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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Are Carbon Taxes To Blame For Europe’s Energy Crisis?

  • Europe’s energy crisis was, in part, caused by the desire of governments to make fossil fuels ‘prohibitively expensive’
  • The common claim that energy can be clean, reliable, and cheap has fallen flat, teaching policymakers a painful lesson
  • The harsh reality about carbon taxes is that they increase the cost of living and likely reduce quality of life

The European energy crisis seems to be the only thing anyone is talking about these days. Analysts opine over why it happened and how likely it is to spread globally (very, is the answer). The focus of most analysis has been overwhelmingly on the supply and demand gap that caused the crisis. In contrast, the underlying reason for the crunch hasn’t received nearly as much attention.

The fact is, Europe has been producing a lot less gas of its own in its drive to ‘go green’. It has made sure nobody really wants to produce gas because carbon taxes make fossil fuel production a lot more expensive. And there are more of these taxes coming, taxes which will only exacerbate this problem.

“Europe’s decarbonisation agenda requires making fossil energy use more expensive. That was always going to be a tough sell. Now that higher prices are suddenly here, it is going to be harder still.” This is what FT’s European Economics Commentator Martin Sandbu wrote in a recent article.

Indeed, the price aspect of the energy transition has been kept out of the public eye by government officials and environmentalist organizations who have all been hard at work hammering home the notion of falling costs for wind turbines and solar panels. As the current energy crunch shows, it’s not all about the falling costs of turbines or panels: even if those costs fall to zero, without sun or wind they cannot generate any electricity.

The harsh truth about a global energy transition

Only a few voices have dared warn that the energy transition will be anything but cheap. One of the big reasons for this would be the strategy of making fossil fuel production and use prohibitively expensive.

The noble idea behind this strategy is to discourage fossil fuel use, which would automatically lower emissions. It’s no wonder that carbon taxes are a popular measure for controlling emissions. They are simple and straightforward, and their effect is immediate. However, there are also side effects; these include higher electricity bills and, eventually, higher prices for everything.

“Gone will be that £19 London-Mallorca return flight on Ryanair,” wrote the FT’s Simon Kuper in an article about “real carbon taxes.” “Our clothes, petrol, meat and coffee will all get pricier. We’ll need to send an army of workers around the rich world’s houses ripping out boilers, installing heat pumps and insulating attics.”

According to Kuper, the current carbon taxes in Europe are more virtue-signaling than climate action. Carbon, he wrote, needs to become a lot more expensive to make a difference in emissions. But with it, everything else will become expensive. Politicians are aware of this, and it is the reason why they have not pushed for much higher taxes, especially after European businesses started complaining about the current carbon prices on the European emissions market.

One could look at this as a classic carriage-before-the-horse situation, in which authorities are pushing for what will effectively be a radical change in people’s way of life before they have ensured this change will be affordable for everyone - instead, European governments followed the Paris Agreement blindly.

On the other hand, the situation could be seen as unavoidable, as many critics have argued. The reason it was inevitable is that renewable energy and related technology has simply not been around long enough to become as dirt cheap as coal used to be before demand caused prices to skyrocket despite, one might note, carbon taxes. There is also the uncomfortable fact that renewable energy generation depends on the weather, which adds a substantial cost in terms of alternative backup sources of energy, which is what we are currently seeing in Britain and Europe.

Carbon taxes, according to pretty much everyone, are the only way to make sure our species reduces its carbon footprint. The higher these are, the better, proponents say, because high carbon taxes would speed up the transition to low-carbon energy. What they don’t say, including all those asset managers making net-zero commitments and urging governments to act more aggressively on emissions, is that this transition to low-carbon energy also means a transition to a lower standard of life.

Politicians like to advertise the energy transition as clean, reliable, and cheap. Yet this, as anyone who has ever worked in manufacturing or services knows, is the equivalent of fast, cheap, and good. You can never have all three at once.

You could therefore have clean and reliable, but it wouldn’t be cheap. Or you can have clean and cheap but, as we can see, it’s unreliable. As for reliable and cheap - these would be the detested fossil fuels that some governments are trying so hard to get rid of that they are willing to shoot themselves in the leg with carbon taxes.

By Irina Slav for Oilprice.com

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Leave a comment
  • George Doolittle on September 27 2021 said:
    Germany working with IBM has been front and center for over a decade now in trying to create a stabilized decentralized grid which is i think globally where the problem lies as everyone is using natural gas a "peaking fuel" to handle limited short term needs that affect grid stability but only the United States has a proper distribution across the entire grid to handle such variating loads on any given day.

    More to the point computers need to integrated into such a system with the idea that planned outages of say an entire nuclear power plant can have a requisite substitute for at a minimum the immediate loss of grid scale electric for say the first 24-48 hours thus allowing for other other base load operators the time needed to compensate.

    Basically "bad if not non-existent resolutions to computational math issues" and not any type of "energy crisis" in the least. ("I'm not lost I just don't know where I am right now" problem.)

    Anyhow yet more reason to never be caught short in any market ever.

    Long $ibm International Business Machines
    Strong buy
  • James Hilden-Minton on September 28 2021 said:
    Basically, natural gas is a failure as a bridge fuel.

    A tax of $61/t CO2 is about $3.23/mmBtu. Meanwhile, Europe imports LNG at around $18/mmBtu. Clearly, if reserves get low enough the carbon tax is a trivial barrier for producers.

    This effort to blame the carbon tax for the failure of gas to be a bridge fuel is bunk.
  • Paul Smith on September 28 2021 said:
    More important. Is petroleum use to blame for the climate crisis?

Leave a comment




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