Russia’s war has started The Great U-Turn

(June 26, 2022) The West’s net zero policies, pursued too rapidly, with the wrong technologies, and without regard to energy security, has financed Russia’s war on Ukraine. The Great U-Turn back to fossil fuels has already begun in Europe.

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By Andrew Roman

For the original version of this post by legal expert, Andrew Roman, see here.

For more analysis by Andrew Roman, check out his blog here:
https://andrewromanviews.blog

Europe has been financing Putin’s invasion of Ukraine because of its unrealistic net zero energy policies. The target of net zero in under 28 years requires global emissions to be cut in half by 2030, just 7½ years from now. That is not going to happen.

Europe cannot replace fossil fuels with weather-dependent renewables, but the mistaken belief that it can has created heavy dependency on Russian oil and gas. The European Union countries have paid with their wallets; the Ukrainians have paid with their lives.

Russia is fighting back against EU sanctions, apparently with success. It has greatly increased its fossil fuel supply to India and China. The EU is still dependent on Russian oil and gas, but Russia is no longer dependent on EU energy revenue. The EU is complaining about Russia’s cutbacks of energy, and rightly fears a total Russian stoppage this winter, in response to EU countries sending more weapons to Ukraine. That is why the EU and the UK have now accelerated what I call “The Great U-Turn”: to delay, indefinitely, reaching the unrealistic net zero target, and return to a more realistic reliance on fossil fuels.  This is being justified as ‘temporary, to facilitate the transition’. That ‘temporary’ may be many decades, until affordable energy security can be achieved with the right technology, which doesn’t yet exist. 

[This is my second post on the Russian invasion of Ukraine. In my first post I provided my detailed analysis of several of the causes of the invasion, and the public messaging by Russia and the West.]

EU sanctions against Russia are schizophrenic

UnHerd writer Peter Franklin has explained that europe-is-still-bankrolling-russia:

“It’s not that the sanctions announced so far are meaningless. Many of them are already having an impact. Yet Europe finds itself in a position where it is trying to bankrupt the Kremlin while simultaneously bankrolling Putin’s regime.”

As Franklin notes, at January 1, 2020 the EU was paying Russia 190 million EUR (around $US 200 million) daily for natural gas alone. By March 3, 2022 that had increased to 660 million EUR (around $US 694 million) daily, in just over 2 years.

If Russia cuts off supply much of Europe will face a deadly cold winter, even with increasing use of coal (which emits twice as much CO2 as gas, taking Europe even further from its net zero aspirations).

How did this dependency happen?

Being the proud leader of net zero, Germany, Europe’s largest economy, aggressively closed most of is reliable gas (low CO2 emissions) and nuclear (zero CO2 emissions) electricity generation plants. It replaced them with intermittent, unreliable and massively subsidized solar and wind generation.  This caused painful increases in electricity prices. Also, the EU and the UK prohibited fracking (a process for extracting natural gas underground, widely used in the US).  But, they all still needed fossil fuels as generation backup when the wind isn’t blowing and the sun isn’t shining, as well as for heating, transportation, etc., so the EU, particularly Germany, contracted to buy a large share of its oil and gas from Russia. 

In response to European sanctions, Russia now requires payment in rubles, not US dollars. This has increased the exchange rate of the ruble, despite the sanctions. Russia’s ruble hit 52.3 to the dollar on June 22, its strongest level since May 2015. The ruble has actually gotten so strong that Russia’s central bank is actively taking measures to try to weaken it, fearing this will make the country’s exports less competitive.

Geopolitical realism requires realism about a country’s energy security. Blocking fossil fuel development at home won’t keep fossil fuel “in the ground”, it merely requires us to buy fossil fuels from others.

The European lesson in energy masochism

As early as March 1, 2022, the Editorial Board of the Wall Street Journal headlined:

A Lesson in Energy Masochism

Here’s how Europe made itself vulnerable to Putin’s gas blackmail.”

The editorial describes how Russian gas imports increased in tandem with declining domestic production:

“A mere 15 years ago, countries in the European Union produced more gas than Russia exported. Yet European production has plunged by more than half over the last decade. ….

In 2020 Russia exported nearly three times more gas than Europe produced.”

In modern, energy-dependent countries a lack of energy means poverty and even death. By threatening or actually reducing supply, Russia can escalate gas prices, earning around the same income while selling less volume. That’s why the recent EU and US sanctions imposed on Russia excluded sanctions on Russian oil and gas sold to Europe (sanctions on oil are supposed to start at year end). It will be a slow and costly process for Europe to replace its energy dependency on Russia, with a decline in living standards while this is happening. 

The longer the ship of state has been going in the wrong direction the longer making The Great U-Turn will take.

Germany has started he Great U-Turn from net-zero by 2050

Germany had led the EU’s race to net-zero, by depending on Russia for approximately 55 percent of its gas, 45 percent of its coal and 34 percent of its oil. It has now been awakened to its peril and has started its Great U-Turn. Germany is restarting coal-fired plants and will be auctioning what gas it gets, to reduce consumption. 

In a June 19, 2022 Wall Street Journal article, William Boston explained:

“Berlin unveiled the measures Sunday (June 19) after Russia cut gas supplies to Europe last week as it punched back against European sanctions and military support for Ukraine…..

In a U-turn for a leader of the environmentalist Green Party, which has campaigned to reduce fossil-fuel use, Mr. Habeck [Germany’s economy minister] said the government would empower utility companies to extend the use of coal-fired power plants.

“This is bitter,” Mr. Habeck said of the need to rely on coal.  “But in this situation, it is necessary to reduce gas consumption. Gas stores must be full by winter.  That has to be the highest priority.””

The UK is also in serious energy trouble, with rapidly rising energy poverty and rising inflation (9.0 percent in the 12 months to April 2022). This despite the UK having enough extractable gas to keep it entirely self-sufficient for at least 50 years, because the UK banned fracking.

Canada’s energy masochism

Canada is several years behind the energy crisis in Europe, having greater energy self-sufficiency (more hydro and nuclear generation).  But, as all of our energy prices escalate and add to our overall inflation, we, too, will have to make our own Great U-Turn.

Canada will not come anywhere close to its supposedly legislated target of net zero by 2050 (for reasons I have explained) with our increasing reliance on unreliable, weather-dependent wind and solar electricity generation, which require large-scale backup to keep the lights on. And electricity is only some 20 percent of our total energy consumption, while most of the remaining 80 percent requires fossil fuels.

Canada’s 2030 emissions reduction plan is Canada’s gift to Putin, explains prominent energy economist Ross McKitrick in the Financial Post:

“Ottawa has just released a 271-page Emissions Reduction Plan (ERP) that calls on our oil and gas sector to cut emissions by 31 percent below 2005 levels in the next eight years, which is 42 percent below current levels….

Given the current technological limits of carbon capture and other buzzwords, that means either ceasing operations altogether or using production methods that will price producers out of the world market — thus leaving a clear field for Russia, among others, to expand its dominance in world energy markets in the years ahead. Global emissions won’t decline mind you; people will just get their energy from dictators while democracies such as Canada exit the market.”

Ottawa’s Emissions Reduction Plan is short on details of how all this will be accomplished, and what it will cost, to whom. Thus, it is just a plan to have a plan. The cost indifference of the ERP, together with its manifestly unrealistic targets, sends another signal to international investors to avoid investments in build-nothing-anywhere Canada.

Canada, like other Western countries, has a stark choice: either inflationary price gouging from Russia and others, caused by our impossibly short net zero targets, or make The Great U-Turn to energy security, with abundant, low-cost fossil fuels found right here in Canada.

Canada will have to increase investment in the extraction of more of our oil and natural gas, and to construct pipelines to transport gas, plants to liquefy it, and ports to ship it to Europe and elsewhere to replace Russian gas. But that will take several years.

Why The Great U-Turn away from net zero?

Western net zero policies create energy poverty and higher inflation, while doing nothing for the planet. These policies are both socially and environmentally unjust. Such a high level of injustice is politically unsustainable in a democracy.

Canada’s net zero policies have contributed significantly to escalating, probably long-lasting inflation (7.7%, in year ending May 2022 versus May 2021).

But the average rate of inflation for all goods and services is only part of the story. The rapid, extreme price escalation of essential commodities like food, gasoline (up 48 % in Canada in one year) and natural gas far outpace wage increases.

As reported by the CBC on May 25:

“Last week, Statistics Canada reported that Canadians paid 9.7 per cent more for food in April 2022 than a year prior, while average hourly wages rose by about 3.3 per cent year-over-year.

Basic foods like fresh fruit have jumped by 10 per cent, while pasta prices have spiked by nearly 20 per cent.

Statistics Canada places the blame on the Russian invasion of Ukraine mingled with rising fuel costs.”

The impact in Europe is far worse. These headlines tell the story:

  • Millions warned of power cuts and energy rationing this winter (The Times, 29 May, 2022)
  • Britain’s National Grid told to prepare for coal this winter (The Daily Telegraph, 27 May, 2022)
  • Vulnerable pensioners ‘spend a fifth of their income on energy bills’ (Energy Live News, 27 May, 2022)
  • Energy crisis threatens to topple UN climate agenda (The Wall Street Journal, 16 June, 2022)
  • In energy-strapped Europe, coal makes a comeback (The Independent, 16 June, 2022)
  • European gas surges 24% as Russian cuts escalate energy crisis (Bloomberg, 16 June, 2022) 
  • Gas drilling projects resurrected around Europe (EurActiv, 23 June, 2022)
  • Europe warned to prepare for total shutdown of Russian gas exports (Financial Times, 22 June, 2022)
  • Germany triggers gas alarm stage, accuses Russia of ‘economic attack’ (Reuters, 23 June, 2022)

Conclusion

The Great U-Turn from net zero by 2050 has already started in the EU and the UK. As I noted in a previous blog post, the EU, through a change in “taxonomy”, recently decided to treat nuclear and gas as “green” for investment purposes,.

Although Canada and the US are not nearly as dependent as Europe on imported fossil fuels, our oil and gas prices are also subject to our inflationary energy policies, on top of the post-Covid resurgence in demand not being met by sufficient increases in supply. 

Today, US gas pump prices of $5+ per gallon are not only an economic problem, they are a US political problem. And Canada’s gas pump prices, traditionally higher than the US, are also shocking, at $8.50 per gallon on June 20, 2022 (approximately US $6.55). As the farming and transportation of food requires energy, rising energy prices cause rising food prices. And the same escalation affects almost everything else in our economy that requires energy.

As Ted Nordhaus has written in the June 5, 2022 issue of  Foreign Policy:

“Russia’s war is the end of climate policy as we know it…..

Virtually overnight, the war in Ukraine has brought the post-Cold War era to a close, not just by ending Europe’s long era of peace, but by bringing basic questions of energy access back to the fore. A new era, marked by geopolitically driven energy insecurity and resource competition, is moving climate concerns down on the list of priorities.”

For now, the US and Canada have continued to double down on fighting climate change with renewables, while ignoring the post-lockdown social problems that creates with rapidly rising energy prices. Indeed, we now hear the argument that the fastest way to stop depending on foreign fossil fuels is even more unreliable solar and wind generation, as if the source of the problem is its solution.

The faster we run towards the brick wall at the end of the net zero tunnel, and the longer it takes us to make The Great U-Turn, the more costly it will be. Time to stop our energy masochism.


Andrew Roman recently retired from a successful law practice spanning 45 years. He has practiced administrative law at all levels of court, including the Supreme Court of Canada, and has appeared in courts and administrative tribunals in all the Canadian provinces and territories. His practice has included advising and representing professional regulatory tribunals, both for the tribunals and for members subject to disciplinary proceedings.

Mr. Roman is the author of more than 90 publications, including reports, articles, monographs and a book. His writings have been cited in judgments of the Supreme Court of Canada. He has taught administrative law and advocacy as an adjunct faculty member at four law schools.

 

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