Energy Politics

 

Climate activists recently completed their annual get-together, this time in the iconic oil city of Baku, Azerbaijan. The annual U.N. Climate Change Conference (COP 29) provides a forum for energy executives, climate activists, NGO leaders and policymakers from nearly every country on Earth to mingle while assessing the progress on climate change goals. 

While a great gabfest, the meeting enables pressure to be applied to countries not living up to their 2015 Paris Agreement commitments to cut carbon emissions and for failing to shovel sufficient money to less-developed countries. 

COP 29 began with a bang not anticipated by attendees. Ilham Aliyev, Azerbaijan’s President and COP host, defended his country’s oil and gas resources as “a gift of the Gods.” The conference was already grappling with the prospect of Donald Trump’s re-election, given his pro-hydrocarbons and anti-green views. People speculated Trump would remove the U.S. from the Paris Agreement as he did in 2017. Dismantling climate change policies was part of Trump’s campaign stump speech. 

In recent years, renewable energy’s deficiencies in meeting the globe’s power needs have crippled economies and burdened residents with soaring utility bills. Electricity cost inflation is tied to the growing investment in renewable energy. The public has awakened to the challenges of a warming planet, the increasing world population desiring improved living standards and economies eroded by high energy costs. How to balance these conflicts is the challenge. 

Despite years of promises that the transition from hydrocarbons to renewable energy would be seamless and yield lower electricity and energy bills, the public finds the claims false. Electricity prices are rising faster than overall inflation. Moreover, the public is learning that policymakers caved to climate activists and renewable energy developers by implementing mandates to force the transition and lathering it with subsidies from tax revenues. 

EV Failures

Electric vehicles, once heralded as a game-changer, have fallen short. They produce no carbon emissions. They’re silent, and they’re fun to drive, especially if you enjoy roaring away from stoplights. 

However, the practicalities of buying and owning EVs dashed the popular narrative. EVs remain expensive even after federal, state and local subsidies and price cuts to spur sales. Insurance costs more, and tires wear faster. Importantly, EV owners found that the real-world battery ranges often disappointed. Safety concerns, such as spontaneous battery fires, have prompted some home insurers to deny coverage if EVs are parked and charged in home garages. 

Claims that consumers would flock to showrooms to buy EVs failed to materialize. Domestic automakers are forced to slow their EV investments and lay off rather than hire workers. Instead of being universally embraced, EVs turned auto-manufacturing states into political battlegrounds. Trump’s battleground state victories were helped by autoworker voters fearing for their livelihoods. 

Across the pond in the U.K., 10 Downing Street officials are talking about introducing flexibility in the government’s EV mandate to prevent a collapse of the country’s auto industry. This comes after car maker Nissan warned that the industry was at a “crisis point” and risked crumbling without relief from the mandate. Killing an important industry is not a smart move. 

Soaring Prices

In Europe, economic growth has been undercut by soaring electricity prices that sap consumer spending.  The rush to switch to renewable energy has not brought electricity prices down as advertised. The result is that energy-intensive industries have become uncompetitive, capping a key growth driver for Germany’s economy, Europe’s largest. 

Projections call for Germany’s economy to contract in 2024 for the second consecutive year. 

Germany’s automotive sector, which accounts for five percent of its GDP and employs 800,000 workers, 37 percent of whom work for Volkswagen, has been hard hit. Volkswagen’s financial woes forced it to shutter three German plants for the first time in its 87-year history and cut thousands of jobs.  Volkswagen further plans to reduce remaining workers’ wages by 10 percent. 

“We are not experiencing a crisis in the automotive industry, we are experiencing a crisis in Germany as a business location,” a spokesperson for VDA, Germany’s auto association, said in a statement. Amplifying Germany’s economic problems, a study commissioned by the Federation of German Industries, representing business groups, says one-fifth of Germany’s industrial output is at risk between now and 2030 due to high labor and energy costs, high taxes and an aging population.

Dunkelflaute

Germany’s energy situation was aggravated by the recent Dunkelflaute (“dark wind lull”). This phenomenon can prove economically debilitating as wind was Germany’s leading generator of electricity last year, accounting for 32 percent. Wind’s share was helped by Germany’s industrial energy use falling nearly eight percent last year, the second consecutive year of decline. 

During November’s six-day lull, Germany’s wind output fell to between six and seven percent of its nameplate capacity of 61 gigawatts. One day, it fell to nearly zero. Hydrocarbon-generated electricity supplied 48 percent of the power needed to keep the lights on. 

The wind lull brought bad news for Germany’s electricity customers. Prices soared to €820 ($879) per megawatt-hour, assuring Germany remains home to the most expensive power in Europe.  Residential electricity currently averages 0.40 euros, or about $0.43, per kilowatt-hour compared to $0.17 in the U.S. 

Prices remain at risk because of the restructuring of Germany’s power grid. Before closing its last nuclear power plant in 2022, the country exported power to neighbors. Since then, it’s become an electricity importer, making it susceptible to supply disruptions and price shocks. 

Wind’s problem came only weeks after the German government announced it would provide $17 billion in new subsidies to wind energy companies. The money will help them compete against cheaper Chinese wind turbines. In announcing the subsidies, German Energy Minister Robert Habeck said, “We must continue to keep this industry competitive and ensure future value creation within Germany and Europe.” 

The European Commission has said “at least 37 gigawatts of new wind power must be added annually, compared to the 17 GW added in 2022.” 

The University of Cologne estimates Germany’s 2025 alt-energy subsidies at $19.3 billion, $2.1 billion higher than its earlier estimate. The tab will explode with the additional $17 billion wind subsidy. 

Backlash

A projected 2024 economic contraction, Volkswagen cutting plants and workers, increased government wind subsidies, soaring electricity prices and a wind drought had people turning on the government.  They have lost faith in their leaders. The collapse of the ruling coalition triggered a snap election.  Germans have had enough. They want their lives restored to the tranquility that existed before the turmoil commenced. 

It isn’t only Germans upset with their government’s energy policies. 

The French and Dutch remain upset with their respective government’s policies. Add to them the Cubans, outraged at their nation’s electricity grid collapsing multiple times in October. The combination of poorly maintained old plants and fuel supply disruptions jeopardizes Cuba’s grid performance. The 10 million residents have experienced multiple-hour power outages for months, making their lives difficult. 

People are upset with electricity systems that are unreliable because of more renewable power. It costs them money and, in some cases, their jobs. Government claims of renewable energy being cheap are falsehoods while citizens’ taxes are raised to pay for increased subsidies. 

No More COPs?

Javier Milei, Argentina’s President, ordered his COP 29 delegation to return home. Few world leaders attended the U.N. conference, and some leading energy experts failed to appear. Speculation surfaced that this may be the last COP. 

Few attendees expected the conference to agree to fund the $1 trillion annual climate investment underdeveloped economies need. The hope is that more money than the 2009 agreement for $100 billion annually will be forthcoming. That target was barely met in 2022, two years behind schedule. 

Public skepticism about climate policies is growing. A recent study by climate scientist Roger Pielke, Jr., using updated population and GDP growth projections in the IEA’s current policies scenario, shows global temperatures to be only 2ºC higher in 2100, far less alarming than the disaster forecasts of climate activists. 

Pielke’s projection is consistent with the U.N.’s target. However, studies challenging the mainstream narrative rarely receive media attention. 

As dissatisfaction grows, politicians who prioritize aggressive climate policies over economic and electric grid stability are ousted by voters. Incumbents in every one of the 10 major elections this year were kicked out of office, the first time that’s happened in 120 years. The populace is angry. 

Pragmatic Approach

Many argue that a pragmatic energy approach is needed by emphasizing cleaner hydrocarbons while pushing for innovation in renewable technologies. 

Energy remains the lifeblood of the global economy. Successful transitions must ensure affordability and reliability. Hydrocarbons and nuclear are the only energy sources that can deliver.