By Brigham A. McCown
Picture taken on June 11, 2014, near the village of Sajkas, 80 kilometres north of the Serbian capital Belgrade, shows the site where Serbia started the construction in Novemeber 2013 of their section of Russia's South Stream pipeline.
Some Europeans may be tempted to celebrate Russia’s recent decision to abandon South Stream, a Black Sea pipeline, conceived to connect Russian gas to central Europe by way of Bulgaria. Yet, from the U.S. perspective, the Europeans have neither the time, money, nor luxury for schadenfreude.
To be sure, the cancellation is momentous. South Stream was Putin’s way of strengthening his grip on eastern European consumers, bypassing Ukraine, and undermining the EU-sponsored Nabucco pipeline, an avowed EU effort to reduce reliance on Russian gas. Both projects are shelved, for now.
But the very fact of Europe’s vulnerability to Putin’s pipeline gambit illustrates the precariousness of Europe’s energy security and the certainty that future tyrants, if not Putin himself, will turn again to energy as their best lever for manipulating Europe. If Europe fails to face up to the realities of decades of ill-conceived EU energy policy, the wolf will soon be back at the door.
Happily, there are solutions. For example, the Europeans might consider plagiarizing the North American playbook. Putin would be powerless to manipulate a United States of Europe that modeled U.S. energy policies, even partially. The EU could start by adopting a common policy that binds all 28 member states to common energy priorities, strong industry engagement, effective regional investment incentives, a well-integrated infrastructure network, and a well-diversified, more reliable fuel mix which includes renewables, fossil energy and nuclear power.
For decades, European energy policy has been informal, at least on the federal level. Europe-wide policy has focused on environmental regulation, phasing out “bad” fuels like coal or nuclear, and vaunting a sometimes delusional vision of a world in which the industrial engines of Europe powered solely by renewable energy.
The realities are jarring. In the absence of a common framework, the EU has become a regulatory patchwork seemingly designed to stifle the long-term planning and giant investments required for energy self-sufficiency. Major nations choose winners and losers based on the whims of the moment, banning entire industry sectors, such as shale in France or nuclear in Germany. Nonsensical disconnects abound, such as Danish renewables with no linkage to nearby Poland, where, ironically, leaders have embraced the demon fuel, coal. Sometimes, renewables policies even aggravate market gaps requiring increased spot reliance upon dirtier fuels. Energy prices and services are more expensive and less reliable than those in the U.S.
The results are harrowing for industry and consumers alike. Germans consumers, for example, are waking up to the costs of going green: in 2013, they paid 11% more for electricity than they did in 2012 thanks to government plans to replace nuclear plants with wind and solar power which requires significant and constant public money to be made cost effective. And energy producers continue to hemorrhage value. According to the Economist, at their peak in 2008, the top 20 energy utilities were worth roughly €1 trillion ($1.3 trillion). Now they are worth less than half. Since September 2008, utilities have been the worst performing sector in the Morgan Stanley MS -2.99% index of global share prices.
In contrast to Europe, U.S. federal energy policy focuses upon striking a balance between business initiative, including tax and other policies that encourage industry risk-taking, technology innovation, new investment and R&D, and protecting the public interest, through transparent, cost-effective and science-based regulations. Shale is only the most recent disruptive technology, to emerge from this culture of innovation. Notably, cheap, abundant American shale oil and gas has been the world’s most potent tool to date for lowering crude prices and, in the process, cutting the legs out from under Putin’s neo-Czarist European policies. By this logic, American shale also deserves the credit for the South Stream pipeline cancellation.
A quick look at the emissions scorecard, which many Europeans seem to consider the only measure worth tracking, tells the story of this ‘Tale of Two Unions.’ According to the European Commission, since 1990 both the U.S. and Europe regions reduced carbon and greenhouse gas emissions (GHG) by 18%. But Europe pays a heavy cost, with energy prices four times greater than those prevailing in the U.S. Meanwhile, U.S. renewable electricity generation is projected to grow by 69 percent from 2012 to 2040, including an increase of more than 140 percent in generation from non-hydropower renewable energy sources.
Once committed to a common energy policy, European states can haggle over the priorities best suited to European values and assets. The important thing is action. For now, Europe is paralyzed by outdated, ideology-driven biases against fossil energy, outright hostility to the private sector’s potential roles in investment, innovation and jobs creation, and a disdain for the strategic potentialities of its own domestic resources. It is dangerous for everybody.
Thirty years ago, then U.S. President Ronald Reagan, warned that Europe’s shortsightedness about its energy policy not only threatens the prosperity and stability of the EU’s member Nations, but has important geopolitical consequences for all. A Europe with a robust, integrated and diversified energy economy is the best bulwark against disruptive tactics, like the South Stream project, and despots.
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To learn more about energy security in Europe, watch this video.
Mr. McCown is a former government executive, attorney, & public policy expert. A retired U.S. Naval Aviator, he is also an avid baseball fan who calls it as he sees it, right down the middle. To learn more, visit him at brighammccown.com or follow @BAMcCown
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