Real Energy Transition Costs Could Spell Danger for EU

• The EU had set aside some 580 billion euro, or almost $630 billion for its net-zero plan over the period 2021 to 2027.
• Voters’ disgruntlement with high energy costs and overall inflation is starting to get the attention of politicians.
• EU leaders are struggling to keep the EU competitive in green energy tech in the face of stiff competition from the U.S. and China.

When the European Union approved its Green Deal, it was done to much fanfare and sparkles. Now, the fanfare and the sparkles are a distant memory as the EU grapples with the actual “how” of the transition equation it wrote for itself. Being quiet on the real costs of the transition push has not helped it, either.

It’s not that the EU is not admitting the transition would be costly. The European Council calls the necessary investment “enormous”. It also says that the EU had set aside some 580 billion euro, or almost $630 billion for its net-zero plan over the period 2021 to 2027. Only it is going to cost a lot more than that—and the EU does not have that kind of money, which is only now coming to light.

This is perhaps the worst possible time for the real costs of the transition coming to light—just as Europeans are beginning to feel the pinch of the additional costs that this transition is imposing on household budgets. And there are European Parliament elections on the horizon.

Last year, the European Commission estimated the cost of the energy transition at over 700 billion euro, or over $758 billion, in additional annual investments between now and 2050. That’s 700 billion euro to be invested in the transition—and replacement of Russian hydrocarbons—every year. It’s a lot of money. And a solid part of it is coming out of European citizens’ pockets. This is a dangerous state of affairs.

In a July 2023 column for Reuters, Pierre Briancon wrote about European governments that “If they don’t come clean to public opinion, and explain how these costs will be shared, they may face crippling populist protests that will compromise their end goals.”

These words have proved to be prophetic, with right-wing parties gathering popularity across Europe months before the European Parliament elections in June. Meanwhile, as the costs of transitioning away from hydrocarbons have continued to mount in the form of both direct inflation and reduced industrial activity, the EU is falling behind on its own targets. Possibly because they were a bit too ambitious. Related: Exxon’s Expanded UK Refinery to Supply First Diesel in Early 2025

The plan that the current leaders of the bloc approved was for a reduction in emissions of 55% by 2030 from a 1990 baseline. As things stand now, they will only achieve a 51% reduction by that year and, according to some, this is a problem because every percentage point matters. But even this reduction—which is quite sizeable—is costing a lot. And doubling down on the 55% will likely alienate voters even further.

It seems the EU’s leaders have finally started taking notice, possibly helped by the widespread farmers’ protests, which were essentially a reaction to the Green Deal, which requires the diversion of money previously used to subsidize agriculture to the transition effort. That and the mountains of regulations that are weighing on farmers proved to be too much, and the farmers rebelled.

As a result, the leaders in Brussels and their colleagues from national governments have had to make concessions. And they might just have to make some more because farmers are not the only group disgruntled by all the unpalatable changes that the green transition will bring into people’s lives. This is especially true in light of the discrepancy between what was promised and what was delivered.

Mostly, what was promised was cheap renewable energy. It may be cheap and renewable at some point in the future, but it isn’t now. On the contrary, the overlap between the countries with the largest buildup of wind and solar capacity and the countries with the highest electricity bills is quite remarkable. The other thing that was promised was a thriving business environment, which has yet to materialize.

It is this latter part that seems to have got those in Brussels thinking about something different than emission reduction targets, according to a recent article by Bloomberg. Voters’ disgruntlement with high energy costs and the overall inflation these drive has turned the attention of decision-makers and planners to questions such as boosting the European Union’s competitiveness in the face of stiff competition from the U.S. and China.

Given where China is in terms of transition technology development, which is the position of global leader, and given the billions that the Biden administration has pledged to investors willing to do business in the U.S., the EU is already late to the party. It is even losing business to the U.S. because of those billions, and that’s because at home, it mostly offers a regulatory stranglehold instead of billions in incentives.

This is not an easy position to get oneself out of, and the EU’s leadership is running out of time. The thing is, however, that this leadership put itself into that position by focusing on all the wrong things at the same time and ignoring all the important factors that needed to be the focus of attention. Now, the transition push is in danger, and the repercussions will be felt far and wide.

“If we don’t deliver at home, if we sent a message out that the Green Deal caused a social upheaval, it will become an example for other countries not to follow,” SImoe Tagliapietra, a senior researcher at energy think tank Bruegel, told Bloomberg.

By Irina Slav for Oilprice.com

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