Home European Union Europe’s Hostility Toward Domestic Fossil Fuel Exploration Comes at a Cost

Europe’s Hostility Toward Domestic Fossil Fuel Exploration Comes at a Cost

By
Pieter Cleppe
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Rising energy prices as a result of the Iran crisis are having an effect on the energy policy debate in Europe. Greta Thunberg, once a passionate climate activist, is now focusing on other things, and so are Europe’s politicians. The policy consensus is changing, but the energy policies pursued over years come at a cost.

Most notable so far was European Commission President Ursula von der Leyen’s u-turn on nuclear power, as she stated:

“In 1990 one-third of Europe’s electricity came from nuclear, today it is only close to 15%. This reduction in the share of nuclear was a choice, I believe that it was a strategic mistake for Europe to turn its back on a reliable, affordable source of low-emissions power.”

When she was a member of the Bundestag, von der Leyen herself has voted in favour of the German nuclear exit, a policy the German government refuses to abandon until this day.  It is not often that politicians admit they have been wrong, so when they do, that should be welcomed.

ETS

The European Commission chief however stubbornly sticks to another key tenet of EU energy policy: the Emission Trading System (ETS), a de facto climate taxation scheme. This arrangement truly damages European industry, as the cost of the ETS alone is about twice as high as the total American natural gas prize. While ending the large-scale energy policy experiments will take long, suspending the ETS, which is requested by the likes of Italy, Poland and Slovakia, could alleviate European industry today.

Following criticism by BASF, the world’s biggest chemical company, the European Commission is even more on the defensive on the issue. According to von der Leyen, “without ETS we would now consume 100 billion cubic meters more gas, again making us more vulnerable, more dependent and weaker. (…) So we need ETS. But we need to modernize it.”

First making gas very expensive and then rejoicing there is fewer gas consumption than would have otherwise been the case obviously makes no sense whatsoever. Surely, at one point, an alternative to fossil fuels may pop up, but we are very far from that.

Given that a suspension of ETS is the only short term measure available to EU policy makers to alleviate Europe’s suffering chemical industry, the backbone of all other industries, it truly should only be a matter of time before the mandarins in Brussels – and a number of crucial EU member states – also change their mind about this issue. At last week’s EU summit, the defendants of ETS managed to defend the scheme, for now. The European Commission promised to make a proposal to boost the EU’s carbon market reserve and develop a 30 billion euro decarbonization fund. While the first element is likely to lower the cost of ETS, the second ultimately means yet another burden for taxpayers, who will now be asked to pay for “projects for decarbonization” under some kind of first-come, first-served scheme with a focus on lower-income EU member states.

EU control over taxation

Before the EU Summit, in a clear attempt to divert attention from the ETS issue, the European Commission had suggested that in order to lower energy bills, EU member states should lower energy taxes. 

While this is clearly a good idea, it is none of the business of the European Commission, which is truly using every occasion to acquire more control over national taxation policy. Last Summer, it came up with a proposal for more “own resources” – direct levies to finance the EU budget apart from national contributions.

This is strongly opposed by a number of EU member states. In response, Sweden’s Finance Minister Elisabeth Svantesson called it “completely unacceptable”, thereby also lamenting that the Commission not only considers levies on tobacco products as one of these “own resources”, but also levies on alternatives to tobacco. She complained: “It seems that the European Commission’s proposal would mean a very large tax increase on white snus and, in addition, the Commission wants the tax revenue to go to the EU and not to Sweden.”

That’s indeed problematic. Sweden is the only EU member state with an exemption from the EU ban on snus, an alternative to smoking tobacco. After three decades, the alternative Swedish approach can be judged. Not only does the country have among the lowest smoking rates in Europe, it alsohas a much lower incidence of smoking-related diseases.

Separately, through the revision of the Tobacco Excise Directive, the EU Commission is pushing for higher minimum excise duties for traditional tobacco products. Complaints that this would fuel illicit tobacco trade and hurt purchasing power of consumers, especially in poorer EU member states, are being ignored. In a parliamentary question, Swedish MEP Jessica Polfjärd has warned that this EU legislative change should “not interfere with the successful” Swedish model, stressing that Sweden’s exemption should also continue to apply to ‘white snus’ – nicotine pouches – which have emerged as an alternative product and which contain no tobacco at all.

At least in January, the Cyprus Presidency of the Council of the EU came up with a new draft compromise on the issue that represents an improvement, as it slightly softens the increase in some areas and also grants a transitional period. It is yet more evidence that EU member states are the more sensible party here, even if the approach to treat non-harmful or less harmful products the same as harmful ones have survived, for now. Cyprus is being backed by several EU member states, which fear that an overly abrupt increase risks fuelling illicit trade, eroding tax revenues and overwhelming national enforcement authorities.

EU Price caps

Not content with acquiring more control over taxation policy, the European Commission is also using the energy crisis to promote price controls. In response to the ongoing energy price concerns, von der Leyen has suggested “exploring subsidizing or capping the gas price.” This is unlikely to solve the core of the problem: energy shortages. It is also questionable coming from an institution that has made great efforts to phase out fossil fuel production from the EU, which made Europe artificially dependent on external providers, like Russia and Qatar, whose gas exporting capacity has been severely damaged due to the Iran war. Not so long ago, more gas was produced in the EU than in Russia.

Surely, if one wanted to phase out fossil fuels, one would start with phasing out imports, not domestic production, certainly given the fact that environmental regulations for fossil fuel exploration tend to be stricter in Europe as compared to the rest of the world.

Not only the European Commission deserves blame for Europe’s energy dependence. Also EU member states bear a great responsibility. The Netherlands for example decided to completely phase out domestic gas exploration, on shaky scientific grounds. The Dutch government even decided to poor concrete into the gas pits in Groningen, the hub for Dutch gas exploration, to make it much harder for future governments to rethink this policy.

With the escalating gas price, ideas about this are changing. Energy Technology Professor David Smeulders of Eindhoven University of Technology has stated that it would be “very sensible” to keep Groningen open as a strategic reserve, explaining: “We no longer pump up natural gas to make money, but for an emergency stockpile, it would be handy if some wells remain open. We did not promise the people in Groningen that we would seal off the wells.”

As a result of the Dutch policy choice, Romania overtook the Netherlands as the largest gas producer in the European Union in 2024, for the first time. With the start of offshore production in Neptun Deep in 2027, domestic production is scheduled to double. The ongoing trouble in the Middle East is unlikely to change minds.

Despite Brexit, the UK continues to broadly align with EU energy policy. Also there, a debate has erupted on the wisdom of Energy Secretary Ed Miliband to ban all new oil and gas exploration in the North Sea, particularly as Norway simply continues to exploit its resources in nearby waters to the full.

Also Bloomberg’s leading energy analyst Javier Blas urges: “We need to extract more oil and gas from the North Sea”, arguing:

“It’s better to extract it here than to import it from overseas. Regulations are stricter here, it will be better for the environment, it will create jobs, economic growth, and tax revenue. That doesn’t necessarily mean we abandon the green transition. But it does mean we need to balance it with our economy and consider how we can grow it and keep our industry competitive.”

A changing debate

Last but not least, there is the opportunity for the UK – and other European countries – of shale gas. While this kind of exploration is banned in Europe, European countries nevertheless happily import rather expensive US shale gas – which the US now also use as political leverage. Respected British science journalist Matt Riddley writes about the issue:

“According to an estimate made in 2019 by UK Onshore Oil and Gas, based on the results of actual drilling in northern England, 100 drilling pads could realistically be producing 40 billion cubic metres (bcm) of shale gas a year by the mid 2030s. Britain’s natural gas consumption is around 60 bcm per year and we already produce around 25 bcm each year, mainly from the North Sea.

So if we had got a move on ten years ago we could by now be heading towards being self-sufficient in gas and exporting the surplus to other countries. That would improve the balance of payments by around £8bn a year, save 80 million tonnes of carbon dioxide by 2035, compared with imports of liquefied natural gas, and generate £600m in community benefits and £1.2bn in business rates by 2035.”

It is noteworthy that campaigns to swing public opinion against shale would have been funded by Russia, at least according to former NATO secretary general Anders Fogh Rasmussen in 2014. Also in Romania, there are many allegations about this.

It is hard to predict how events in Iran will unfold, but it is increasingly clear, that for Europe, business as usual when it comes to fossil fuel exploration, is getting increasingly expensive.

 

  

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