In that way, the Net Zero Industry Act announced Thursday appears to be a direct effort to guarantee energy security in line with measures already underway in the US and China. The European Commission hopes the law will ensure a 40% local share for key green technologies by 2030.
The policy, however, is based on a profound misunderstanding of how goods and machines are used to produce energy. Paradoxically, this may make the EU more vulnerable in the event of conflict than it would otherwise be. Europe’s history of using raw materials as weapons during war should demonstrate the fallacy of its current decision-making.
One way we categorize the materials used in modern society is to divide them into durable goods and consumables. Durable goods, such as cars and refrigerators, are bought once and used over and over again over a decade or more. Consumables, like petrol and milk, are bought every few weeks: to use them is to destroy them, so we have to constantly replenish our supplies.
You can make a wide distinction between goods on the same basis. Food, fertilizers and fuels are consumables, while most metals and machines resemble durable goods.
That division has important implications for national security. If you depend on imports for your supply of consumables, foreign countries can bring your economy to a halt by blocking trade routes. Consumables need to be constantly renewed. During World War I, the Allies brought Germany to the brink of starvation by cutting off its supply of nitrate fertilizer, which at the time came mostly from bird droppings around the shores of the Pacific Ocean.
With durable goods it is much more difficult. If the US, Japan and South Korea stopped exporting cars to the EU tomorrow, most people would barely notice. Annual imports amount to about 3 million in a fleet of passenger cars that number more than 250 million. During World War II, the US and Great Britain held drives to recycle steel and rubber from domestic vehicles and household goods for munitions factories. The same Allies predicted that Nazi Germany would quickly fall to its knees because of its dependence on imported metals. In practice, frugality and substitution meant that metal shortages were never a serious problem for Berlin.
This is why the restrictions on the import of machines from renewable sources are misunderstood. The 146.7 billion cubic meters of gas that flowed from Russian pipelines to Europe in 2021 disappeared for the foreseeable future, meaning the continent had to find immediate alternatives to supply the roughly 775 terawatt-hours of electricity you can generate from it. 1) However, the 255 gigawatts of wind turbines installed at the end of 2022 will produce about 558 TWh of electricity year after year, regardless of the geopolitical situation. China cannot cut off Europe’s wind supplies.
What the measures achieve is to slow the pace of the transition to renewable energy sources, increasing costs for renewable developers and electric vehicle buyers in an attempt to protect Europe’s undersized green energy manufacturing industry.
This is likely to make the region’s energy security weaker, not stronger. Europe depends on fuel imports for more than half of its electricity supply, with domestic reserves providing only 13% of gas, 3% of oil and 60% of coal. It is also heavily dependent on Russian uranium and nuclear fuel to supply its reactors, especially in parts of the east where power plants are based on Soviet designs. Reducing that dependence by switching to domestically produced renewable energy sources will help the EU in terms of energy security almost as much as in terms of climate.
With the costs of most renewable technologies more competitive than ever, misguided regulatory policies of this kind will most likely slow down the decarbonization of our economies. Europe follows the USA and China in returning to the failed dirigiste economic policies of the past, when it should embrace the technology of the future.
More from Bloomberg Opinion:
• Your local solar panel plant may be holding back net zero: David Fickling
• Coal’s False Return Flashes Climate Warning Signal: Lara Williams
• Go ahead, America, give European companies billions: Chris Bryant
(1) Based on the assumption that all gas is burned for an electric turbine with 60% thermal efficiency. In practice, a large part is burned for heating in homes or factories.
This column does not necessarily reflect the opinion of the editorial staff or of Bloomberg LP and its owners.
David Fickling is a Bloomberg Opinion columnist covering energy and commodities. He previously worked for Bloomberg News, the Wall Street Journal and the Financial Times.
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