The Unintended Consequences of Going Green

The Ukraine crisis and the possible use of natural gas as a weapon against the Ukraine and Western Europe is an unintended consequence of EU excessive focus on emissions reduction and green energy.  By focusing on its green agenda to the exclusion of energy and economic security, European nations have made their current energy problem much worse.  Dieter Helm of Oxford recently observed, “The curious feature of the energy policy that emerged from the middle of the last decade is just how little serious effort has been put into security – in particular Eastern security,”

Twice in the past 10 years, Russia has curtailed gas to the Ukraine and in doing so gas to the Western Europe.  This should have been a wake up call to Western European nations.  Although some steps have been taken to by-pass the gas pipeline through the Ukraine, there has been no high priority strategic plan to diversify away from excessive dependence on Russia.  Europe depends on imports for more half of its energy consumption.  Russia provides about 30% of its gas and 35% of its oil.  It takes time to change the pattern of imports but Europe has not used the past 8 years since the first cut-off wisely.

For well over a decade, Europe led by Germany has pursued programs to move toward renewable energy and away from fossil energy and nuclear.  Germany for example shut down seven nuclear plants in 2011 and the EU has adopted a policy that leads to shuttering coal fired plants that do not meet very strict emission requirements.  The Green Policy adopted by the EU has been a disaster as is evident before the current crisis by countries moving away from it because of its impact on electricity prices and domestic industrial investment going elsewhere.

Although Western Europe is heavily dependent on energy imports, it has many options for diversifying its sources of imports and for beginning to develop its own shale gas.  The failure of the EU’s Green Agenda has led to a resurgence in coal use.  That should continue and the restrictive directives repealed.  EU nations have large shale gas reserves, although Germany and France currently ban fracking.  That policy should change and a concerted effort should be made to engage US technology.  The recent surge in LNG imports should be increased and more terminals built.

Dieter Helm also has published work discussing diversification of supply and identified the potential for obtaining gas from large reserves in Israeli and Cypriot waters in addition to shale gas potential. He concluded that breaking Russia’s grip on energy supplies will not be easy or cheap but the alternative is even more costly. A serious effort by the EU on its energy policy and acceleration of approval for the export of US oil and gas would send a chilling message to Mr. Putin.

There are two lessons to be drawn from the Ukraine crisis.  The first is that the cost of neglecting energy security will be much greater when circumstances force addressing it.  The second is the assumption that trade creates bonds of self-interest without serious limitations.  Free societies will respect that self-interest of trade much more than a thug like Putin who is only interested in self-aggrandizement.  For the future, nations dealing with Russia should rely more on Mario Puzo’s The Godfather than treatises on free trade.