Atjaunojamo energoresursu politikas konference Briselē

Brussels, 24.05.2011
EREC 2011 – Europe’s Renewable Energy Policy Conference

Programme of conference

Ladies and gentlemen, distinguished guests!

When most of us hear about renewable energies, we usually think about dire arguments of CO2 emissions and global warming as the reason that we need to change our energy consumption patterns from oil, coal, and gas to the sun, wind, water, and biomass.  We are told that if we do not heed the warning of mother earth, then over time the level of the oceans will rise, and many of our metropolitan areas will be submerged under unknown quantities of water.

The difficulty with this line of argumentation is that it leaves it as an article of faith that not only global warming is indeed occurring, but that the main cause of this phenomenon is our collective burning of fossil fuels.  While this line of reasoning seems to have many faithful followers, including large swaths of the press, politicians and the European Commission, there are still a very large number of skeptics as to the soundness of this “eco-faith”, including some scientists, not only right-wing politicians.

I am going to argue the case that Europe indeed needs to reduce its burning of fossil fuels, but my reasons will be based on economics, not on articles of faith.

For more than a year, all of us in Europe have been concerned about the economic events unfolding in Greece, Ireland, Portugal and even Spain, because the economic difficulties that these countries are having are creating negative repercussions throughout the Euro zone, indeed, throughout all of Europe.

Because capital markets have been losing faith in the ability of these countries governments to pay back their debt, the interest rates that they have to pay to borrow money has been going up.  Indeed, the EU “bailout” of these economies to date has simply meant more loans, albeit at better rates than open capital markets are willing to provide.

For the taxpayers of these countries, this means that a growing proportion of national production is flowing out of the country in the form of interest payments. Every euro paid to foreign creditors is one euro less that they have to spend on developing their own economies and increasing the quality of life for their citizens.  Indeed, there seems to be a growing consensus among economists that the Greek situation is not sustainable – Greek debt (hence outgoing cash) is considered too large to pay off. As economists around the world are predicting a Greek default, everyone else is trying to understand how that will not only affect the Greek people, but people and economies throughout Europe.

In the field of energy, Europe consumes much more than it currently produces.  On average, we Europeans are more than 52% dependent on energy imports.  These imports come in the form of fossil fuels, primarily oil and gas.  If we compare our energy balance to a balance-of-payments, then it is clear that we are on an unsustainable path in terms of our energy consumption.

First of all, we need to remind ourselves that every Euro that we spend on imported oil and gas is in draining our own economy while enriching the economies of those countries that export fossil fuels.

Second of all, we have to remember that most oil and gas exporting countries (with the noted exception of Norway) do not have stable democracies, if they have a democracy at all.  As we have seen this spring, political events in a country such as Tunisia (which is not considered a large oil-producing country) nevertheless can result in acute price increases of oil throughout the world.   As the price of oil increases, one can just imagine the giant “sucking sound” of European cash whisking away to Russian and Saudi Arabian coffers.

Although it is difficult to put into practice, the only way for a government to avoid  a default is to curtail its expenditure to be in line with its real tax income.  As my country, Latvia, has shown, this is indeed possible, although very difficult for the average citizen to cope with.  However, it is the only road to long-term economic stability in Europe.  We simply cannot continue spending indefinitely more than we earn.

In terms of energy, a similar sort of logic applies.  We as Europeans cannot afford to indefinitely continue draining cash from our own economies to import oil and gas.  First of all, we hurt our own growth by the cash drain.  Second, we make our citizens susceptible to major price swings due to the inherent political instability in most of the world’s oil and gas producing countries.

How can we live “within our means” in terms of energy?

First of all, similar to our government budgets, we have to find ways to consume less.  Energy efficiency is the first and most important step that we as Europeans need to make in order to decrease our energy import dependency.  It’s really quite simple – the less we consume, the less we need to import, the less dependent we become upon the political situation of the exporting countries. We need only to remember the Russian-Ukrainian “gas wars” of only a couple of winters ago to appreciate our need to consume fewer imports.

Energy efficiency comes in many forms – we can better insulate our buildings and waste less heat and electricity for cooling, we can switch to more efficient lighting such as led bulbs, we can upgrade our household appliances to waste less energy, we can commute more by public transportation, bicycle, and foot to consume less oil.  This list goes on and on.

Besides being more energy efficient on how we consume energy, Europe also has a huge potential in exploiting alternative sources than oil and gas for energy generation.  As technology has developed, we have a greater and greater ability to increase our production of renewable energies – from the sun, wind, water and biomass.  At least one European country – Denmark – has already made a political commitment to be free of fossil fuels by 2050.  This is a very ambitious goal, certainly driven in part by the realization that their own fossil fuel reserves are diminishing quickly.  Unless Denmark alters its energy production and consumption habits, it will change from being the only net EU exporter of energy as it is today to becoming a net importer by the same year 2050.

If we can agree that for purely economic reasons we need to change our energy production from imported to local sources, then the next question is:  how to attain this goal?  I see two main jobs that need to be accomplished in this regard:

1)  In order to provide the proper economic incentives for the production of renewable energies, we need to stop our continuing subsidies of fossil fuel production.  This makes renewable energies seem “expensive” when compared to fossil fuels. According to the 2004 data on the EU 15 countries, subsidies for fossil fuels totaled 21.7 billion Euros, compared to 5.3 billion Euros for renewable energies. In my own country, Latvia, in 2010 subsidies for energy production for natural gas were 7 times greater than subsidies for renewable energies. We have to let markets work freely.

2)  As is well known, renewable energy sources such as the wind and the sun that do not have a 24-hour steady production level put additional stresses to the energy grid.  This means that Europe needs to invest seriously in developing an EU-wide interconnected energy grid, so that available production can be balanced with consumption on an EU level, instead of the much more limited national level.

As is no surprise, their is plenty of opposition to increasing the level of renewable energies in Europe’s energy mix.  First of all, incumbent producers are naturally opposed to changing their business model.  Second of all, there is a growing political pressure coming from oil and gas producing countries, especially Russia, not to change our energy mix.  In the Baltic countries, all of us are 100% dependent upon Russian gas for up to 1/3 of our energy consumption.  It is quite natural that the Russian government is doing what it can to delay our implementation of the 3rd energy package (the EU legislation requiring countries to open up their energy markets and dissolve market domination by monopolies).

Among the EU incumbents, coal-producing companies and countries are naturally reluctant to give up the jobs associated with coal extraction and exports.  We need to give these countries the opportunity to replace these coal jobs with new jobs in the renewable energy sector.  This will require not only resolve, but some time.

Overall, the antidote to renewable energy opposition is to truly open up energy markets in Europe and gradually remove market-distorting subsidies.  There are many things that we do not know about the future.  Indeed, we hardly know anything about it.  However, we do know the future price of solar and wind energy – 0.  Just as today, the sun will shine and the wind will blow for free also tomorrow.  Our costs are in harnessing this energy, storing it, and distributing it to customers.  On the other hand, we can also be quite certain that over time, the cost of fossil fuels such as oil and gas will increase proportionally to their decrease in cheaply available geographical formations.

Ladies and gentlemen!

It is time to move beyond the realm of faith in understanding that we as Europeans need to reduce our dependence on imported oil and gas.  The answer lies in increasing energy efficiency and the use of renewable energy sources.  It just makes plain economic sense.  On top of that, it should also make us feel better about the world that we live in, regardless of our personal views on climate change.

Thank you very much for your attention!