Europe’s Net-Zero Carbon Crackup Begins Ahead of Schedule

Politicians everywhere will rue the day they tried to enlist financial markets to do their green bidding

By Joseph C. Sternberg.

"The European Commission, the bureaucratic wing of the European Union in Brussels, moved on New Year’s Eve to classify natural gas and nuclear as potential green energy sources in a “taxonomy” designed to steer government spending and private investment. It has stuck by that decision despite noisy protests from environmentalists. This is a recognition that foreclosing investment in proven, reliable technologies amid a once-in-a-generation energy price crisis is creating a political nightmare."

"British households last week discovered their home electricity and natural-gas bills could shoot up by 54% come April as a regulatory price cap adjusts to market realities. Energy costs for commercial premises are a separate crisis, as rapidly escalating electricity and natural-gas prices squeeze small businesses and large manufacturers alike."

"A group of lawmakers from Mr. Johnson’s Conservative Party have formed a caucus to vent their skepticism of Mr. Johnson’s net-zero ambitions, while Chancellor of the Exchequer Rishi Sunak professes his enthusiasm for more North Sea drilling. The left-wing Guardian newspaper trotted out climate-change scaremonger Michael Mann to brand this effort a “culture war.” Which is how we now describe any effort to repoliticize questions of economic and social trade-offs that an axis of technocrats, activists and media had tried to assume unto itself.

The political world is awakening belatedly to an observation prominent French economist Jean Pisani-Ferry offered last year. To paraphrase: Because carbon-based energy is cheap and reliable and zero-carbon alternatives remain elusive, current consumption will have to be suppressed to finance aggressive investment in developing zero-carbon technology.

This is taking two forms today. Astronomical energy prices are the mechanism by which consumption based on carbon (whether of energy or of any product whose manufacture or distribution requires carbon—which is most products) can be suppressed while diverting resources to research and development in green technologies. Second, someone must induce financial investment to shift to green purposes, even if investors otherwise would have concluded that strategy doesn’t maximize returns. Retirees or anyone else whose consumption is based on income from investment may have to receive less income and therefore consume less in order to subsidize capital allocation to green ends.

No wonder politicians are fleeing. Witness a kerfuffle, again in the U.K., over taxing the “windfall profits” of oil-and-gas majors such as BP and Shell, which recently announced bumper earnings. The companies are accused of gouging consumers, but the actual plan as announced to their shareholders is to plow carbon profits into an expanding portfolio of green projects.

This is possible only by shifting resources away from consumers via higher prices. Whoops. Any form of consumption tax, whether by levy or by price-raising regulation, is highly regressive. Calls by Britain’s Labour Party for a windfall-profits tax to redistribute those reinvestable profits back to consumers, in contravention of the whole point of net-zero policies, mark an admission that climate mitigation is an impending political train wreck. Maybe one day the left will understand what they themselves are saying here."

"Boosting energy supply depends on persuading investors that politicians support long-term investments. Net zero comes with a deadline of 2050, but that needs to be scrapped right now for investors to be willing to finance capital-intensive projects with long enough lives to be useful."