Governments embraced climate policy with enthusiasm—now they reel back in horror as costs and subsidies soar
Wall Street Journal, Sept. 9, 2022
New British Prime Minister Liz Truss on Sept. 7 rolled out an energy-price subsidy plan that could cost £150 billion. Throw that on the pile with the tens upon tens of billions of dollars’ worth of subsidies other European governments are offering to take the sting out of energy prices this winter. It adds up to a stunning cost for Europe’s climate-change ambitions.
The contours of Europe’s crisis are well-known by now. Governments across the Continent for decades concocted increasingly aggressive plans to reduce carbon-dioxide emissions in the name of arresting climate change. The effort is to meet a pledge to achieve “net-zero” emissions in the 2040s or 2050s.
As a result, Europe has become ever more dependent on wind and solar—which are too unreliable to power advanced industrial economies—while perversely eschewing nuclear power. They burned natural gas, until Vladimir Putin’s Ukraine war sent prices haywire and deprived Europe of Russian gas.
Now the cost of that folly is coming due, and it’s predictably enormous. Ms. Truss’s plan is a painful example: Britain will cap household energy bills for two years at about £2,100, with taxpayers picking up the difference between that and utilities’ costs of supplying energy. Ms. Truss will also eliminate green taxes on energy bills, with the government using other revenues to pay for programs those levies fund.
Businesses’ energy costs will be capped for six months. The Treasury and the Bank of England, the central bank, will create a new program to provide liquidity to energy companies. All of this will be financed primarily by borrowing, with future taxpayers paying the bills.
Germany last weekend rolled out a €65 billion subsidy package, consisting of a price cap on household and business electricity bills, to be financed (allegedly) with a windfall-profits tax on electricity producers. Chancellor Olaf Scholz also will offer handouts to retirees, students, families and assorted others.
France has turned state-owned energy utility EDF into a subsidy piggy bank, ordering the company to cap energy-price increases. Paris also is offering taxpayer-financed assistance to companies hit by rising energy prices, as well as the usual grab-bag of household subsidies such as for students returning to school.
How much will all this cost? No one knows. Ms. Truss has yet to put a precise price on her program, and Berlin’s €65 billion is merely an opening bid. Paris seems to have stopped counting at about €20 billion. These sums must be added to the costs of renewable subsidies, green levies, fuel taxes, higher prices and lower reliability that European households and businesses have been paying for years. With net zero you pay now and pay later.
Europe still hasn’t learned the right lesson
Yet Europe still isn’t internalizing this costly lesson. Berlin has dragged itself kicking and screaming into an extension of two of Germany’s remaining three nuclear plants, but otherwise remains committed to renewables above all. Governments mostly hope to pay for these handouts with taxes on the same energy companies they need to produce more power—and drill more fossil fuels. Talk about destructive incentives after those companies already scaled back fossil-fuel investments due to politicians’ net-zero fixation.
Ms. Truss alone is willing to try something else. She’s refusing windfall-profits taxation and instead wants to scale up gas drilling in the North Sea and introduce shale-gas fracking in the north of England. More energy as a solution to an energy-price crisis? That’s a revolutionary idea in Europe.
Americans and Canadians should pay attention to all this because Democratic and Liberal Party policies are heading in the same direction. If you thought President Biden’s Inflation Reduction Act’s subsidies for renewable power were outrageous, wait until you see the bill when those renewables fail to meet America’s power needs, with Canada not far behind.