Europe Invested Massively In Renewables Without Improving Air Quality Despite subsidized solar and wind, cheap coal and expensive natural gas mean higher emissions, and more green house gases

By Paolo von Schirach

October 13, 2013

WASHINGTON – There is global warming, no doubt about it; and it is beginning to cause climate change. If we believe, and most people do, that the warming of the earth is induced by man-made activities, (mostly burning fossil fuels whose emissions cause the “green house effect”), then it is sensible to promote policies aimed at reducing the use of carbon, while promoting zero emission energy from renewable sources.

Public policy does not work well

So far so good. However, let’s be careful about how we want to accomplish this goal. Indeed, this is not at all easy, because public policy is not very good at governing rapid technological change. The Economist provided a good example of the bad results of good intentions in an instructive brief on European utilities. (How to lose half a trillion euros, October 12, 2013). Without getting into the intertwined technical and economic issues described in detail by this excellent piece, it is enough to note that all the efforts aimed at mandating the use of renewable energy caused the demise and in some cases the ruin of utilities that are still working with carbon based feed stock, without achieving any environmental gain. 

It sounds impossible; but it is so: a lot of pain, and no gain.

New factors

Several dynamics explain this baffling outcome. But let me describe just one. As Europe was undergoing its power generation make over aimed at promoting solar and wind, the US started producing massive amounts of natural gas to be used primarily for power generation. This shale gas is both cheaper and cleaner than coal. And for this reasons the US is experiencing a shift from coal-fired to gas-fired plants. This translates into a net addition to world coal supply at relatively low prices. If we shift to Europe, we see what this caused. In Europe natural gas is scarce and expensive. Therefore it makes economic sense for utilities still using carbon based fuel to shift to cheap coal.

And here we have the final picture. Even though the cost of renewable energy has come down substantially, its privileged place in the market place is guaranteed by subsidies and regulations. Power plants fired by natural gas cannot compete, because of the high cost of fuel. But cheaper coal can compete.

Subsidized renewable and higher emissions?

And do you know what the end result is? Well, the end result is more coal fired plants. And so, oddly enough,  notwithstanding the promotion of renewable energy, Germany’s emissions are now higher on account of the tax and regulatory disincentives to use cleaner natural gas and the cost advantage of coal.

Which is to say that, because of new dynamics that had not been factored in at the beginning, the noble goal of making consumers pay more for cleaner energy, because this would yield cleaner air and lower emissions, was not achieved. In fact, we have the opposite: Europe has higher emissions and worse air quality. Paradoxically, carbon-addicted America retired several dirty coal-fired facilities, while it built cleaner natural gas burning power generation plants, this way cutting down its own emissions.

Regulations do not speed up technology

And here is the warning to policy makers who believe that it is all about fine tuned regulations, taxes and incentives: It is really hard to regulate technologies, especially those that are still not mature. Yes, it would be great to be able to switch today to safe, cost-effective and emission free non carbon energy. But we are not there yet. And regulations plus incentives will not do the trick.

Indeed, whatever the good intentions, Europe ended up investing huge sums in not so cost-effective solar and wind, while causing the semi-bankruptcy of old power generation businesses, without accomplishing the policy goal of lowering emissions. As a minimum, this unpleasant reality should invite some reflection.