EU renewables target protects favoured industries at the expense of consumers

‘Economic policy always has more than one goal, and each independent policy goal requires an independent policy instrument’, correctly state well-known environmental economists (and environmentalists) Joshua Farley and Herman Daly. It follows that when two independent policy instruments are adopted, at least two different goals are being pursued. Such goals may or may not be consistent with each other, but what matters is that they are not the same. This should be very carefully kept in mind as one reads in the news that a group of EU environmental ministers have ‘called for the European Union to set a 2030 goal for renewable energy use, in opposition to their British counterpart who advocates a sole greenhouse gas emissions target.’ The letter was signed by ministers from Austria, Belgium, Denmark, France, Germany, Ireland, Italy and Portugal.

According to the ministers, ‘A target for renewable energy is crucial to provide certainty that can ensure cost-effective investments in energy systems that will strengthen the internal market for energy.’ The opposite is true, in fact. Assuming, for the sake of the argument, that it is a rational policy to cut CO2 emissions domestically, the relevant question is: What is the most cost-effective way of doing so? In other words: once you have decided to spend a given amount of resources on carbon abatement, what is the technological mix that allows you to reduce emissions most? There is no single answer to such a complex question. The answer depends on several variables, including technological innovation, time- and site-specific features (installing solar panels in a windy place and wind turbines in a sunny site may be a sub-optimal solution compared with the opposite), the behaviour of energy producers and consumers, etc. Given these obvious considerations, most economists agree that the best way to cut emissions is to rely on technology-neutral policies, such as a carbon tax or a cap-and-trade scheme. Either policy may have its advantages and shortcomings, but both tend to be superior to the alternatives.

So, if the sole objective of climate policies is to reduce carbon emissions, and if the best way to do so is through a carbon tax or a cap-and-trade scheme, why should a target on renewable production be introduced too? Leave aside that in the EU we already have a cap-and-trade scheme (the so-called Emissions Trading Scheme) and de facto carbon taxes (though not formally - but high taxes on various energy sources, as we have in most EU member states, work in a similar way).

There are only two possible answers. One is the proponents' naivety: they just do not realise that the policies they advocate would result in unnecessary costs. The other explanation is that they have a hidden agenda that has little to do with the environment: while they always point the finger at climate risks, they may have another goal of promoting specific technologies, even if they are not the most cost-efficient ones at reducing CO2. After all, if renewables are better than non-renewable ways of abating emissions (such as energy efficiency, nuclear, or carbon capture and sequestration) they need no specific support to prevail. If, instead, they are not competitive, under market competition climate constraints would result in more investment in non-renewable technologies. By imposing a specific goal on renewables, EU ministers talk the environmental talk, but walk the walk of protecting their favourite industries.

So, are they naive or have they been captured by vested interests?

You are right to refer to the high cost of renewables and to suggest that vested interests (of suppliers of renewable technologies) may be behind this proposal. On the other hand is there not a legitimate case that renewables, produced within the EU, can help in both the short and long term to reduce dependence on imported energy, eg gas from Russia, that is subject to political risk?

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