Trading One Energy Dependency For Another In Davos

EU Commission President Ursula von der Leyen delivers a speech at the World Economic Forum in Davos, … [+] Switzerland Tuesday, Jan. 17, 2023. The annual meeting of the World Economic Forum is taking place in Davos from Jan. 16 until Jan. 20, 2023. (AP Photo/Markus Schreiber)

Copyright 2023 The Associated Press. All rights reserved

Asserting that she and her fellow European leaders have “learned our lesson from our fossil fuel dependency on Russia,” European Commission President Ursula Von Der Leyen told the World Economic Forum in Davos, Switzerland Tuesday that her continent’s energy solution lies in subsidizing and directing development of a different kind of dependency on other nations.

Citing the EC’s legitimate fears that the massive new U.S. green energy subsidies contained in the Inflation Reduction Act would drain investment capital from Europe as a motivating factor, Von Der Leyen said she would seek to implement what would amount to an industrial policy she called the Net-Zero Industry Act. “The aim will be to focus investment on strategic projects along the entire supply chain,” von der Leyen told WEF attendees, adding “We will especially look at how to simplify and fast-track permitting for new clean tech production sites.”

A Coordinated Push for Central Planning

President Von Der Leyen’s proposal appeared closely coordinated with the recommendation in a report released last week by the International Energy Agency (IEA) titled Clean Energy Perspectives 2023. In rolling out that report, IEA head Fatih Birol repeated his standard call for more trillions of dollars spent on more renewable energy as the global energy solution, saying “[t]he era of clean technology manufacturing means every country needs to develop an industrial strategy that reflects its strengths & addresses areas where it’s less competitive.”

For his part in Davos, Birol was more positive and less fearful about the likely impacts of the IRA. “The Inflation Reduction Act, in my view, is the most important climate action after the Paris 2015 agreement,” he said during a panel discussion. Interestingly, Vicki Hollub, CEO of Occidental, spoke similarly of the IRA and its array of tax incentives and subsidies on the same panel, telling the audience “There has been hardly any game-changing and transformational technologies that have ever been developed in the world that did not at some point have some sort of subsidy.”

As a second part of her new centrally-planned net-zero industrial policy, Von Der Leyen proposed an array of new subsidy policies of her own to be contained in what she called a European Sovereignty Fund, setting up a veritable subsidy war to be waged across the western world. Taken together with the IRA, these twin subsidy policies appear to put the world well on the path to meeting the renewable energy spending target of $4.5 trillion by 2030 laid out in the new IEA report.

That proposal comes in light of IEA’s own admission that fossil fuels still provide 80% of the primary energy mix globally even after the untold trillions of global investment in renewables and EVs over the last 20 years. Those trillions haven’t made much of a dent in demand for fossil fuels, which also provided a similar percentage of the global energy mix in 2002.

Indeed, during 2022, the world set new records for consumption of coal, oil, natural gas and even the burning of wood for power production. That happened despite the fact, as IEA details, new green energy investment hit $1.4 trillion during the year, an increase of 10% over 2021.

A Pressing Need for More Critical Energy Minerals

To its credit, the IEA report emphasizes the pressing need for policymakers to address the challenge of producing adequate supplies of critical energy minerals, which I’ve pointed out many times here forms the central conundrum of this energy transition. The authors of the IEA report point out that long lead times from initial concept to ultimate production will mean that most new investments will have front-loaded over the next handful of years, at an average of $270 billion per year. That trouble there is that is almost seven times the average rate of investment over 2016-2021, by IEA’s own admission. Even if such an enormous increase in money outlays can be approved in such a short time frame, the logistics required to put the money into real action would be daunting.

But the necessity is clear. “Lead times to establish new supply chains and expand existing ones can be long, requiring policy interventions today,” the report admits. “Opening mines or deploying clean energy infrastructure can take more than a decade. Building a factory or ramping up operations for mass-manufactured technologies requires only around 1-3 years.”

So, are those “policy interventions” IEA says are required today actually happening? While both Von Der Leyen and Biden officials claim interest in speeding up permitting for new mining operations for minerals like lithium, copper, antimony, nickel and others, precious little evidence exists that any such efforts are being implemented. In the U.S., when legislation to speed up energy permitting was proposed by West Virginia Sen. Joe Manchin and endorsed by both Chuck Schumer and Nancy Pelosi, it was killed by a coalition of congressional Democrats and Republicans.

Out of Sight, Out of Mind Policies Must End

A scene playing out this week in Germany exemplifies the emotions surrounding this feature of the central energy planning of the west, which must by necessity mandate a dramatic rise in the number of new, deeply impactful hard rock mining operations all over the world. Iconic anti-fossil fuel advocate Greta Thunberg and hundreds of fellow protesters were forcibly cleared by German police dressed in riot gear Monday from a site in the village of Lutzerath, which is being razed to make way for the expansion of a strip mining operation for lignite coal. Ironically, the expansion of the mine also necessitated the decommissioning and removal of an adjacent wind farm.

People attend a protest rally at the Garzweiler opencast mining near the village Luetzerath in … [+] Erkelenz, Germany, Saturday, Jan. 14, 2023. Swedish climate campaigner Greta Thunberg takes part in that protest rally after she visited the tiny village of Luetzerath on Friday and took a look at the nearby Garzweiler open coal mine. (AP Photo/Michael Probst)

Copyright 2023 The Associated Press. All rights reserved

It seems unlikely that leaders in the western world will truly be willing to force scenes similar to this to be played out dozens of times within their own borders. No one should think that Ms. Thunberg and her compatriots will just abandon their cause to accommodate the pressing needs of the energy transition.

The governments of the west have grown used to obtaining these minerals from far-away nations like China, Chile, the Congo and Australia, where the often-devastating impacts on the environment and people can remain happily out of sight and out of the consciousness of their own voters. The voracious appetite for such minerals of renewables, electric vehicles and their batteries will inevitably force an end to this marriage of political convenience. The age of not-in-my-back-yard rule in the western world will have to come to an end.

The mines simply will have to be approved wherever on Earth deposits of these minerals exist, and the supply chains for these minerals will have to come with them. The IEA’s report also focuses on this other crucial aspect of this mineral conundrum, and Birol displayed the chart below during his Davos presentation as an illustration.

IEA Chart on Energy Mineral Supply Chain Risks

International Energy Agency

Simply put, the situation today is that the nations where most of these minerals are produced are not the nations that most use the minerals and which will need many times more of them. Also, the processing and supply chains for many of these minerals are dominated by one country: China.

The Bottom line

Unless she and her fellow central planners at the EC are willing to cause ugly scenes like the one in Germany to play out across their continent in the coming years, the essence of President Von Der Leyen’s industrial policy proposal would be to trade energy dependency on one country, Russia, for a different kind of energy dependency on China and a group of other, producing nations.

This is the central conundrum of this energy transition, one that no one appears to be truly willing to address, least of all anyone present in Davos this week.