The 30 Year Russia-China Gas Deal Tells Us That Carbon Energy Is Here To Stay We were told by President Obama that China is leading in solar and other renewables. Well, they still need carbon, it seems

WASHINGTON – We have been told time and again by President Obama that America has to invest in renewable energy because otherwise China will dominate the solar panels industry. (Remember US subsidies to Solyndra and others?)

The Chinese see the future

You see, the Chinese are smart and strategic. They have seen the light. They understand that carbon based energy is a thing of the past. And this is why they are investing massively in renewables. Therefore it is imperative for America to stay in the game, regain lost ground and develop are our own world-class solar energy sector. Hence the need to subsidize the US solar energy industry.

How do we explain a $ 400 billion gas deal?

Indeed. Well, if it were so, if China had passed the inflection point and is now totally committed to renewables, how do we explain the fact that China just signed a $ 400 billion, 30 year contract for Russian natural gas? And do consider that, as a component of this deal, China is also obligated to spend at least $ 22 billion to develop the infrastructure (pipelines, pumping stations and more) necessary to get all this gas to its final destinations within China.

Again, this is a $ 400 billion deal for deliveries that will take place over the next 30 years –a very long time horizon. How does this square with China’s strategic decision to go all the way with solar power?

China needs carbon based energy

Well, it does not. This “contract of the century” does not mean that China suddenly ditched renewables. But it certainly means that Beijing believes that it needs a lot more energy, and that natural gas from Russia is a good and cost competitive source.

I certainly do not fully comprehend the (mostly hidden) intricacies of how a web of soft loans, subsidises and other political favors allow Chinese solar companies to stay in business. But the Russia gas deal tells me that China realistically believes that its renewable energy sector is not mature enough. Otherwise, it would make no sense to be locked into a 30 year natural gas contract.

Europe: the disasters of imposed renewable energy

In Europe the picture of the negative consequences of politically imposed renewable energy is more transparent. Inspired by the lofty goal of reducing harmful emissions, European policy-makers decided to tax carbon energy while subsidizing renewables. If you indeed believed that carbon is bad (and it certainly is) while we have perfectly suitable, zero emissions alternatives, then it made perfect sense to encourage their adoption through a combination of carbon taxes and incentives for wind and solar.

Wrong premise

Great idea. Except that the premise was totally wrong. Sure enough, carbon produces emissions. This is true. But as of today we do not —repeat, we do not— have cost-effective alternatives. At the current level of development, renewables are still inefficient  and on average more expensive than carbon based energy sources.

But Europe went ahead anyway. The net result of this disastrous policy choice is that the European consumers pay for the subsidies bestowed on solar and wind through sky-high electricity rates. As a result, many European industries are penalized because their costs are much higher due to the inflated price of electricity.

Higher prices, higher emissions

And guess what, notwithstanding all this, in Germany total emissions are actually higher today than they were before this gigantic subsidy scheme was enacted.

And how is this possible? Well, very simple. Subsidized solar displaced gas-fired power generation. Therefore the only cost competitive fossil alternative is coal. And coal, compared with natural gas, produces higher emissions.

Moral choices, bad outcomes

There you have it. Talk about the unintended consequences of lofty and supposedly “moral” policies. The Europeans wanted to be good and wise by embracing renewables, while taxing carbon. What they got instead is the forced deployment of immature renewable technologies. This led to very expensive electricity and…higher emissions.

That said, the gist of this story is not that carbon energy is “good” while renewables are “bad”. The essence is that it is unwise to force the adoption of still immature technologies through policy mandates.

I do understand that some policy-makers acted in this way because of the urgency represented –in their view– by climate change and global warming. Still, whatever their good intentions, they made a mistake. In the end, their ill-advised choices do not improve the climate, while they ended up costing a lot more.

I am confident that sooner or later we shall come up with cost-effective, renewable technologies that will replace emission producing carbon energy. But we are not there yet.

If we were there, then the choice would be obvious. All economic sectors in all countries would ditch carbon based energy and embrace renewables. Consumers would not need to be prodded by mandates, tax incentives and subsidies in order to shift.

Fund research

If governments really wanted to help the development of cost-effective replacements for carbon they should fund more research in renewable energy. They should not try to pick winners within a renewable energy sector that has a long way to go before it can be truly competitive.

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