EU states) will have certain “capacity obligations”, that is power production capacity they will have to build and-or own, or buy – whether they use it or not.

The Dirty Diesel Debacle
For more than a week in late March, on a recurring base, several major French cities including Paris were swathed in a brownish smog dubbed “particules fines” by the media. That is microparticles emitted by “clean low carbon” diesel-fueled cars, now making up 75% of the French 40-million car fleet and over 85% of new car sales – because diesel fuel is subsidized at a lower pump price than gasoline, despite diesel fuel having 10% more energy in every liter compared with gasoline.

To no avail, public health and environmental associations point out that the UN WHO’s Institute of Cancer Research, ironically based in the French city of Lyon has gone so far, in 2012, as to give a hard-edged estimate for the number of cancer deaths caused by inhaling and ingurgitating diesel fuel residues, of about 200 000 per year for the EU, and 44 000 per year in France. Only cancers linked with cigarette smoking cause a higher annual death toll, according to the UN WHO.

Despite this, diesel fueled cars are “green and ecological” and seem to offer the reduced oil consumption demanded by the goals for “European energy transition” as set by the climate-energy package and the increase of its goals set by later political grandstanding in various EU states. As a result of the “particules fines” smog alert in major French cities, some schools were closed, physical activity in remaining open schools was banned, oxygen was supplied to elderly and infirm persons, public transport and car parking outside city centers was supplied free, car speed limits were drastically reduced, industrial users of heavy fuel were “invited to reduce” their fuel burn, among the emergency French measures applied.

Drilling down, the climate-energy package’s original format called for totally impossible rates of replacing “fossil oil fuels”, with renewable liquid hydrocarbon fuels – bioethanol and biodiesel. Due to massive increases of bioethanol fuel production, in Europe, being even more impossible than large increases in biodiesel fuel production – using imported intensively cultivated palm oil from Indonesia and Malaysia needing wide area devastation of tropical rainforest areas – the “diesel solution” was taken as the most feasible option. Already existing pro-diesel policy and programs for growing the diesel car fleets of the EU member states, based financially on “refinery crack spreads” using heavy and dirty crudes, costing less than lighter sweeter crudes, were bolstered by the new Low Carbon rush to reduce emissions. And cause a huge increase in cancer deaths.

Official policy and communication on the “dirty deadly diesel” spinoff from “clean low carbon” has been at best confused, and at worst – the majority of official communication – plain and straight lying. In France for example, government spin on the subject following the smog brownout in most major cities in late March, merely recycles the publicity of leading diesel car manufacturers, claiming that “by or before 2020” French diesel cars will be so clean they almost emit no “particules fines” at all. Move along now, there is nothing to see! (Circulez – il n’y a rien a voir).

Death Cross for European Energy
As I have noted in other articles, concerning the supposed-heroic EU struggle to “anchor Ukraine to Europe”, there is basically no shortage of energy – of any kind – in Europe. Rumors that Ukraine is a critical pivot for European energy have been drastically exaggerated. In this particular and specific case – Ukraine – the country has about 125 years of its current bloated natural gas consumption in the form of unexploited and ignored – but real – domestic conventional gas reserves. Why it ignores or ignored them, is for historians and political scientists to discuss. The EU, IMF and US at least in theory, could run an emergency heavily funded E&P program for Ukraine with the objective of turning it into a net exporter of gas to the rest of Europe – but the likelihood of that is minimal.

Mass media spin and political grandstanding invites us to swallow the argument that Europe is facing a do-or-die struggle with Putin’s Russia for “energy security”. Swallowing and breathing diesel fuel residues in French cities will now be “patriotic”. Paying extreme and unreal prices for electricity – while the supply of electricity declines – will be the New Normal.

Unfortunately (or not) this will do nothing to resolve the death cross facing European energy. Future supply is on a downward track. Prices, including taxes and charges and government grubbing of the wherewithal to provide energy subsidies, are on an upward track. This in fact is a long-term model or paradigm, with a host of subsidiary and related impacts – or collateral damage. As one simple but not immediately evident impact, European urban development policy and programs now have so many energy question marks hanging over them, that actual hard-edged decisions and real world projects are decreasingly easy to define and execute. For example, the question “Are European city dwellers (over 80% of national member state population in most EU states) willing to go on breathing and swallowing what the UN WHO calls carcinogenic diesel fumes “to protect the climate”, and give importers of Malaysian and Indonesian intensively-cultivated, genetically modified, pesticide and oil-rich “clean green palm oil”, a look-in to a New Market for European biodiesel fuel”? Maybe they are that stupid but we do not yet know.

This could or might be the ultimate in elite eccentricity, the elite deciding for what it alone views as the unwashed and stupid masses of Europe and what the mass needs – and what they must breathe and regurgitate “for their greater good”.  To protect the climate, we are told!

Lights out, soon.