Germany’s energy policy is expensive, harmful and short-sighted

Berlin is failing the poor while protecting neither security nor the climate, writes Bjorn Lomborg

The Ukrainian crisis has again put German energy policy in the spotlight. As long as Europe’s green energy is expensive and unreliable, it favours Russian gas and leaves the continent’s energy policy unsustainable.

Germany’s energiewende, the country’s move away from nuclear and fossil fuels towards renewable energies has been regarded by some commentators as an example for the rest of the world. But now Germany shows the globe how not to make green policy. It is failing the poor, while protecting neither energy security nor the climate.

Last month, the government said that 6.9m households live in energy poverty, defined as spending more than 10 per cent of their income on energy. This is largely a result of the surcharge for renewable energy. Between 2000 and 2013, electricity prices for households have increased 80 per cent in real terms, according to data from the OECD and the International Energy Agency.
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This means more and more money is going from the poor to the rich. Low-income tenants in the Ruhr area or Berlin are paying high energy prices to subsidise wealthy homeowners in Bavaria who put solar panels on their roofs.

Some have argued that Germany’s energy policy could be seen as a huge bet on developing the energy of the future – and if it works, it would secure Germany’s engineering future.

However, most of Germany’s money was spent, not on research into future technology, but on buying existing inefficient green technology. Three weeks ago, in a report to the German parliament, a group of energy experts delivered a damning indictment of the current subsidies. They said that the policy has had a “very low technology-specific innovation impact in Germany”. Essentially, it is much safer for companies to keep selling more of the old technologies of wind, solar and biomass because these are already getting huge subsidies instead of trying to develop new and better technologies that have similar pay-offs but much higher risk.

The legislation does not offer more protection for the climate. Instead, it makes such protection much more expensive. ”There is no justification for a continuation of the Renewable Energies Act”, the report concludes.

German energy policy is an expensive way to achieve almost nothing. For solar alone, Germany has committed to pay subsidies of more than €100bn over the next 20 years, even though it contributes only 0.7 per cent of primary energy consumption. These solar panels’ net effect for the climate will be to delay global warming by a mere 37 hours by the end of the century, according to a report cited in Der Spiegel.

A McKinsey study published earlier this year found that Germany energy prices for households are now 48 per cent above the European average. At the same time, European power prices have risen almost 40 per cent since 2005, while US electricity prices have declined.

Despite exemptions from renewable obligations for energy-intensive companies, German industrial power costs are 19 per cent higher than the EU average. German industrial costs have risen 60 per cent since 2007, compared to increases of about 10 per cent in the US and China. This makes Germany an ever less attractive place for industry. German chemical giant BASF has already said it will make most if its future investments outside of Europe.

Green energy cannot meet Germany’s need for reliable electricity. That is why Germany still needs copious amounts of fossil fuels; German CO2-emissions have risen since the nuclear power phase-out of 2011, despite the incredible subsidies for renewables.

Germany is an example of how not to do green energy. Instead the solution is to research and develop better green energy technology. A study by some of the world’s top climate economists including three Nobel Laureates for the Copenhagen Consensus Center shows that subsidising existing renewables does so little good that for every euro spent, 97 cents are wasted. However, every euro spent on green innovation could avoid €11 in long-term damages from global warming.

If we can reduce the price of future green technology below the cost of fossil fuels, everyone will switch. And such cheap green energy will not leave us at the mercy of Russia, it will actually fix global warming – and it will help rather than hurt the poor.