Europe's Energy Reality Is Cautionary Tale for U.S. | Commentary

Within hours of President Barack Obama announcing his climate change agenda, House Republicans blasted it as an energy cost-increasing job killer.

Some may dismiss the criticism as partisan politicking, but even allies such as Kentucky Gov. Steven L. Beshear have taken issue with administration plans to effectively ban new coal-fired power plants, arguing that “the ability to grow the economy depends on affordable and reliable supplies of electricity.” Beshear may govern a coal-producing state, but a look across the Atlantic shows that he may be on to something larger.

Recently, Europe has been buying large quantities of cheap U.S. surplus coal, as American power plants have shifted to gas. This, coupled with decreased emission permit prices under Europe’s cap-and-trade program due to the economic slowdown, has prompted several European utilities to “mothball” their gas-fired plants in favor of coal.

What is happening? Neither Europe’s political composition, nor the overall environmental vision with which Europe has long prided itself has changed much. However, as one observer has aptly argued, “A funny thing is happening on the way to the clean energy future.  . . .  In Europe, the land of the oh so politically correct, the drive for greenhouse gas emission reductions is meeting a new competitor — reality.”

In post-Fukushima Europe, nuclear power is persona non grata. Shale gas exploration is — at least for now — not feasible due to environmental standards and a wary public. As it is tied to the oil price in Europe, conventional gas is very costly. Meanwhile, in spite of heavy government subsidies, renewables are still far from being able to replace fossil fuels and nuclear power as a reliable and efficient energy source.

Europe’s manufacturing base is eroding as particularly energy-intensive industries are leaving Europe for jurisdictions with lower energy costs. Energy poverty today affects between 50 and 125 million Europeans, and the health risks associated with the inability to afford sufficient levels of heating (or cooling) cannot be dismissed.

Welcome to Europe’s energy reality.

Europe appears to be slowly realizing that with its ambitious climate change agenda and the resulting high energy prices, coupled with a rigid labor market and an unfavorable tax climate, it has been taxing and regulating itself out of business.

At the May 22 European Council summit, for the first time, rising energy costs and dwindling competitiveness were weighted higher than obviously unattainable global climate protection ambitions. As EU Commissioner for Energy Guenther Oettinger argued: “We need affordable energy to retain industrial jobs.  . . .  The threat of energy poverty is no longer only a theoretical concept.  . . .  If Europe doesn’t react to the global disparities in energy prices, we won’t be able to compete 10 years from now. We have to address further emission goals with realism and with an eye towards creating jobs and industrial wealth.”

European leaders seek to balance climate protection and the EU’s economic health through a more measured climate policy and the completion of the liberalized integrated European energy market — with an emphasis on diversified supply, and sovereign choices of member states’ fuel portfolios. In a cost-efficient and reliable European energy market design, renewables and conventional energy sources — including coal — will have to complement each other.

Herein lies a cautionary tale for U.S. policymakers looking to emulate European-style environmental regulations and limit what has become a key component of the U.S. export business — coal exports — with little regard for long-term economic consequences.

Creating a de-facto mandate for utilities to use natural gas is problematic as, unlike coal, natural gas prices are highly volatile. Natural gas extraction is a still-evolving technology, which carries more environmental baggage than often assumed. And there is another conundrum; if you don’t want coal, nuclear may be needed to meet demand, and Fukushima has refueled the debate about nuclear energy in the U.S., too.

Meanwhile, as it is abundant and consistently affordable, on a global scale coal was, is and likely will be the fuel of choice to help stave off energy poverty for the foreseeable future. Discriminating against U.S. coal exports through higher review standards for perceived short-term economic and environmental gains will not change that.

With the House of Representatives having passed legislation supporting increased domestic fuel production, reining in the EPA and nixing other administration initiatives, Obama is now trying to funnel his agenda through the EPA. However, too much is at stake for Congress to just give up.

Regulatory overreach and back-door mandates favoring certain fuels defy economic reason — a lesson Europe is learning the hard way. Only a flexible energy portfolio, which lets utilities choose their energy mix from a range of options including gas and coal, can provide a secure and stable energy supply, while reining in price spikes and fostering innovation in the long run.

Sandra Fabry is a public policy expert focusing on state and federal spending, accountability, and regulatory issues. Currently based in Germany, she previously served as the executive director of the Center for Fiscal Accountability, which is now called the Cost of Government Center at Americans for Tax Reform.