Climate Policy Meets Bitter Cold Reality In Europe

European leaders at the United Nations last week applauded themselves as they doubled down on their pledges to slash CO2 emissions.

And Prime Minister Boris Johnson said the U.K. “will lead by example, keeping the environment on the global agenda and serving as a launchpad for a global green industrial revolution.”

Such vows of carbon chastity are, to say the least, ironic as Europe grapples with a severe energy shortage and surging prices wrought by its green industrial revolution.

In the past decade, the U.K. and Europe have shut down hundreds of coal plants, and Britain has only two remaining. Spain shut down half of its coal plants last summer.

European countries have spent trillions of dollars subsidizing renewables, which last year for the first time exceeded fossil fuels as a share of electricity production.

But renewables don’t provide reliable power around the clock, and wind power this summer has waned across Europe and in the U.K., forcing them to turn to gas and coal for backup power.

Yet demand for these fossil fuels is also surging across Asia and South America, where drought has crimped hydropower. There, manufacturers are also consuming more energy to supply Western countries with goods.

Japan has become especially dependent on liquefied natural gas imports since it shut down most of its nuclear power plants after Fukushima in 2011.

Even China has been forced to ration electricity to energy-hungry aluminum smelters because of a coal power shortfall. This has sent global aluminum prices soaring.

Increased global demand has caused the price of coal to triple and the price of natural gas to increase fivefold over the past year. Europe’s cap-and-trade scheme has pushed prices even higher.

Under the program, manufacturers and power suppliers must buy carbon credits on an open trading market to offset their emissions.

The price of credits has spiked this year as demand for them from coal plants and other manufacturers has increased while government regulators have tightened supply.

Russia is exploiting Europe’s energy difficulties by reducing gas deliveries, perhaps to pressure Germany to complete certification of its Nord Stream 2 pipeline, which bypasses Ukraine.

Russia’s Gazprom has booked only a third of the available transportation capacity through its Yamal pipeline for October and no additional deliveries via its Ukraine pipeline.

Europe has become ever more dependent on Russia—the world’s second-largest gas producer, after the U.S.—for energy because the U.K. and Germany have banned hydraulic fracturing, letting their rich gas shale resources go to waste. Meantime, the Netherlands is shutting down Europe’s biggest gas field.

In short, all of Europe’s green chickens are coming home to roost. Several U.K. retail electricity providers have collapsed in recent weeks because of the surging price of gas.

Energy experts warn that some German power suppliers are in danger of going insolvent. Germany’s electricity prices, which were already the highest in Europe because of heavy reliance on renewables, have more than doubled since February.

Skyrocketing power prices have caused U.K steelmakers to suspend production. A former energy adviser to the U.K. government warned last week that the country’s energy shortage this winter could prompt a “three-day working week”—a reference to the coal and rail worker strike in 1974 that caused the government to ration energy for commercial users.

The European Steel Association has warned that the Continent’s producers are becoming globally uncompetitive. Fertilizer producers, which use gas as a feedstock, are raising a fuss.

Norway’s Yara International plans to curb 40% of its fertilizer production capacity in Europe. U.S.-owned CF Industries earlier this month halted operations at its fertilizer plant in northeast England, threatening downstream businesses.

Beer and soda manufacturers use the carbon dioxide that is generated as a byproduct of fertilizer production for fizz. Carbon dioxide is also used to stun livestock before they are slaughtered, as well as for vacuum packs and dry ice to store frozen foods.

The U.K.’s Food and Drink Federation has warned that consumers might soon notice products missing from supermarket shelves from the carbon dioxide shortage.

The warning prompted the U.K. government last week to lend financial support to CF Industries. European metals producers are asking governments for aid.

There will be more bailouts as European energy demand heats up this winter. These energy woes will only get worse in the coming years as governments push harder to purge fossil fuels.

U.S. gas and coal producers have benefited from rising prices in Europe. Growing exports, however, are pushing up prices that Americans pay for energy because domestic production lags pre-pandemic levels.

Natural gas prices in the U.S. have doubled since the spring, and some coal power plants are scrounging for fuel.

Europe offers a portent of the havoc to come under the Biden administration’s policies that aim to shut down fossil-fuel production and power the U.S. grid exclusively with renewables.

Democrats won’t succeed in banishing fossil fuels. Instead, the U.S., like Europe, will need more gas and coal to back up renewables, and the U.S. will become dependent on adversaries like Russia for energy.

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