By 2025, natural gas prices in Europe are expected to be five times higher than in the United States. This will make it very difficult for energy-intensive industries to compete.
One explanation for the difference in energy prices is the U.S. fracking revolution. According to some estimates, Europe has significant reserves of extractable shale gas. But there is a de facto ban on shale gas development in Europe, which does not prevent European countries from importing the same (and expensive) gas from the U.S.
A second explanation is the European Union’s Emissions Trading Scheme (ETS), which functions as a de facto climate tax. This tax is so high that it exceeds the entire price of natural gas in the United States.
One might expect that there would be strong political pressure to do something about the situation, for instance by mitigating the ETS climate tax or considering shale gas extraction. On the contrary, the EU decided last year to extend the scope of the European climate tax to more sectors, which will make heating with gas or driving a diesel car even more expensive for consumers.
Even in the Netherlands, the current right-wing government does not dare go against public opinion and start exploiting its huge gas reserves in Groningen. This is despite the ironic fact that the Netherlands—the EU member state with the largest gas reserves—also has the highest gas price. While it’s true that Russian President Putin turned off the gas tap, the EU’s political maneuvering and its current policies have left us with no alternative. As if to confirm this, European gas prices rose sharply in recent weeks.
Moreover, Germany and Belgium pushed through plans to close perfectly functional nuclear power plants in the middle of the 2022 energy crisis caused by the end of Russian gas flows to their countries. Two more nuclear reactors are due to shut down in Belgium on February 15th, despite the intention of the possible new federal government to reverse this insane policy.
High energy prices also impact the industries of the future. The fact that Google and Amazon believe that access to abundant electricity is so important for the development of artificial intelligence (AI) that it is worth building their own small nuclear reactors should set alarm bells ringing across Europe.
A recent Financial Times headline said “Corporate Germany is on sale,” noting that Covestro, a leading German company specialising in high-tech chemicals, is being acquired for €14.7 billion by the international arm of ADNOC Group, based in the United Arab Emirates. It is the largest ever cross-border transaction for a UAE-based company. ADNOC Group has previously made strategic investments in OMV, Borealis, NextDecade’s Rio Grande LNG, and renewable energy.
The FT noted that Germany’s “high energy costs and sluggish demand have affected its industrial base, pushing the likes of Covestro into the arms of deep-pocketed suitors.” Foreign takeovers like this might soften the blow of the misguided policies responsible for the economic crisis currently affecting Germany and other parts of Europe.
Thankfully, a new consensus is growing in Europe that, to reduce CO2 emissions, it makes no sense to ban nuclear power, as it is a clean energy source that at the same time allows us to maintain the current standard of living. Yet that is not enough. Europe will also have to review its own consensus on phasing out fossil fuels. Especially for heavy industry, nuclear power is not an option.
European politicians are worried that America’s incoming Trump administration will start a trade war. However, it is currently the EU that is introducing new tariffs under the guise of climate policy, with the new Carbon Border Adjustment Mechanism or CBAM. The EU’s logic is that because the rest of the world refuses to copy Europe’s suicidal energy policy, imports of certain ‘carbon-intensive’ items, such as steel, into the EU should be taxed to level the playing field. India, in particular, is very angry about this.
The EU is also disrupting good relations with trading partners with its new deforestation directive or ‘EUDR’. Malaysia and Indonesia complained that the EU directive refuses to recognise local deforestation standards for their palm oil exports, despite NGOs praising them for reducing deforestation and despite tree-planting programmes. The UK does recognise the country’s local standards, showing that an alternative approach is possible. It helped the British gain access to the ‘trans-Pacific’ trading bloc CPTPP, which has a combined GDP of £12 trillion. This was seen as a major victory after Brexit, while the EU failed to agree on almost every new trade deal in recent years.
Later, Australia, Brazil and the United States joined the protest against the EUDR. It led to a one-year postponement of the directive, but the legislation is still not off the table. The EU and European governments will have to ask themselves the fundamental question of whether saddling trading partners with extra red tape is the right way to go, especially given that public opinion on climate policy is turning, hence the Greens taking a beating during the European Parliament elections last June.
It is evident that the EU’s experimental policies have helped create structurally-high energy prices in Europe. However, the green protectionism being rolled out to compensate for Europe’s waning competitiveness continues as usual for now, as does the European ETS climate tax. For how much longer?
