Jeremy Warner: Collective Madness Is Gripping European Energy Policy

  • Date: 11/02/14
  • Jeremy Warner, The Daily Telegraph

Europe is gripped by a kind of collective insanity from which there appears no escape. It has turned its energy markets into a recipe for competitive ruin.

Seattle centre, Washington state

Seattle, where BMW has sited state-of-the-art production facilities because energy prices there are much lower 

What passes for energy policy in the UK took another turn for the worse yesterday when Ed Davey, the Energy Secretary, waded into the debate about energy prices by suggesting that both Centrica and SSE are profiteering from gas sales and should possibly be broken up.

It’s only right and proper that politicians should have their say but to be treating energy providers as a political football when there is already an independent investigation by regulators going on, and at a time when we desperately need rational debate over the trade-offs between affordability, reliability and the environment, is extraordinarily irresponsible.

The political opportunism of the opposition leader, Ed Miliband, in promising to freeze prices is one thing but Mr Davey is a senior member of the Government and should understand the damage his interventions do better than any.

Few will invest in a market where what little political certainty there was is being cynically squandered in pursuit of the populist vote.

Evidence of an investment strike grows by the day. We may be just years away from brown-outs and other emergency measures to ration energy use, so serious is the looming deficit in supply.

This is not just a British problem; it is European wide. Right across the EU, an ill-managed rush to renewables is causing energy prices to sky rocket.

Perversely, it is also causing coal-fired electricity generation to come roaring back in a desperate bid to plug growing gaps in supply. As a consequence, emissions are going up rather than down.

With energy, one disastrous government intervention piles in on top of another, if only to undo the unhappy consequences of the last one.

Europeans have turned their energy markets into a recipe for competitive ruin, a warning to all of the dangers of well-meaning, but utterly counter-productive, government instruction.

In its last World Energy Outlook, the International Energy Agency warned that Europe could lose a third of its global share of exports from energy intensive industries because of price disparities with the US and the rest of the world (see chart).

Europe’s refusal to embrace shale, together with Germany’s repudiation of nuclear power, is threatening competitive decimation of once-thriving industries.

Even 10 years ago, it would have been inconceivable for BMW to site state-of-the-art production facilities anywhere other than Bavaria. Today, the previously inconceivable is par for the course. The company’s global carbon fibre plant is located in Seattle, where energy prices are much lower.

Some industrialists complain that the situation in the UK is, if anything, even worse. Despite Mr Davey’s protests, retail energy prices in Britain are among the lowest in major European economies, even if they seem fast to be catching up.

With industry, it is the reverse; thanks to the Government’s various green initiatives, prices are already some of the most expensive.

Tata Steel, the remnants of the once mighty British Steel, complains of energy prices which are up to 50pc higher than similar facilities in Germany and France. The carbon floor price is set to make the disparity greater still.

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