It may be overdone to say that the Obama administration aims to shove America in the direction of European social democracy, but there’s one domain where this is surely true: energy policy. Any number of administration diktats and subsidy schemes, from Solyndra to proposed EPA strangulation of coal, attest to this ambition, but the most significant sign of Euro-envy is Obama’s nomination of Ronald Binz to be chairman of the Federal Energy Regulatory Commission (FERC).
Binz is the former chairman of the Colorado Public Utilities Commission, where he regulated aggressively to suppress conventional hydrocarbon energy in favor of wind and solar power. He threatens to do more of the same at FERC, having gone so far as to assert that natural gas is a “dead end” for the American future, and that “policy and regulation,” rather than market forces, should be the key driver of our energy mix. Binz faced a rocky confirmation hearing last week, centered around some of the usual “gotcha” questions about whether he had been fully honest about the lobbying efforts on behalf of his nomination, and backtracking from his negative comments on gas. But the Senate should be asking more substantive questions about his philosophy, which relies on the usual fog of renewable energy hype and magical thinking about the transformative power of regulation.
Binz’s model is Germany’s aggressive approach to promoting renewable energy over the last two decades, known as Energiewende (“energy revolution”). He has the worst case of German-envy by an American policy maker since Woodrow Wilson read Hegel. (It is tempting to call him “Mercedes Binz,” since he favors exotic and expensive energy.)
The difference between Germany and the United States, Binz says approvingly, is policy, claiming that Germany leads the world on renewable energy, getting about 5 percent of its electricity from solar power, and 10 percent from wind. But this is all fun with eye-glazing numbers, which is how the renewable energy game works. In fact the United States actually produces twice as much total energy from non-hydro renewable sources as Germany. (Non-hydro renewables are wind, solar, biomass, and geothermal.) The lower total percentage share of renewables in the United States owes to our higher use of liquid fuels for transportation since we’re a more spread out country than Germany. BP’s 2013 Statistical Review of World Energy places Germany’s renewable energy production at 8.3 percent of its total energy consumption; for the United States the figure is 2.3 percent. However, if you add in our considerable hydropower production, our total renewable share rises to 5.2 percent, while in Germany, with few dams, hydropower brings their renewable total to only 9.9 percent.
Overall, Germany barely beats the United States in terms of using less hydrocarbon energy (coal, oil, and natural gas), which is the object of Binz’s sought-after policy exertions. BP’s figures show that the United States derived 86.5 percent of its total energy from hydrocarbons in 2012, while the figure for Germany was 82.9 percent. In other words, Binz and others in the Deutschland über alles chorus are touting the fact that Germany’s total energy mix is just 3.6 percentage points “cleaner” than that of the United States. And if you really want to rain on the renewable rally, note that coal consumption went up 3.9 percent in Germany last year, while coal consumption fell 11.9 percent here, owing chiefly to the availability of the cheap natural gas that Binz wants to put on a course of ultimate extinction. Likewise, German greenhouse gas emissions—the chief object of Energiewende—rose in Germany last year, while they fell in the United States.
The irony is that the environmentally correct enthusiasm for Germany among American greens coincides with second thoughts in Germany (and elsewhere in Europe) about the renewables fetish. German energy costs have almost doubled over the last four years. Germany has had to pay enormous subsidies for meager results, and the subterfuges by which the costs are spread and disguised are becoming harder to maintain.
By one estimate, German consumers have already spent $100 billion in renewable energy surcharges, and the cost is still rising fast. This year the renewable electricity surcharge may top $26 billion. The Breakthrough Institute in California, which conducts some of the best energy analysis from within the environmental camp, estimates that the German tab for solar power will reach $130 billion by the year 2030. (Germany’s irrational decision to phase out nuclear power deepens its challenge. Breakthrough calculates that Finland’s massively overbudget new nuclear power plant will still be four times more cost-effective than all of Germany’s solar power.)
Der Spiegel ran a devastating cover story last month lamenting that electricity has become a “luxury good”:
German consumers already pay the highest electricity prices in Europe [actually the second-highest]. But because the government is failing to get the costs of its new energy policy under control, rising prices are already on the horizon. Electricity is becoming a luxury good in Germany. . . . Former Environment Minister Jürgen Tritten of the Green Party once claimed that switching Germany to renewable energy wasn’t going to cost citizens more than one scoop of ice cream. Today his successor [Peter] Altmaier admits consumers are paying enough to “eat everything on the ice cream menu.”
Altmaier has said that the total cost of Germany’s energy dreams could reach 1 trillion euros by the 2030s if the nation doesn’t change course. No wonder Chancellor Angela Merkel is promising to reform Germany’s renewable energy policy after her expected reelection.
Naturally Merkel is concerned about the impact of higher costs on energy-intensive German industry. In a reversal of the usual globalization story, some German firms are looking to locate new facilities in the United States, to take advantage of cheaper energy as well as proximity to our markets. So the government has done what they usually do: cut special deals with favored businesses, exempting more than 2,000 companies from paying the renewable energy surcharge, while 2,000 more German firms have applied for exemptions. (The European Union is investigating whether these exemptions violate EU regulations of government subsidies.) This has resulted in offloading the costs to households. German households not only pay the second-highest electricity rates in Europe (only wind-happy Denmark—no coincidence—charges higher rates), but the gap between household and industrial rates is the largest of any European nation: Households pay more than twice as much for their electricity. Industrial discounts are much lower in most other eurozone nations.
Germany’s American cheerleaders, like Binz, argue that the increase in coal and greenhouse gas emissions is temporary and that costs will come under control soon because of sharply falling prices for solar and wind power. It is true that solar costs are falling, but there’s reason to think, paradoxically, that more solar and wind power will also cause the use of coal to continue to increase. Because of the intermittency of wind and solar, German electric utilities have to have backup baseload power ready, and coal-fired power is cheaper than natural gas-fired power right now. Perversely for the German greens, coal-fired power is profitable while gas-fired power is not. Natural gas prices in Germany are about two-and-a-half times higher than U.S. prices (thank you, fracking), which is why gas-fired power in Germany is so much more expensive than here. If Germany and other eurozone nations want to replicate our success, they’ll need to join the fracking revolution.
Dissent magazine, one of the leading journals of the American left, was honest enough to report in a recent article entitled “Green Energy Bust in Germany” that “when you look beyond the cherry-picked hype, the results are dismal and disquieting.”
Yet this is the energy vision of the Obama administration—Obama specifically singled out Germany as a model to be emulated in his 2008 campaign—and Ron Binz is just the latest in a line of aggressive regulators that have become so familiar over the last five years. FERC, a sleepy backwater among agencies, seldom makes the front pages of the paper. FERC’s regulatory authority is confined chiefly to matters of interstate energy infrastructure (pipelines, electricity grids, etc.) and not directly to energy sources or supply. But the Obama administration has shown repeatedly that it is more than willing to expand the bounds of administrative policy-making. If Binz is confirmed, FERC will likely join the EPA in its crusade to strangle America’s hydrocarbon renaissance.
Steven F. Hayward is the visiting scholar in conservative thought and policy at the University of Colorado at Boulder.