The experiences of the Ukraine war necessitate caveats regarding the energy needs of the EU. Europe temporarily increased investment in liquified natural gas imports to reduce its energy reliance on Russia.
Germany may back off previous plans to close its remaining nuclear power plants and temporarily increase its use of coal.
But the goal to phase out fossil fuels remains intact. Nonetheless, that objective (replacement of fossil fuels) is impossible to reach because of the prohibitive cost of alternative energy resources. Until the Ukraine war, Germany was bent on renewables and was closing down its coal and gas-fired power plants for good measure. Berlin also decided to deactivate all of its nuclear reactors.
Renewables are not cheap. Germany’s electricity costs are more than two times what they are in the US. In 20 years, governments have spent 5 trillion USD on alternative energy sources. Yet the share of global fossil fuel energy has decreased from 86% to 84%—a 2% point for 5 trillion USD.
In real free markets, energy becomes more plentiful and more affordable. Every significant advance in the standard of living means vast increases in energy use: railways, automobiles, and the internet.
What rich nations have been doing with energy alternatives is going in the opposite direction—more costly and less abundant energy. Unfortunately, the US has hardly been immune, and it has been imposing mandates for renewables, making the power grid less and less reliable. California is the most notorious example.
So why will this wasteful extravagance be shut down? Governments won’t be able to afford it anymore. The financial conditions of numerous nations have seriously deteriorated, with spending for all sorts of programs ballooning except for defense. Debt levels have exploded, particularly after the 2008-2009 crisis. At the same time, economic growth has been sluggish. Because of several one-time factors, central banks have been able to buy the bonds necessary to help finance government extravagance without unleashing terrible inflation until now.
Japan has been the most notorious example, but the European Central Bank and the Federal Reserve need to be more prudent.
The days of carefree spending and money printing, including uneconomical energy indulgences, will close.
Georgios Ardavanis – 15/03/2023