If you are going to make something, you need lots of energy. If the price of that energy goes up, you may find a more efficient way of using less of it. Your competitors will, eventually, work out how you did so and will copy you. That is how the market is supposed to work, and you shouldn’t complain. But if your competitor has a permanently lower energy cost than you, he is likely to drive you out of business.
This process can take a long time, but is inexorable. Britain has progressively given up the struggle to compete internationally in large areas of manufacturing. The car plants which turned the UK into a major exporter have mostly shut, or are on death row — the Mini factory outside Oxford will soon find itself making only cars which it will not be allowed to sell in Britain, surely unsustainable in the longer term. The steel industry, which has been a government pensioner for decades, forever on the verge of financial crisis, has only survived at all because of special subsidies for energy.
Now Germany, Europe’s manufacturing powerhouse, is facing the same slow strangulation. This week VW’s Thomas Schaefer warned on LinkedIn: at today’s prices, “investments in energy-intensive production or new battery cell factories in Germany and the EU will be practically unviable. The value creation in this area will take place elsewhere.” That elsewhere will, in effect, be China, with cheap energy powered by coal (with a dressing of wind-farmery on top).
We may kid ourselves that Britain sets an example to the world by sacrificing energy efficiency for CO2 reduction, but there is no evidence that either China nor India, the world’s biggest coal-burners, are taking any notice, and the CO2 will not stay there just because we are not generating it.
Europe is not even winning the battle to supply windmills for green energy. Vestas Wind, the world’s largest manufacturer, is losing money, while competitor Siemens Gamesa is cutting a tenth of its workforce. As Siemens’ CEO told CNBC: “Renewables like wind roughly need 10 times the material [compared with] ... what conventional technologies need.”
His immediate problem is component shortages, but western Europe desperately needs more hydrocarbons. Since the UK has decided that neither coal-mining nor fracking for gas is permitted, we import both, at a cost in jobs, dollars and energy security that we are now feeling in our fuel bills. A decade of monstering oil exploration in the North Sea means we must import more oil as well.
CapX’s Andy Meyer relates Aesop’s fable of The Hen that Laid the Golden Eggs. The owner gets greedy, slaughters it for the gold that must be inside and is left instead with a chicken dinner. The North Sea is not a poultry farm, but in introducing, then raising a third tax on the region in a matter of months, the Treasury has displayed similar wisdom. No serious oil company would commit billions under those unpredictable rules. Exploration is already enough of a gamble.
This is the great green deceit. Windmills and solar farms are all very well but they cannot provide enough power to replace oil and gas under any realistic scenario.
Technologies like green hydrogen, wave power or reinjecting CO2 into old oilfields are marginal at best, even if they can be proved to work. Nuclear power has turned into an arms race between improving technology and increasing safety and environmental standards. As with most arms races, it is not clear who will win.
It is of little comfort that fellow Europeans are also in our leaky boat. Having decided to go for green and abandon the dirty petrol-powered outboard, we find ourselves up the same creek without a paddle.
Neil Collins and Jonathan Ford produce a podcast, A Long Time In Finance, on Spotify and Apple, every Friday