In this newsletter:
1) Russian forces in northeast Ukraine ‘collapsing’ as Ukraine ‘routs’ invading army
Daily Telegraph, 12 September 2022
2) Con Coughlin: Putin's imperial dream is collapsing before our eyes
The Daily Telegraph, 12 September 2022
3) China plans to build hundreds of new coal power plants
Bloomberg, 8 September 2022
4) Goldman sees $2 Trillion surge in European energy bills by 2023
Blomberg, 9 September 2022
5) Europe fails to find solutions to curb soaring energy prices
Barrons, 9 September 2022
6) Farmers warn of winter food shortages in Europe
Financial Times, 9 September 2022
7) WSJ: Europe pays and pays for Net Zero
The Wall Street Journal, 9 September 2022
8) David Smith: Thatcher would be turning in her grave: how the Tories embraced state intervention
The Sunday Times, 11 September 2022
The Wall Street Journal, 9 September 2022
8) David Smith: Thatcher would be turning in her grave: how the Tories embraced state intervention
The Sunday Times, 11 September 2022
9) Javier Blas: Britain goes the wrong way on energy bailout
Bloomberg, 9 September 2022
Bloomberg, 9 September 2022
10) Joseph C. Sternberg: The Coming Global Crisis of Climate Policy
The Wall Street Journal, 9 September 2022
The Wall Street Journal, 9 September 2022
11) Biden’s freeze on oil, gas leases threatens to bring Europe’s energy nightmare to America
Editorial, New York Post, 11 September 2022
Editorial, New York Post, 11 September 2022
12) Henry Geraedts: Our climate warriors forsake desperate Europe
Financial Post, 8 September 2022
Financial Post, 8 September 2022
Full details:
1) Russian forces in northeast Ukraine ‘collapsing’ as Ukraine ‘routs’ invading army
Daily Telegraph, 12 September 2022
Daily Telegraph, 12 September 2022
Russian forces in northeast Ukraine have been “routed” by a massive counteroffensive, with Moscow forced into an embarrassing retreat.
Russia’s armed forces are “collapsing” in the Kharkiv Oblast after a lightning counteroffensive by Ukraine.
The military advances have been described as “the most consequential of the Ukraine War” as Russia’s grip on northeast Ukraine was decimated. It’s been estimated that Ukrainian forces broke through 50km past Russian lines in the counterpunch.
The three cities of Izium, Kupiansk and Balaklyia were recaptured, as well as at least 30 towns, in a stunning blow that Moscow was reportedly not expecting.
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Troops also liberated Vasylenkovo and Artemivka in the Kharkiv region, Ukraine President Volodymyr Zelensky said in his evening address on Saturday.
“These last days, the Russian army has shown us its best [side] – its back,” he said. “There is no place in Ukraine for the occupiers. There never will be.”
‘Astonishing’ advance
There was no official confirmation that Kyiv’s troops had also routed Russian forces from Izyum – an important staging ground for Russia’s war effort with a population of around 45,000 people before the invasion.
But images flooding social media appeared to show Ukrainian forces within the city and Russian observers of the conflict said there were initial reports Moscow’s army had already withdrawn.
An attack that cut off Russia’s supply line reportedly made the city undefendable, forcing the Russian armed forces in the area to flee in a “rout”.
Russia first said it was reinforcing the Kharkiv region but on Saturday announced it was pulling back troops to the Donetsk region further south.
Military expert Dr Mike Martin wrote on Twitter: “Once they get there they have to contend with the loss of Izyum and Kupyansk – the two railway hubs for that side of the country.
“The Russian armed forces have been demonstrated, again, to be utterly terrible.”
As the Russian forces withdrew, Ukrainian investigators reportedly discovered bodies with signs of torture, likely victims killed by occupying Russian forces.
Ukraine’s foreign ministry spokesman Oleg Nikolenko said: “Ukrainian troops are advancing in eastern Ukraine, liberating more cities and villages. Their courage coupled with Western military support brings astonishing results.
“It’s crucial to keep sending arms to Ukraine. Defeating Russia on the battlefield means winning peace in Ukraine,” he said.
Full story
2) Con Coughlin: Putin's imperial dream is collapsing before our eyes
The Daily Telegraph, 12 September 2022
Russia’s armed forces are “collapsing” in the Kharkiv Oblast after a lightning counteroffensive by Ukraine.
The military advances have been described as “the most consequential of the Ukraine War” as Russia’s grip on northeast Ukraine was decimated. It’s been estimated that Ukrainian forces broke through 50km past Russian lines in the counterpunch.
The three cities of Izium, Kupiansk and Balaklyia were recaptured, as well as at least 30 towns, in a stunning blow that Moscow was reportedly not expecting.
Stream more world news live & on demand with Flash. 25+ news channels in 1 place. New to Flash? Try 1 month free. Offer ends 31 October, 2022 >
Troops also liberated Vasylenkovo and Artemivka in the Kharkiv region, Ukraine President Volodymyr Zelensky said in his evening address on Saturday.
“These last days, the Russian army has shown us its best [side] – its back,” he said. “There is no place in Ukraine for the occupiers. There never will be.”
‘Astonishing’ advance
There was no official confirmation that Kyiv’s troops had also routed Russian forces from Izyum – an important staging ground for Russia’s war effort with a population of around 45,000 people before the invasion.
But images flooding social media appeared to show Ukrainian forces within the city and Russian observers of the conflict said there were initial reports Moscow’s army had already withdrawn.
An attack that cut off Russia’s supply line reportedly made the city undefendable, forcing the Russian armed forces in the area to flee in a “rout”.
Russia first said it was reinforcing the Kharkiv region but on Saturday announced it was pulling back troops to the Donetsk region further south.
Military expert Dr Mike Martin wrote on Twitter: “Once they get there they have to contend with the loss of Izyum and Kupyansk – the two railway hubs for that side of the country.
“The Russian armed forces have been demonstrated, again, to be utterly terrible.”
As the Russian forces withdrew, Ukrainian investigators reportedly discovered bodies with signs of torture, likely victims killed by occupying Russian forces.
Ukraine’s foreign ministry spokesman Oleg Nikolenko said: “Ukrainian troops are advancing in eastern Ukraine, liberating more cities and villages. Their courage coupled with Western military support brings astonishing results.
“It’s crucial to keep sending arms to Ukraine. Defeating Russia on the battlefield means winning peace in Ukraine,” he said.
Full story
2) Con Coughlin: Putin's imperial dream is collapsing before our eyes
The Daily Telegraph, 12 September 2022
It is a sure sign that Vladimir Putin’s invasion of Ukraine is not going exactly to plan when even Russian officials are conceding that they have suffered a major defeat during the latest Ukrainian offensive.
Throughout this conflict, the Kremlin’s first instinct on suffering any serious setback on the battlefield is to indulge in a blatant cover up. This was the case in April when the Ukrainians succeeded in destroying the Moskva, the flagship of Russia’s Black Sea Fleet. Rather than admit the warship had been sunk by missile strikes, Moscow instead tried to persuade the Russian public that a mysterious onboard explosion was to blame.
That Russian commentators are now readily conceding that the Ukrainians have achieved a “significant victory” through their dramatic assault against Russia’s northern front suggests that, for all the Kremlin’s spin, Putin’s military adventure in Ukraine is in real trouble.
According to the latest military assessments, Ukraine’s push to capture several strategic strongholds around the northeastern city Kharkiv has recaptured Ukrainian territory equating to roughly the size of Lancashire. In what will constitute Russia’s worst defeat since March, when Moscow was forced to abandon its attempts to capture the capital Kyiv, Ukrainian forces have succeeded in taking back dozens of towns and villages close to Kharkiv.
The surprise offensive, which began six days ago, could have potentially catastrophic implications for Russian forces, as the breakthrough means the Ukrainians are now in a position to threaten Russia’s vital supply lines.
In particular, the capture of the strategically important town Kupyansk by Ukraine’s 92nd Mechanized Brigade on Friday is a major setback for the Russian forces. Kupyansk is the main supply depot for the tens of thousands of Russian forces operating in the Kharkiv area, and its capture means that as many as 15,000 Russian troops are now completely surrounded, without access to military supplies.
The scale of disaster is forcing even pro-Russian officials to acknowledge that the Ukrainians are gaining ground in key areas of the conflict. Vitaly Ganchev, a Russian-appointed official based in the region, admitted that Ukraine had won what he called a “significant victory”, while Russian-installed regional officials have called on civilians to evacuate the nearby city of Izium.
Even Moscow concedes that its front line in the Kharkiv region has collapsed, although Russian defence officials insist this is merely a tactical withdrawal that will enable their forces to regroup and launch a counter-offensive.
Nevertheless, the columns of abandoned Russian tanks and heavy weapons that litter the recaptured territory tell another story, suggesting the tide of the conflict has now swung decisively in Kyiv’s favour.
The Ukrainian breakthrough certainly indicates that, far from being the weaker force in the conflict, the Ukrainian military has both the resources and expertise to make a decisive impact on the battlefield against what is technically supposed to be a vastly superior Russian force, both in terms of equipment and manpower.
Progress around Kharkiv, for example, has been achieved through a classic diversionary tactic; Ukraine’s actions suggested that its main objective was to recapture the key strategic southern city of Kherson, which controls access to Russian-occupied ports in Crimea. The Ukrainian move against Kherson forced Russia to redeploy forces further south, thereby weakening its defences in the Kharkiv region.
The Ukrainian war effort, moreover, has benefited enormously from the military support it has received from Nato states such as Britain and the US, especially the long-range HIMAR missile systems that have enabled the Ukrainians to target and destroy Russian military installations with deadly precision. By contrast, the Russian military appears demoralised and incapable of mustering an effective response against the Ukrainian onslaught, a situation that does not bode well for Putin’s dream of reuniting Ukraine with Mother Russia.
If the Ukrainians can sustain the impressive military gains they have achieved over the past few days, then Putin will soon find himself staring into the abyss of a catastrophic defeat.
3) China plans to build hundreds of new coal power plants
Bloomberg, 8 September 2022
Throughout this conflict, the Kremlin’s first instinct on suffering any serious setback on the battlefield is to indulge in a blatant cover up. This was the case in April when the Ukrainians succeeded in destroying the Moskva, the flagship of Russia’s Black Sea Fleet. Rather than admit the warship had been sunk by missile strikes, Moscow instead tried to persuade the Russian public that a mysterious onboard explosion was to blame.
That Russian commentators are now readily conceding that the Ukrainians have achieved a “significant victory” through their dramatic assault against Russia’s northern front suggests that, for all the Kremlin’s spin, Putin’s military adventure in Ukraine is in real trouble.
According to the latest military assessments, Ukraine’s push to capture several strategic strongholds around the northeastern city Kharkiv has recaptured Ukrainian territory equating to roughly the size of Lancashire. In what will constitute Russia’s worst defeat since March, when Moscow was forced to abandon its attempts to capture the capital Kyiv, Ukrainian forces have succeeded in taking back dozens of towns and villages close to Kharkiv.
The surprise offensive, which began six days ago, could have potentially catastrophic implications for Russian forces, as the breakthrough means the Ukrainians are now in a position to threaten Russia’s vital supply lines.
In particular, the capture of the strategically important town Kupyansk by Ukraine’s 92nd Mechanized Brigade on Friday is a major setback for the Russian forces. Kupyansk is the main supply depot for the tens of thousands of Russian forces operating in the Kharkiv area, and its capture means that as many as 15,000 Russian troops are now completely surrounded, without access to military supplies.
The scale of disaster is forcing even pro-Russian officials to acknowledge that the Ukrainians are gaining ground in key areas of the conflict. Vitaly Ganchev, a Russian-appointed official based in the region, admitted that Ukraine had won what he called a “significant victory”, while Russian-installed regional officials have called on civilians to evacuate the nearby city of Izium.
Even Moscow concedes that its front line in the Kharkiv region has collapsed, although Russian defence officials insist this is merely a tactical withdrawal that will enable their forces to regroup and launch a counter-offensive.
Nevertheless, the columns of abandoned Russian tanks and heavy weapons that litter the recaptured territory tell another story, suggesting the tide of the conflict has now swung decisively in Kyiv’s favour.
The Ukrainian breakthrough certainly indicates that, far from being the weaker force in the conflict, the Ukrainian military has both the resources and expertise to make a decisive impact on the battlefield against what is technically supposed to be a vastly superior Russian force, both in terms of equipment and manpower.
Progress around Kharkiv, for example, has been achieved through a classic diversionary tactic; Ukraine’s actions suggested that its main objective was to recapture the key strategic southern city of Kherson, which controls access to Russian-occupied ports in Crimea. The Ukrainian move against Kherson forced Russia to redeploy forces further south, thereby weakening its defences in the Kharkiv region.
The Ukrainian war effort, moreover, has benefited enormously from the military support it has received from Nato states such as Britain and the US, especially the long-range HIMAR missile systems that have enabled the Ukrainians to target and destroy Russian military installations with deadly precision. By contrast, the Russian military appears demoralised and incapable of mustering an effective response against the Ukrainian onslaught, a situation that does not bode well for Putin’s dream of reuniting Ukraine with Mother Russia.
If the Ukrainians can sustain the impressive military gains they have achieved over the past few days, then Putin will soon find himself staring into the abyss of a catastrophic defeat.
3) China plans to build hundreds of new coal power plants
Bloomberg, 8 September 2022
China may add more new coal-fired power plants in the next few years than previously expected after a spate of economy-pinching power crunches.
The world’s biggest energy user is expected to add 270 gigawatts of thermal capacity in the five years through 2025, China Energy Engineering Corp., the country’s top energy engineering conglomerate, said in an online briefing on Thursday. That would be more than the 100 to 200 gigawatts estimated in 2020 by a senior researcher at State Grid of China Corp. Energy Research Institute.
China has vowed to start reducing coal use from 2026 and said any new coal power plants will only be used to support intermittent renewable energy. Still, the country is seeking increased energy security after recent supply crunches have forced power cuts to factories. Most recently, a blistering heatwave and drought forced factories to halt in some regions last month, crimping output of materials such as lithium and aluminum.
“The plan if materialized will reverse the declining trend of coal additions,” said Lara Dong, an analyst with S&P Global Commodity Insights. “It will mitigate the power crunch risk, especially in the load centers located in central and eastern China.”
To be sure, no official announcements have been made on capacity additions, and it’s in the engineering firm’s interest to jockey for a larger amount of potential coal power plants to work on.
About 320 gigawatts of thermal power plants were added between 2006-2010, but the pace has slowed ever since then. In recent years, utilities have shifted their focus to cheaper and cleaner renewables. China has about 320 gigawatts of wind and solar projects in the pipeline right now, compared to 144 gigawatts in July 2021, according to S&P.
China may remain the world’s largest coal consumer and the expansion of coal plants might thwart its climate goals, Bloomberg Intelligent analyst Michelle Leung said in a note this month. The country put more new coal plants into operation last year than the rest of the world combined, and its proposed new coal mines account for almost a third of the global total, she said.
Full story
4) Goldman sees $2 Trillion surge in European energy bills by 2023
Blomberg, 9 September 2022
The world’s biggest energy user is expected to add 270 gigawatts of thermal capacity in the five years through 2025, China Energy Engineering Corp., the country’s top energy engineering conglomerate, said in an online briefing on Thursday. That would be more than the 100 to 200 gigawatts estimated in 2020 by a senior researcher at State Grid of China Corp. Energy Research Institute.
China has vowed to start reducing coal use from 2026 and said any new coal power plants will only be used to support intermittent renewable energy. Still, the country is seeking increased energy security after recent supply crunches have forced power cuts to factories. Most recently, a blistering heatwave and drought forced factories to halt in some regions last month, crimping output of materials such as lithium and aluminum.
“The plan if materialized will reverse the declining trend of coal additions,” said Lara Dong, an analyst with S&P Global Commodity Insights. “It will mitigate the power crunch risk, especially in the load centers located in central and eastern China.”
To be sure, no official announcements have been made on capacity additions, and it’s in the engineering firm’s interest to jockey for a larger amount of potential coal power plants to work on.
About 320 gigawatts of thermal power plants were added between 2006-2010, but the pace has slowed ever since then. In recent years, utilities have shifted their focus to cheaper and cleaner renewables. China has about 320 gigawatts of wind and solar projects in the pipeline right now, compared to 144 gigawatts in July 2021, according to S&P.
China may remain the world’s largest coal consumer and the expansion of coal plants might thwart its climate goals, Bloomberg Intelligent analyst Michelle Leung said in a note this month. The country put more new coal plants into operation last year than the rest of the world combined, and its proposed new coal mines account for almost a third of the global total, she said.
Full story
4) Goldman sees $2 Trillion surge in European energy bills by 2023
Blomberg, 9 September 2022
Energy bills for European households will surge by 2 trillion euros ($2 trillion) at their peak early next year, underscoring the need for government intervention, according to Goldman Sachs Group Inc. utilities analysts.
At their height, energy bills will represent about 15% of Europe’s gross domestic product, the analysts, led by Alberto Gandolfi and Mafalda Pombeiro, wrote in a note dated Sunday.
“In our view, the market continues to underestimate the depth, the breadth and the structural repercussions of the crisis,” they wrote. “We believe these will be even deeper than the 1970s oil crisis.”
Stock investors are too pessimistic about the effect of regulatory efforts, Goldman said. Some of the steps being considered -- including price caps and a so-called tariff deficit -- could ease the overhang on stock prices by smoothing the increase in tariffs, limiting the near-term drop in industrial production, and largely defusing regulatory risk, the analysts wrote.
The increase in energy bills has prompted a rush by governments to ease cost pressures on households and businesses. EU energy ministers will meet Friday to discuss measures including natural gas price caps and suspension of power derivatives trading. France and Germany support windfall taxes on energy profits.
The introduction of price caps in power generation could save the bloc around 650 billion euros in power bills and offer consumers and markets some relief while allowing governments to forgo a windfall-profits tax, the Goldman analysts said.
Investors should favor shares in companies that are developing renewable-energy sources, since they should benefit from structurally higher-for-longer energy prices, the analysts wrote, highlighting RWE AG, Energias de Portugal SA and Orsted A/S.
Price caps wouldn’t fully solve the affordability problem, meaning a tariff deficit might be needed to spread the spike in bills over 10-20 years, Gandolfi and Pombeiro said. Utilities would need to be able to securitize those future payments, allowing them to avoid an excess burden on their balance sheet.
5) Europe fails to find solutions to curb soaring energy prices
Barrons, 9 September 2022
The EU’s total gas and power costs may rise to €1.4 trillion ($1.4 trillion) on an annual basis
European government officials met in Brussels on Friday to discuss how they will cope with a shortage of energy that’s sending prices sky-high ever since Russia invaded Ukraine. They failed to agree on any concrete solutions for now.
Proposals for a price cap need more work, leaders said at a press conference. The ministers called on the European Commission, the European Union’s executive arm, to come up with more ideas.
“There are 27 states with completely different energy mixes, with completely different geographical positions,” said Roberto Cingolani, Italy’s minister for ecological transition. “Unfortunately it is very difficult to find the silver bullet, the solution that pleases everyone, quickly.”
Dutch gas futures, the European benchmark, remained lower on the day after the meeting ended.
The war on the EU’s doorstep threw into doubt whether Russia, a huge exporter of fuel and other commodities, could be a reliable trading partner. Western nations vowed to wean themselves off of the country’s oil and gas, but they were far from prepared to cut themselves off immediately.
Oil prices aren’t a problem at the moment as Russian supplies found their way into other parts of the global market. But a shortage of gas, which is used both to heat homes directly and to generate electricity, threatens to create enormous hardship if it runs out when the weather is cold. Russia supplied about 40% of Europe’s natural gas before the invasion.
Russia’s move to indefinitely close down a key pipeline at the end of August has made a solution even more urgent. Energy ministers from the 27 EU members discussed a raft of measures, ranging from electricity price caps to direct support for households and businesses, according to a draft document prepared for the talks.
The EU’s total gas and power costs may rise to €1.4 trillion ($1.4 trillion) on an annual basis from just €200 billion before the war, of which 70% is electricity and 30% is gas, according to analysts at Morgan Stanley . The €1.2 trillion increase is equivalent to 8% of the region’s economic output, threatening to cripple spending on other things if households alone are forced to foot the bill.
The EU is drawing up a raft of unprecedented proposals to discuss Friday. One is to cap wholesale energy prices at €200 per megawatt-hour, the minister’s discussion paper says. It will also discuss taking steps to reduce power demand, including a mandatory 5% reduction in electricity consumption during peak hours.
Europe did its best to stockpile gas before Russia completely shut down the main pipeline. Storage facilities will be 90% full by Nov. 1 if they keep getting filled at the current rate, providing a bigger cushion than usual as the cold season starts.
Cedric Gemehl, an analyst at Gavekal Research, reckons that the EU on average will have to reduce gas consumption by no more than 2% compared to the average of the past five winters.
Germany, which was more reliant on Russia than other EU countries, may still need to lower its gas use by as much as 16% this winter, but that’s better than forecasts from a few weeks ago of a need to cut it by as much as 26%. “It’s a lot less dire than the worst-case scenarios,” Gemehl notes.
While the EU will decide guidelines for the bloc as a whole, individual countries will come up with their own support measures. Germany has announced another round of relief–its third since late 2021–to help households cope with the fastest inflation in 40 years. It now totals €95 billion and includes a brake on prices of electricity used for basic consumption, a profit cap on energy companies, and lump-sum payments to students and pensioners.
The U.K., now outside of EU, has its own plan. Prime Minister Liz Truss’s first order of business after taking office this week was to unveil a package targeted directly at consumers. It includes fixing household energy bills around current levels for two years, about £2,500 a year for an average household. Businesses will get equivalent support for six months.
Nomura economist George Buckley predicts the plan will cost the U.K. taxpayer about £150 billion. That’s twice the size of the furlough program that saw workers through the Covid pandemic. Truss has ruled out a windfall tax on companies.
Government spending to combat the energy shock will inevitably lead to more borrowing than planned. The bill will probably be offset by higher taxes, and the details probably won’t be worked out until after the crisis is over. But leaders know that spending now to prevent a complete economic meltdown is still cheaper, and more politically viable, than allowing the pain to fester.
There will also be wider ripple effects that are hard to foresee. Equinor , the Norwegian energy producer and trader, estimates that EU firms will need €1.5 trillion to cover the cost of margin calls for gas trades. The turmoil could drain liquidity from the market and require further government steps to keep power flowing.
European Central Bank President Christine Lagarde on Friday said the ECB wouldn’t be able to provide short-term financing for energy firms. That’s a job for governments, she said at an event in Prague.
State action on price spikes may influence how central banks respond. So far, they have rapidly increased interest rates to prevent energy-driven inflation from becoming entrenched in other areas of the economy, even though the outlook for growth is grim. If governments are able to help slow price increases with energy price caps, monetary policy authorities could potentially reverse course.
For now, the only thing that’s clear is that Europe will face a difficult winter. How bad it gets for households and companies will be down to the people in charge.
6) Farmers warn of winter food shortages in Europe
Financial Times, 9 September 2022
Price rises across wide range of products predicted as output is cut over surging energy costs
Farmers and food producers in Europe have warned of seasonal shortages and significant price increases across a wide range of everyday products this winter, as they called for government support to offset surging energy costs.
Copa-Cogeca, the EU farmers’ union, and FoodDrink Europe and PFP, two of the big food producer associations, said their members had already begun to close operations and reduce their output, as they asked for the food chain to be exempt from any European plans to ration energy.
“The latest increases in energy prices, especially natural gas and electricity, threaten the continuity of agri-food production cycles and therefore the ability to continue delivering essential agricultural commodities, food products and feed materials,” they said in a statement ahead of an emergency meeting of EU energy ministers in Brussels.
Energy prices have surged this year due to Vladimir Putin’s war in Ukraine, with Russia reducing gas flows to the continent in retaliation for sanctions. This has sparked fears of energy rationing when demand increases in the colder months.
Pekka Pesonen, secretary-general of Copa-Cogeca, said European shoppers would face even higher prices and shortages of many fruit and vegetables this winter. “It’s something we’ve never seen before,” he said. “Nobody saw this coming and having such wide consequences.”
Energy is used throughout food production from fertiliser to harvesting to refrigeration. The dairy and bakery industries were particularly affected by rising prices, Pesonen explained, because pasteurisation and the process of creating milk powder were energy intensive.
Butter prices in the EU have surged 80 per cent in the year to July, with milk powder up more than 50 per cent and beef 28 per cent higher, according to European Commission data. But farmers say costs are rising ever faster.
Many fruit and vegetable growers are already reducing plantings for the next harvest, with some producers saying the higher cost of operating their greenhouses outweighed the money they could make.
Sweden’s largest tomato grower, Nordic Greens, said it would not plant a winter crop because it could not afford the electricity. Greenhouses in the Netherlands, the world’s second biggest agricultural exporter by value after the US, are also being switching off.
Alexander Formsma, energy specialist at Glastuinbouw Nederland, which represents the sector, said: “You will probably not see lit crops of tomatoes and cucumbers in the winter, because it’s not financially feasible.”
Those growing outdoors were planning to produce less because they could not afford to refrigerate their products and prolong the shelf lives. Belgian apple growers, for example, would have a far shorter season without being able to preserve their fruit.
“We will have greater seasonality with some products not available or very expensive,” Pesonen said.
Energy ministers will discuss a commission proposal that member states levy windfall taxes on electricity companies using gas and on fossil fuel producers. But the proceeds are likely to be used to help householders pay their bills rather than businesses.
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In the UK, new prime minister Liz Truss has pledged £100bn to cap bills for consumers and businesses.
The 2022 harvest of crops grown in heated greenhouses in the UK, such as cucumbers and peppers, would be less than half the norm because of high energy prices, said the trade group for the country’s main growing region.
Lee Stiles, secretary of the Hertfordshire-based Lea Valley Growers Association, said producers that would normally pick until October or November were ceasing harvesting now, while next year’s planting would depend on tough ongoing price negotiations with supermarkets.
Those crops that did grow would be sharply more expensive. “We’re looking at a £1 cucumber now. It used to be 60p,” he said.
At their height, energy bills will represent about 15% of Europe’s gross domestic product, the analysts, led by Alberto Gandolfi and Mafalda Pombeiro, wrote in a note dated Sunday.
“In our view, the market continues to underestimate the depth, the breadth and the structural repercussions of the crisis,” they wrote. “We believe these will be even deeper than the 1970s oil crisis.”
Stock investors are too pessimistic about the effect of regulatory efforts, Goldman said. Some of the steps being considered -- including price caps and a so-called tariff deficit -- could ease the overhang on stock prices by smoothing the increase in tariffs, limiting the near-term drop in industrial production, and largely defusing regulatory risk, the analysts wrote.
The increase in energy bills has prompted a rush by governments to ease cost pressures on households and businesses. EU energy ministers will meet Friday to discuss measures including natural gas price caps and suspension of power derivatives trading. France and Germany support windfall taxes on energy profits.
The introduction of price caps in power generation could save the bloc around 650 billion euros in power bills and offer consumers and markets some relief while allowing governments to forgo a windfall-profits tax, the Goldman analysts said.
Investors should favor shares in companies that are developing renewable-energy sources, since they should benefit from structurally higher-for-longer energy prices, the analysts wrote, highlighting RWE AG, Energias de Portugal SA and Orsted A/S.
Price caps wouldn’t fully solve the affordability problem, meaning a tariff deficit might be needed to spread the spike in bills over 10-20 years, Gandolfi and Pombeiro said. Utilities would need to be able to securitize those future payments, allowing them to avoid an excess burden on their balance sheet.
5) Europe fails to find solutions to curb soaring energy prices
Barrons, 9 September 2022
The EU’s total gas and power costs may rise to €1.4 trillion ($1.4 trillion) on an annual basis
European government officials met in Brussels on Friday to discuss how they will cope with a shortage of energy that’s sending prices sky-high ever since Russia invaded Ukraine. They failed to agree on any concrete solutions for now.
Proposals for a price cap need more work, leaders said at a press conference. The ministers called on the European Commission, the European Union’s executive arm, to come up with more ideas.
“There are 27 states with completely different energy mixes, with completely different geographical positions,” said Roberto Cingolani, Italy’s minister for ecological transition. “Unfortunately it is very difficult to find the silver bullet, the solution that pleases everyone, quickly.”
Dutch gas futures, the European benchmark, remained lower on the day after the meeting ended.
The war on the EU’s doorstep threw into doubt whether Russia, a huge exporter of fuel and other commodities, could be a reliable trading partner. Western nations vowed to wean themselves off of the country’s oil and gas, but they were far from prepared to cut themselves off immediately.
Oil prices aren’t a problem at the moment as Russian supplies found their way into other parts of the global market. But a shortage of gas, which is used both to heat homes directly and to generate electricity, threatens to create enormous hardship if it runs out when the weather is cold. Russia supplied about 40% of Europe’s natural gas before the invasion.
Russia’s move to indefinitely close down a key pipeline at the end of August has made a solution even more urgent. Energy ministers from the 27 EU members discussed a raft of measures, ranging from electricity price caps to direct support for households and businesses, according to a draft document prepared for the talks.
The EU’s total gas and power costs may rise to €1.4 trillion ($1.4 trillion) on an annual basis from just €200 billion before the war, of which 70% is electricity and 30% is gas, according to analysts at Morgan Stanley . The €1.2 trillion increase is equivalent to 8% of the region’s economic output, threatening to cripple spending on other things if households alone are forced to foot the bill.
The EU is drawing up a raft of unprecedented proposals to discuss Friday. One is to cap wholesale energy prices at €200 per megawatt-hour, the minister’s discussion paper says. It will also discuss taking steps to reduce power demand, including a mandatory 5% reduction in electricity consumption during peak hours.
Europe did its best to stockpile gas before Russia completely shut down the main pipeline. Storage facilities will be 90% full by Nov. 1 if they keep getting filled at the current rate, providing a bigger cushion than usual as the cold season starts.
Cedric Gemehl, an analyst at Gavekal Research, reckons that the EU on average will have to reduce gas consumption by no more than 2% compared to the average of the past five winters.
Germany, which was more reliant on Russia than other EU countries, may still need to lower its gas use by as much as 16% this winter, but that’s better than forecasts from a few weeks ago of a need to cut it by as much as 26%. “It’s a lot less dire than the worst-case scenarios,” Gemehl notes.
While the EU will decide guidelines for the bloc as a whole, individual countries will come up with their own support measures. Germany has announced another round of relief–its third since late 2021–to help households cope with the fastest inflation in 40 years. It now totals €95 billion and includes a brake on prices of electricity used for basic consumption, a profit cap on energy companies, and lump-sum payments to students and pensioners.
The U.K., now outside of EU, has its own plan. Prime Minister Liz Truss’s first order of business after taking office this week was to unveil a package targeted directly at consumers. It includes fixing household energy bills around current levels for two years, about £2,500 a year for an average household. Businesses will get equivalent support for six months.
Nomura economist George Buckley predicts the plan will cost the U.K. taxpayer about £150 billion. That’s twice the size of the furlough program that saw workers through the Covid pandemic. Truss has ruled out a windfall tax on companies.
Government spending to combat the energy shock will inevitably lead to more borrowing than planned. The bill will probably be offset by higher taxes, and the details probably won’t be worked out until after the crisis is over. But leaders know that spending now to prevent a complete economic meltdown is still cheaper, and more politically viable, than allowing the pain to fester.
There will also be wider ripple effects that are hard to foresee. Equinor , the Norwegian energy producer and trader, estimates that EU firms will need €1.5 trillion to cover the cost of margin calls for gas trades. The turmoil could drain liquidity from the market and require further government steps to keep power flowing.
European Central Bank President Christine Lagarde on Friday said the ECB wouldn’t be able to provide short-term financing for energy firms. That’s a job for governments, she said at an event in Prague.
State action on price spikes may influence how central banks respond. So far, they have rapidly increased interest rates to prevent energy-driven inflation from becoming entrenched in other areas of the economy, even though the outlook for growth is grim. If governments are able to help slow price increases with energy price caps, monetary policy authorities could potentially reverse course.
For now, the only thing that’s clear is that Europe will face a difficult winter. How bad it gets for households and companies will be down to the people in charge.
6) Farmers warn of winter food shortages in Europe
Financial Times, 9 September 2022
Price rises across wide range of products predicted as output is cut over surging energy costs
Farmers and food producers in Europe have warned of seasonal shortages and significant price increases across a wide range of everyday products this winter, as they called for government support to offset surging energy costs.
Copa-Cogeca, the EU farmers’ union, and FoodDrink Europe and PFP, two of the big food producer associations, said their members had already begun to close operations and reduce their output, as they asked for the food chain to be exempt from any European plans to ration energy.
“The latest increases in energy prices, especially natural gas and electricity, threaten the continuity of agri-food production cycles and therefore the ability to continue delivering essential agricultural commodities, food products and feed materials,” they said in a statement ahead of an emergency meeting of EU energy ministers in Brussels.
Energy prices have surged this year due to Vladimir Putin’s war in Ukraine, with Russia reducing gas flows to the continent in retaliation for sanctions. This has sparked fears of energy rationing when demand increases in the colder months.
Pekka Pesonen, secretary-general of Copa-Cogeca, said European shoppers would face even higher prices and shortages of many fruit and vegetables this winter. “It’s something we’ve never seen before,” he said. “Nobody saw this coming and having such wide consequences.”
Energy is used throughout food production from fertiliser to harvesting to refrigeration. The dairy and bakery industries were particularly affected by rising prices, Pesonen explained, because pasteurisation and the process of creating milk powder were energy intensive.
Butter prices in the EU have surged 80 per cent in the year to July, with milk powder up more than 50 per cent and beef 28 per cent higher, according to European Commission data. But farmers say costs are rising ever faster.
Many fruit and vegetable growers are already reducing plantings for the next harvest, with some producers saying the higher cost of operating their greenhouses outweighed the money they could make.
Sweden’s largest tomato grower, Nordic Greens, said it would not plant a winter crop because it could not afford the electricity. Greenhouses in the Netherlands, the world’s second biggest agricultural exporter by value after the US, are also being switching off.
Alexander Formsma, energy specialist at Glastuinbouw Nederland, which represents the sector, said: “You will probably not see lit crops of tomatoes and cucumbers in the winter, because it’s not financially feasible.”
Those growing outdoors were planning to produce less because they could not afford to refrigerate their products and prolong the shelf lives. Belgian apple growers, for example, would have a far shorter season without being able to preserve their fruit.
“We will have greater seasonality with some products not available or very expensive,” Pesonen said.
Energy ministers will discuss a commission proposal that member states levy windfall taxes on electricity companies using gas and on fossil fuel producers. But the proceeds are likely to be used to help householders pay their bills rather than businesses.
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In the UK, new prime minister Liz Truss has pledged £100bn to cap bills for consumers and businesses.
The 2022 harvest of crops grown in heated greenhouses in the UK, such as cucumbers and peppers, would be less than half the norm because of high energy prices, said the trade group for the country’s main growing region.
Lee Stiles, secretary of the Hertfordshire-based Lea Valley Growers Association, said producers that would normally pick until October or November were ceasing harvesting now, while next year’s planting would depend on tough ongoing price negotiations with supermarkets.
Those crops that did grow would be sharply more expensive. “We’re looking at a £1 cucumber now. It used to be 60p,” he said.
7) WSJ: Europe pays and pays for Net Zero
The Wall Street Journal, 9 September 2022
Prices and subsidies are both soaring thanks to foolish climate policy.
New British Prime Minister Liz Truss on Thursday rolled out an energy-price subsidy plan that could cost £150 billion. Throw that on the pile with the tens upon tens of billions of dollars’ worth of subsidies other European governments are offering to take the sting out of energy prices this winter. It adds up to a stunning cost for Europe’s climate-change ambitions.
The contours of Europe’s crisis are well-known by now. Governments across the Continent for decades concocted increasingly aggressive plans to reduce carbon-dioxide emissions in the name of arresting climate change. The effort is to meet a pledge to achieve “net-zero” emissions in the 2040s or 2050s.
As a result, Europe has become ever more dependent on wind and solar—which are too unreliable to power advanced industrial economies—while perversely eschewing nuclear power. They burned natural gas, until Vladimir Putin’s Ukraine war sent prices haywire and deprived Europe of Russian gas.
Now the cost of that folly is coming due, and it’s predictably enormous. Ms. Truss’s plan is a painful example: Britain will cap household energy bills for two years at about £2,100, with taxpayers picking up the difference between that and utilities’ costs of supplying energy. Ms. Truss will also eliminate green taxes on energy bills, with the government using other revenues to pay for programs those levies fund.
Businesses’ energy costs will be capped for six months. The Treasury and the Bank of England, the central bank, will create a new program to provide liquidity to energy companies. All of this will be financed primarily by borrowing, with future taxpayers paying the bills.
Germany last weekend rolled out a €65 billion subsidy package, consisting of a price cap on household and business electricity bills, to be financed (allegedly) with a windfall-profits tax on electricity producers. Chancellor Olaf Scholz also will offer handouts to retirees, students, families and assorted others.
France has turned state-owned utility EDF into a subsidy piggy bank, ordering the company to cap energy-price increases. Paris also is offering taxpayer-financed assistance to companies hit by rising energy prices, as well as the usual grab-bag of household subsidies such as for students returning to school.
How much will all this cost? No one knows. Ms. Truss has yet to put a precise price on her program, and Berlin’s €65 billion is merely an opening bid. Paris seems to have stopped counting at about €20 billion. These sums must be added to the costs of renewable subsidies, green levies, fuel taxes, higher prices and lower reliability that European households and businesses have been paying for years. With net zero you pay now and pay later.
Yet Europe still isn’t internalizing this costly lesson. Berlin has dragged itself kicking and screaming into an extension of two of Germany’s remaining three nuclear plants, but otherwise remains committed to renewables above all. Governments mostly hope to pay for these handouts with taxes on the same energy companies they need to produce more power—and drill more fossil fuels. Talk about destructive incentives after those companies already scaled back fossil-fuel investments due to politicians’ net-zero fixation.
Ms. Truss alone is willing to try something else. She’s refusing windfall-profits taxation and instead wants to scale up gas drilling in the North Sea and introduce shale-gas fracking in the north of England. More energy as a solution to an energy-price crisis? That’s a revolutionary idea in Europe.
Americans should pay attention to all this because Democratic Party policies are heading in the same direction. If you thought the Inflation Reduction Act’s subsidies for renewable power were outrageous, wait until you see the bill when those renewables fail to meet America’s power needs.
8) David Smith: Thatcher would be turning in her grave: how the Tories embraced state intervention
The Sunday Times, 11 September 2022
The Wall Street Journal, 9 September 2022
Prices and subsidies are both soaring thanks to foolish climate policy.
New British Prime Minister Liz Truss on Thursday rolled out an energy-price subsidy plan that could cost £150 billion. Throw that on the pile with the tens upon tens of billions of dollars’ worth of subsidies other European governments are offering to take the sting out of energy prices this winter. It adds up to a stunning cost for Europe’s climate-change ambitions.
The contours of Europe’s crisis are well-known by now. Governments across the Continent for decades concocted increasingly aggressive plans to reduce carbon-dioxide emissions in the name of arresting climate change. The effort is to meet a pledge to achieve “net-zero” emissions in the 2040s or 2050s.
As a result, Europe has become ever more dependent on wind and solar—which are too unreliable to power advanced industrial economies—while perversely eschewing nuclear power. They burned natural gas, until Vladimir Putin’s Ukraine war sent prices haywire and deprived Europe of Russian gas.
Now the cost of that folly is coming due, and it’s predictably enormous. Ms. Truss’s plan is a painful example: Britain will cap household energy bills for two years at about £2,100, with taxpayers picking up the difference between that and utilities’ costs of supplying energy. Ms. Truss will also eliminate green taxes on energy bills, with the government using other revenues to pay for programs those levies fund.
Businesses’ energy costs will be capped for six months. The Treasury and the Bank of England, the central bank, will create a new program to provide liquidity to energy companies. All of this will be financed primarily by borrowing, with future taxpayers paying the bills.
Germany last weekend rolled out a €65 billion subsidy package, consisting of a price cap on household and business electricity bills, to be financed (allegedly) with a windfall-profits tax on electricity producers. Chancellor Olaf Scholz also will offer handouts to retirees, students, families and assorted others.
France has turned state-owned utility EDF into a subsidy piggy bank, ordering the company to cap energy-price increases. Paris also is offering taxpayer-financed assistance to companies hit by rising energy prices, as well as the usual grab-bag of household subsidies such as for students returning to school.
How much will all this cost? No one knows. Ms. Truss has yet to put a precise price on her program, and Berlin’s €65 billion is merely an opening bid. Paris seems to have stopped counting at about €20 billion. These sums must be added to the costs of renewable subsidies, green levies, fuel taxes, higher prices and lower reliability that European households and businesses have been paying for years. With net zero you pay now and pay later.
Yet Europe still isn’t internalizing this costly lesson. Berlin has dragged itself kicking and screaming into an extension of two of Germany’s remaining three nuclear plants, but otherwise remains committed to renewables above all. Governments mostly hope to pay for these handouts with taxes on the same energy companies they need to produce more power—and drill more fossil fuels. Talk about destructive incentives after those companies already scaled back fossil-fuel investments due to politicians’ net-zero fixation.
Ms. Truss alone is willing to try something else. She’s refusing windfall-profits taxation and instead wants to scale up gas drilling in the North Sea and introduce shale-gas fracking in the north of England. More energy as a solution to an energy-price crisis? That’s a revolutionary idea in Europe.
Americans should pay attention to all this because Democratic Party policies are heading in the same direction. If you thought the Inflation Reduction Act’s subsidies for renewable power were outrageous, wait until you see the bill when those renewables fail to meet America’s power needs.
8) David Smith: Thatcher would be turning in her grave: how the Tories embraced state intervention
The Sunday Times, 11 September 2022
What Tories used to condemn as the “nanny state” and mock Europe’s addiction to public spending has become the norm, and so has the bigger and more interventionist state. Thatcher will be turning in her grave.
Thirty years ago this week, on September 16, 1992, the limits of state power were brutally and humiliatingly exposed. On Black Wednesday, despite the government’s frantic efforts, the pound plunged out of the European exchange rate mechanism (ERM), leaving a massive hole at the heart of UK economic policy.
Sterling crashed out of the ERM despite the Bank of England, under instruction from the Treasury, exhausting all the country’s foreign exchange reserves in an effort to support it. Even a pledge to raise interest rates to sky-high levels — 15 per cent — failed to stem the tide.
In that pre-internet time, with the prime minister John Major and fellow senior ministers decamped at Admiralty House (because Downing Street was being repaired after an IRA mortar attack) and listening to events unfolding on a radio, there was nothing they could do.
By the time Norman Lamont, then the chancellor, trudged out of the Treasury in the early evening to announce the suspension of ERM membership, the result was clear. The government had been trounced by the markets, led by George Soros, but including just about every foreign exchange dealer in the City of London. Margaret Thatcher, dethroned two years earlier as prime minister, had a phrase: “You can’t buck the markets.” It seemed that she was right.
It was all the more surprising, then, that a decade and a half later, when the country was sinking under the weight of the 2008-09 banking crisis, that the state wielded its power again, but this time was successful. Then, little over a decade later, came Covid, lockdown, furlough and unprecedented state intervention.
Nobody really believed it when Liz Truss, in campaigning for the Tory leadership, delivered a “no handouts” mantra. But the scale of her intervention into the energy market, and the further expansion in the role of the state, in the biggest, untargeted handout to households and business in British history, is perhaps the most surprising intervention yet.
A sensible approach to the energy crisis would have been to target support towards the households and companies most in need of it. The package announced on Thursday was the broadest and most expensive possible, essentially a blank cheque to be paid for by additional debt. A new energy supply taskforce will negotiate new price deals, a direct steal from the vaccine taskforce employed during the pandemic.
A prime minister who, as a co-author of Britannia Unchained a decade ago railed against the “bloated state” is putting it on a get-fat-quick diet. In the free market think tank land once inhabited by Truss, they used to debate at dinner parties whether it was possible to get public spending below 35 per cent of gross domestic product (GDP). Now it is 43 per cent, having got to more than 50 per cent during the depths of the pandemic, and is unlikely to drop below 40 per cent — regularly achieved by Labour under Gordon Brown’s chancellorship — any time soon.
In the Tory think tanks, graduates of which now populate Truss’s Downing Street, they used to chortle over Ronald Reagan’s jokes, most notably what he described as the “most terrifying words in the English language: I’m from the government and I’m here to help”. But the government is helping, and on a massive scale, and the tax cuts signalled will still leave the tax burden on course to be its highest for 70 years.
The Institute of Economic Affairs (IEA), which has provided some of Truss’s advisers, is having kittens, warning that massive untargeted support and price controls do not work and will just allow executives to heat their swimming pools. In what may be a first, the IEA calls for targeted increases in welfare payments though, truer to form, it also wants cuts in VAT and other taxes.
It also makes the point, perhaps unconsciously echoing President Emmanuel Macron of France, that if you remove price signals by freezing prices, people and businesses will lose the incentive to curb their energy use.
But this state power thing is attractive to those who wield it. The energy price freeze is a big, bold statement from a prime minister who needed a big, bold statement. In contrast to the piecemeal measures of her leadership rival Rishi Sunak in response to the energy crisis — which were probably too complicated for people to understand — the Truss freeze is simple, if incredibly expensive. It is also contagious.
In Scotland, a first minister dismissed by Truss as an “attention-seeker” has attracted more attention by freezing the rents on public and private properties and banning evictions until March. Nicola Sturgeon said she was responding to “a humanitarian crisis”. The Scottish Association of Landlords said it would have unintended adverse consequences by persuading landlords to remove empty properties from the market, thus increasing hardship.
Unprecedented levels of support
Though the state always has a part to play in a modern economy — even when Adam Smith was alive in the 18th century — free marketeers see too large and intrusive a state as obstructing the economic freedoms which drive growth and prosperity.
The ERM humiliation in 1992 saw the Tories lose their reputation for economic competence, helping to pave the way for Labour’s landslide election victory under Tony Blair in 1997. Apart from the economic impact — the cost ran into billions and it took years for the reserves to be rebuilt — the episode deepened Euroscepticism in Britain, and helped set the scene for Brexit.
The 2008-09 financial crisis, in which George W Bush, seeking Congressional support for his own intervention, warned that “this sucker could go down”, continues to cast a shadow. Banks were nationalised, either wholly or partly. The sums involved were, at the time, mind-boggling, with the Labour government investing £37 billion in the stricken banks and providing hundreds of billions of pounds in guarantees and liquidity. The NatWest Group, once Royal Bank of Scotland, which for a time was the biggest bank in the world, is still partly nationalised.
NatWest/RBS may not have survived without the state’s bailout. Alistair Darling, chancellor during the crisis, recalled Sir Fred Goodwin, its boss, turning up on his Edinburgh doorstep with a gift-wrapped panettone and pleading for the government to do more to shore up the system. Goodwin, later stripped of his knighthood, almost presided over the bank’s complete collapse. Such was the torrent of money flooding out of the bank at one stage that it had only a few days left before being forced to close its doors.
This time a crisis left the banks, rather than the government, wounded and humiliated. The government was able to increase its control over them, not just through shareholdings but also by tougher regulation. A special tax, or bank levy, introduced in the wake of the crisis remains in place.
It also set the tone for an even bigger intervention, in the Covid-19 pandemic. Not only did the state intervene massively in the economy but it also interfered, more than ever before, in people’s lives. Lord Sumption, the lockdown critic, writing in these pages two weeks ago, set out the unprecedented nature of that intervention. “The lockdown was an experiment in authoritarian government unmatched in our history even in wartime,” he wrote. “Not only did the government assume powers over the lives of citizens that it had never previously claimed. In government, decision-making was concentrated in the hands of the prime minister, a man with notoriously poor judgment and little taste for detail.”
Once lockdowns and other restrictions were imposed, the government saw it as its moral and economic obligation to provide large-scale support, and in an unprecedented way. Never before had the state paid the wages and salaries of private sector employees, and many of the self-employed, as it did as a result of the furlough scheme, when it paid 80 per cent of those wages, up to a salary ceiling. Nearly 11 million people benefited from the state’s largesse during the lifetime of the scheme, which ended in September last year.
The state’s intervention, both in restrictions and economic support, was massive. The National Audit Office, the official public spending watchdog, puts the lifetime cost of the pandemic interventions at £376 billion, only about a quarter of which was in extra spending on health and social care.
The architect of much of this spending, Rishi Sunak, is now on the Tory back benches, neither he nor most of his supporters having been offered cabinet positions, but his legacy lives on. Government debt, just under £1.8 trillion before the pandemic, or about 80 per cent of GDP (gross domestic product) is now £2.4 trillion, 96 per cent of GDP, and on its way up further.
The furlough scheme, a great success in its main aim of keeping unemployment down, may have also been responsible for shrinking the workforce. The number of people available for work in the UK is roughly a million lower than if pre-pandemic trends had continued. Some of that is due to fewer EU workers in the UK because of Brexit. Most is due to rising economic inactivity among UK nationals, some due to long-term health issues, much due to lifestyle choices. Furloughed older workers, in particular, may have learnt that they could do without the daily grind of work and decided to retire earlier than they had expected.
Where does it end? The bigger and more intrusive the state, the more that the private sector is squeezed. Free marketeers used to fret about “crowding out”, in which a big state not only does many of the things that companies could do, but also increases the cost of borrowing for them, limiting their ability to invest.
But what Tories used to condemn as the “nanny state” and mock Europe’s addiction to public spending has become the norm, and so has the bigger and more interventionist state. Those like Truss who cut their teeth wanting the state to stay out of people’s lives are now embracing a huge increase in the state’s control and influence. Thatcher will be turning in her grave and so, despite running up big budget deficits himself, would Reagan.
Thirty years ago this week, on September 16, 1992, the limits of state power were brutally and humiliatingly exposed. On Black Wednesday, despite the government’s frantic efforts, the pound plunged out of the European exchange rate mechanism (ERM), leaving a massive hole at the heart of UK economic policy.
Sterling crashed out of the ERM despite the Bank of England, under instruction from the Treasury, exhausting all the country’s foreign exchange reserves in an effort to support it. Even a pledge to raise interest rates to sky-high levels — 15 per cent — failed to stem the tide.
In that pre-internet time, with the prime minister John Major and fellow senior ministers decamped at Admiralty House (because Downing Street was being repaired after an IRA mortar attack) and listening to events unfolding on a radio, there was nothing they could do.
By the time Norman Lamont, then the chancellor, trudged out of the Treasury in the early evening to announce the suspension of ERM membership, the result was clear. The government had been trounced by the markets, led by George Soros, but including just about every foreign exchange dealer in the City of London. Margaret Thatcher, dethroned two years earlier as prime minister, had a phrase: “You can’t buck the markets.” It seemed that she was right.
It was all the more surprising, then, that a decade and a half later, when the country was sinking under the weight of the 2008-09 banking crisis, that the state wielded its power again, but this time was successful. Then, little over a decade later, came Covid, lockdown, furlough and unprecedented state intervention.
Nobody really believed it when Liz Truss, in campaigning for the Tory leadership, delivered a “no handouts” mantra. But the scale of her intervention into the energy market, and the further expansion in the role of the state, in the biggest, untargeted handout to households and business in British history, is perhaps the most surprising intervention yet.
A sensible approach to the energy crisis would have been to target support towards the households and companies most in need of it. The package announced on Thursday was the broadest and most expensive possible, essentially a blank cheque to be paid for by additional debt. A new energy supply taskforce will negotiate new price deals, a direct steal from the vaccine taskforce employed during the pandemic.
A prime minister who, as a co-author of Britannia Unchained a decade ago railed against the “bloated state” is putting it on a get-fat-quick diet. In the free market think tank land once inhabited by Truss, they used to debate at dinner parties whether it was possible to get public spending below 35 per cent of gross domestic product (GDP). Now it is 43 per cent, having got to more than 50 per cent during the depths of the pandemic, and is unlikely to drop below 40 per cent — regularly achieved by Labour under Gordon Brown’s chancellorship — any time soon.
In the Tory think tanks, graduates of which now populate Truss’s Downing Street, they used to chortle over Ronald Reagan’s jokes, most notably what he described as the “most terrifying words in the English language: I’m from the government and I’m here to help”. But the government is helping, and on a massive scale, and the tax cuts signalled will still leave the tax burden on course to be its highest for 70 years.
The Institute of Economic Affairs (IEA), which has provided some of Truss’s advisers, is having kittens, warning that massive untargeted support and price controls do not work and will just allow executives to heat their swimming pools. In what may be a first, the IEA calls for targeted increases in welfare payments though, truer to form, it also wants cuts in VAT and other taxes.
It also makes the point, perhaps unconsciously echoing President Emmanuel Macron of France, that if you remove price signals by freezing prices, people and businesses will lose the incentive to curb their energy use.
But this state power thing is attractive to those who wield it. The energy price freeze is a big, bold statement from a prime minister who needed a big, bold statement. In contrast to the piecemeal measures of her leadership rival Rishi Sunak in response to the energy crisis — which were probably too complicated for people to understand — the Truss freeze is simple, if incredibly expensive. It is also contagious.
In Scotland, a first minister dismissed by Truss as an “attention-seeker” has attracted more attention by freezing the rents on public and private properties and banning evictions until March. Nicola Sturgeon said she was responding to “a humanitarian crisis”. The Scottish Association of Landlords said it would have unintended adverse consequences by persuading landlords to remove empty properties from the market, thus increasing hardship.
Unprecedented levels of support
Though the state always has a part to play in a modern economy — even when Adam Smith was alive in the 18th century — free marketeers see too large and intrusive a state as obstructing the economic freedoms which drive growth and prosperity.
The ERM humiliation in 1992 saw the Tories lose their reputation for economic competence, helping to pave the way for Labour’s landslide election victory under Tony Blair in 1997. Apart from the economic impact — the cost ran into billions and it took years for the reserves to be rebuilt — the episode deepened Euroscepticism in Britain, and helped set the scene for Brexit.
The 2008-09 financial crisis, in which George W Bush, seeking Congressional support for his own intervention, warned that “this sucker could go down”, continues to cast a shadow. Banks were nationalised, either wholly or partly. The sums involved were, at the time, mind-boggling, with the Labour government investing £37 billion in the stricken banks and providing hundreds of billions of pounds in guarantees and liquidity. The NatWest Group, once Royal Bank of Scotland, which for a time was the biggest bank in the world, is still partly nationalised.
NatWest/RBS may not have survived without the state’s bailout. Alistair Darling, chancellor during the crisis, recalled Sir Fred Goodwin, its boss, turning up on his Edinburgh doorstep with a gift-wrapped panettone and pleading for the government to do more to shore up the system. Goodwin, later stripped of his knighthood, almost presided over the bank’s complete collapse. Such was the torrent of money flooding out of the bank at one stage that it had only a few days left before being forced to close its doors.
This time a crisis left the banks, rather than the government, wounded and humiliated. The government was able to increase its control over them, not just through shareholdings but also by tougher regulation. A special tax, or bank levy, introduced in the wake of the crisis remains in place.
It also set the tone for an even bigger intervention, in the Covid-19 pandemic. Not only did the state intervene massively in the economy but it also interfered, more than ever before, in people’s lives. Lord Sumption, the lockdown critic, writing in these pages two weeks ago, set out the unprecedented nature of that intervention. “The lockdown was an experiment in authoritarian government unmatched in our history even in wartime,” he wrote. “Not only did the government assume powers over the lives of citizens that it had never previously claimed. In government, decision-making was concentrated in the hands of the prime minister, a man with notoriously poor judgment and little taste for detail.”
Once lockdowns and other restrictions were imposed, the government saw it as its moral and economic obligation to provide large-scale support, and in an unprecedented way. Never before had the state paid the wages and salaries of private sector employees, and many of the self-employed, as it did as a result of the furlough scheme, when it paid 80 per cent of those wages, up to a salary ceiling. Nearly 11 million people benefited from the state’s largesse during the lifetime of the scheme, which ended in September last year.
The state’s intervention, both in restrictions and economic support, was massive. The National Audit Office, the official public spending watchdog, puts the lifetime cost of the pandemic interventions at £376 billion, only about a quarter of which was in extra spending on health and social care.
The architect of much of this spending, Rishi Sunak, is now on the Tory back benches, neither he nor most of his supporters having been offered cabinet positions, but his legacy lives on. Government debt, just under £1.8 trillion before the pandemic, or about 80 per cent of GDP (gross domestic product) is now £2.4 trillion, 96 per cent of GDP, and on its way up further.
The furlough scheme, a great success in its main aim of keeping unemployment down, may have also been responsible for shrinking the workforce. The number of people available for work in the UK is roughly a million lower than if pre-pandemic trends had continued. Some of that is due to fewer EU workers in the UK because of Brexit. Most is due to rising economic inactivity among UK nationals, some due to long-term health issues, much due to lifestyle choices. Furloughed older workers, in particular, may have learnt that they could do without the daily grind of work and decided to retire earlier than they had expected.
Where does it end? The bigger and more intrusive the state, the more that the private sector is squeezed. Free marketeers used to fret about “crowding out”, in which a big state not only does many of the things that companies could do, but also increases the cost of borrowing for them, limiting their ability to invest.
But what Tories used to condemn as the “nanny state” and mock Europe’s addiction to public spending has become the norm, and so has the bigger and more interventionist state. Those like Truss who cut their teeth wanting the state to stay out of people’s lives are now embracing a huge increase in the state’s control and influence. Thatcher will be turning in her grave and so, despite running up big budget deficits himself, would Reagan.
9) Javier Blas: Britain goes the wrong way on energy bailout
Bloomberg, 9 September 2022
Liz Truss’s first statement to Parliament as prime minister was one for the books: an energy bailout worth probably 5% of gross domestic product.
Truss on Thursday froze UK energy retail power and gas bills for the next 24 months, so an average household would pay no more than £2,500 ($2,877) per year, instead of the £3,549 that regulators set for the next three months and well below the £4,000-£5,000 expected in 2023. On top of that, she promised the “equivalent” protection to businesses for six months.
The task, though, involves more than containing spiraling costs. On all other counts, Truss’s policy falls short. Does it focus on poor and working-class families? Maintain the semblance of a market to curb demand? Identify the cost and a way to pay for it? No, no and no.
Instead of targeted support for the needy, Downing Street announced a one-size-fits-all policy that will benefit households below the poverty line as well as those enjoying Wall Street-sized bonuses. Is there, really, a need to subsidize those making hundreds of thousands of pounds — or more?
Instead of nodding toward market forces, the government eliminated them. And it made the situation worse by making no attempt whatsoever to encourage conservation – absolutely critical to avoid supply shortfalls that could result in blackouts. In a 1,267-word speech, Truss didn’t mention the words “demand,” “consumption” or “savings” once. Lower energy bills could have been linked to usage, with more frugal families receiving larger discounts. The result could have been financial relief with price signals still somewhat relevant.
Finally, instead of fiscal clarity, Truss offered uncertainty. In what is likely to be one of the biggest-ever fiscal interventions in peacetime history, we know neither the cost (the Treasury will publish an estimate later this month, she said) nor the funding sources. We do know where it won’t be coming from: Truss said there will be no windfall tax on energy companies. The implication is that the government will borrow the entire sum and leave repayment to future generations.
How much will it cost? Ahead of the announcement, internal government estimates pegged the tab at £130 billion, plus another £40 billion if help to businesses was included. The £170 billion about equals what the country spends on its public health system.
There’s a catch. It involves a potentially very expensive, very risky bet. In freezing energy bills, the UK Treasury effectively took the biggest short position ever in the gas and electricity wholesale markets, without a hedge. In the jargon of the trade, it’s a naked short.
If wholesale prices rise because a cold winter lifts demand or Russian President Vladimir Putin further squeezes supply, the cost would also increase, without a ceiling in place. The UK Cabinet Office wrote in a policy note to ministers: “Cost depends on the forward price of gas and electricity […] If a fixed commitment was made there would be an uncapped liability and overall scheme cost could escalate further.” Of course, if prices drop, the UK Treasury would spend less money.
Downing Street could offset the massive cost to taxpayers in two ways. First, it could intervene in the wholesale market, as the European Union plans, capping the profits of renewable-energy and nuclear-power producers, whose prices are linked to gas costs. Their windfall needs to be taxed, preferably via a wholesale price cap on their output. Second, it could have taxed the extreme profits that fossil-fuel companies are making. It could also close some loopholes exploited by the many commodity traders who avoid paying much of their fair share thanks to the use of tax havens.
The prime minister is right that consumers are facing sky-high prices because Putin has weaponized energy since Russia’s invasion of Ukraine. But ruling out a windfall tax is a mistake, if only because it could help Downing Street in its talks with the energy sector. In any negotiation, a stick is required along with the carrot. The British government will now try to arrange fixed long-term deals, so-called contracts-for-difference, with renewable and nuclear generators to reduce the cost of the policy intervention. Without the threat of a windfall tax, the government has weakened its own position. And any deal could permit renewable and nuclear companies much higher prices for years to come, in exchange for a slight reduction now. It’s a short-term win for a lot of long-term pain.
Truss has promised to deliver results. Sadly, her first delivery should be returned to sender.
Bloomberg, 9 September 2022
Liz Truss’s first statement to Parliament as prime minister was one for the books: an energy bailout worth probably 5% of gross domestic product.
Truss on Thursday froze UK energy retail power and gas bills for the next 24 months, so an average household would pay no more than £2,500 ($2,877) per year, instead of the £3,549 that regulators set for the next three months and well below the £4,000-£5,000 expected in 2023. On top of that, she promised the “equivalent” protection to businesses for six months.
The task, though, involves more than containing spiraling costs. On all other counts, Truss’s policy falls short. Does it focus on poor and working-class families? Maintain the semblance of a market to curb demand? Identify the cost and a way to pay for it? No, no and no.
Instead of targeted support for the needy, Downing Street announced a one-size-fits-all policy that will benefit households below the poverty line as well as those enjoying Wall Street-sized bonuses. Is there, really, a need to subsidize those making hundreds of thousands of pounds — or more?
Instead of nodding toward market forces, the government eliminated them. And it made the situation worse by making no attempt whatsoever to encourage conservation – absolutely critical to avoid supply shortfalls that could result in blackouts. In a 1,267-word speech, Truss didn’t mention the words “demand,” “consumption” or “savings” once. Lower energy bills could have been linked to usage, with more frugal families receiving larger discounts. The result could have been financial relief with price signals still somewhat relevant.
Finally, instead of fiscal clarity, Truss offered uncertainty. In what is likely to be one of the biggest-ever fiscal interventions in peacetime history, we know neither the cost (the Treasury will publish an estimate later this month, she said) nor the funding sources. We do know where it won’t be coming from: Truss said there will be no windfall tax on energy companies. The implication is that the government will borrow the entire sum and leave repayment to future generations.
How much will it cost? Ahead of the announcement, internal government estimates pegged the tab at £130 billion, plus another £40 billion if help to businesses was included. The £170 billion about equals what the country spends on its public health system.
There’s a catch. It involves a potentially very expensive, very risky bet. In freezing energy bills, the UK Treasury effectively took the biggest short position ever in the gas and electricity wholesale markets, without a hedge. In the jargon of the trade, it’s a naked short.
If wholesale prices rise because a cold winter lifts demand or Russian President Vladimir Putin further squeezes supply, the cost would also increase, without a ceiling in place. The UK Cabinet Office wrote in a policy note to ministers: “Cost depends on the forward price of gas and electricity […] If a fixed commitment was made there would be an uncapped liability and overall scheme cost could escalate further.” Of course, if prices drop, the UK Treasury would spend less money.
Downing Street could offset the massive cost to taxpayers in two ways. First, it could intervene in the wholesale market, as the European Union plans, capping the profits of renewable-energy and nuclear-power producers, whose prices are linked to gas costs. Their windfall needs to be taxed, preferably via a wholesale price cap on their output. Second, it could have taxed the extreme profits that fossil-fuel companies are making. It could also close some loopholes exploited by the many commodity traders who avoid paying much of their fair share thanks to the use of tax havens.
The prime minister is right that consumers are facing sky-high prices because Putin has weaponized energy since Russia’s invasion of Ukraine. But ruling out a windfall tax is a mistake, if only because it could help Downing Street in its talks with the energy sector. In any negotiation, a stick is required along with the carrot. The British government will now try to arrange fixed long-term deals, so-called contracts-for-difference, with renewable and nuclear generators to reduce the cost of the policy intervention. Without the threat of a windfall tax, the government has weakened its own position. And any deal could permit renewable and nuclear companies much higher prices for years to come, in exchange for a slight reduction now. It’s a short-term win for a lot of long-term pain.
Truss has promised to deliver results. Sadly, her first delivery should be returned to sender.
10) Joseph C. Sternberg: The Coming Global Crisis of Climate Policy
The Wall Street Journal, 9 September 2022
The Wall Street Journal, 9 September 2022
As central banks obsess over far-off dangers, a tsunami of energy-price bankruptcies approaches.
Let’s come right out and say it: Anyone who still thinks climate change is a greater threat than climate policy to financial stability deserves to be exiled to a peat-burning yurt in the wilderness.
Lest you’ve forgotten, the world’s central banks and other regulators are in the middle of a major push to introduce various forms of climate stress testing into their oversight. The Federal Reserve, Bank of England and European Central Bank, among others, want to know how global temperature variations a century hence might weigh on Citi’s or Barclays’ or Deutsche Bank’s capital and risk weightings today. The fad is for quantifying, with preposterous faux-precision, the costs of reinsuring flood risks, or fire, or the depressed corporate profits of a dystopian hotter future.
Well, if you seek “climate risk” to financial stability, look around you. It has arrived, although in exactly the opposite manner to what our current crop of eco-financiers predicted. Europe’s plight tells a tale that could become all too familiar in the U.S. soon.
The U.K. may be facing a wave of business bankruptcies exceeding anything witnessed during the post-2008 panic and recession. Some 100,000 firms could be forced into insolvency in coming months, bankruptcy consultancy Red Flag Alert warned this week. These are otherwise healthy firms with at least £1 million in annual revenue. Business failures on this scale would dwarf the roughly 65,000 firms of any size that went under from 2008-10.
The culprit is energy prices, which the consultancy believes could account directly for around one-quarter of the possible insolvencies. These prices are rising for British businesses in intervals of several hundred percent at a time and sometimes with steep deposit requirements from utilities that fear precisely a wave of bankruptcies.
Matters are probably worse in Germany, the eurozone’s largest economy. Some 73% of small and medium-sized enterprises in one survey reported feeling heavy pressure from energy prices, and 10% of those say they believe they face “existential” threats to their businesses over the next six months. And that poll, from the small-business association BMD, is the optimistic one. A separate survey published this week by the BDI, a major industry association, found 34% of respondents describing energy prices as an “existential challenge.” Business failures will ripple up and down supply chains and quickly into the banks.
European governments aren’t blind to the energy-price threat—an awareness that, perversely, creates a threat of its own. The only politically viable solution for this winter will be subsidies on a monumental scale. Hundreds of billions of dollars for households and businesses (and utilities) across the Continent already have been announced, and desperate capitals won’t stop there. This will require substantial borrowing on top of the fisc-wrecking bond issuance during the pandemic.
All of this adds up to an extraordinary threat to financial stability. Banks and other financial firms inevitably will find themselves right at the edge of the water if or when a tsunami of energy-price bankruptcies washes ashore. Meanwhile, they’ll be called on to mediate extraordinary levels of new government borrowing—on top of the additional borrowing governments normally do during recessions to finance social-welfare assistance. All of this while interest rates start rising after resting for more than a decade on (or below) the floor.
Does anyone know what exactly any of this will mean for the financial system? Of course not. No one has seriously bothered to “stress test” catastrophic increases in energy prices, even though the Bank of England claims to have modeled the economic impact of allowing global temperatures to rise by 3.3 degrees Celsius over the next few decades. By the way, the BOE also predicted the economic impact of the transition to a net-zero-CO2-emissions future would be modest.
Politicians are happy to blame Vladimir Putin and his Ukraine invasion for the current energy disaster. But what transformed that one-off shift in the relative price for energy into a global disaster was two decades of green-energy policy beforehand. In Europe, that includes a fixation on renewables incapable of powering industrial economies absent battery technologies that don’t exist, a refusal to tap domestic fossil-fuel reserves such as shale gas, and a deep and irrational hostility to nuclear power in many parts of the Continent.
This has created an energy system of dangerous rigidity and inefficiency incapable of adapting to a blow such as Russia’s partial exit from the European gas market. It’s almost inevitable that the imminent result will be a recession in Europe. We can only hope that it won’t also trigger a global financial crisis.
Let’s come right out and say it: Anyone who still thinks climate change is a greater threat than climate policy to financial stability deserves to be exiled to a peat-burning yurt in the wilderness.
Lest you’ve forgotten, the world’s central banks and other regulators are in the middle of a major push to introduce various forms of climate stress testing into their oversight. The Federal Reserve, Bank of England and European Central Bank, among others, want to know how global temperature variations a century hence might weigh on Citi’s or Barclays’ or Deutsche Bank’s capital and risk weightings today. The fad is for quantifying, with preposterous faux-precision, the costs of reinsuring flood risks, or fire, or the depressed corporate profits of a dystopian hotter future.
Well, if you seek “climate risk” to financial stability, look around you. It has arrived, although in exactly the opposite manner to what our current crop of eco-financiers predicted. Europe’s plight tells a tale that could become all too familiar in the U.S. soon.
The U.K. may be facing a wave of business bankruptcies exceeding anything witnessed during the post-2008 panic and recession. Some 100,000 firms could be forced into insolvency in coming months, bankruptcy consultancy Red Flag Alert warned this week. These are otherwise healthy firms with at least £1 million in annual revenue. Business failures on this scale would dwarf the roughly 65,000 firms of any size that went under from 2008-10.
The culprit is energy prices, which the consultancy believes could account directly for around one-quarter of the possible insolvencies. These prices are rising for British businesses in intervals of several hundred percent at a time and sometimes with steep deposit requirements from utilities that fear precisely a wave of bankruptcies.
Matters are probably worse in Germany, the eurozone’s largest economy. Some 73% of small and medium-sized enterprises in one survey reported feeling heavy pressure from energy prices, and 10% of those say they believe they face “existential” threats to their businesses over the next six months. And that poll, from the small-business association BMD, is the optimistic one. A separate survey published this week by the BDI, a major industry association, found 34% of respondents describing energy prices as an “existential challenge.” Business failures will ripple up and down supply chains and quickly into the banks.
European governments aren’t blind to the energy-price threat—an awareness that, perversely, creates a threat of its own. The only politically viable solution for this winter will be subsidies on a monumental scale. Hundreds of billions of dollars for households and businesses (and utilities) across the Continent already have been announced, and desperate capitals won’t stop there. This will require substantial borrowing on top of the fisc-wrecking bond issuance during the pandemic.
All of this adds up to an extraordinary threat to financial stability. Banks and other financial firms inevitably will find themselves right at the edge of the water if or when a tsunami of energy-price bankruptcies washes ashore. Meanwhile, they’ll be called on to mediate extraordinary levels of new government borrowing—on top of the additional borrowing governments normally do during recessions to finance social-welfare assistance. All of this while interest rates start rising after resting for more than a decade on (or below) the floor.
Does anyone know what exactly any of this will mean for the financial system? Of course not. No one has seriously bothered to “stress test” catastrophic increases in energy prices, even though the Bank of England claims to have modeled the economic impact of allowing global temperatures to rise by 3.3 degrees Celsius over the next few decades. By the way, the BOE also predicted the economic impact of the transition to a net-zero-CO2-emissions future would be modest.
Politicians are happy to blame Vladimir Putin and his Ukraine invasion for the current energy disaster. But what transformed that one-off shift in the relative price for energy into a global disaster was two decades of green-energy policy beforehand. In Europe, that includes a fixation on renewables incapable of powering industrial economies absent battery technologies that don’t exist, a refusal to tap domestic fossil-fuel reserves such as shale gas, and a deep and irrational hostility to nuclear power in many parts of the Continent.
This has created an energy system of dangerous rigidity and inefficiency incapable of adapting to a blow such as Russia’s partial exit from the European gas market. It’s almost inevitable that the imminent result will be a recession in Europe. We can only hope that it won’t also trigger a global financial crisis.
11) Biden’s freeze on oil, gas leases threatens to bring Europe’s energy nightmare to America
Editorial, New York Post, 11 September 2022
Editorial, New York Post, 11 September 2022
As Europe braces for energy shortages and a brutal winter after Russia shut down shipments through the Nord Stream pipeline, a new analysis shows President Biden pushing America to a similar fate by virtually halting federal oil- and gas-drilling leases.
Through Aug. 20, Biden leased just 126,228 acres for drilling, a pittance compared to all recent presidents (since Harry Truman) over their first 19 months, The Wall Street Journal found. Indeed, no other president since Richard Nixon leased less than 4.4 million acres, 35 times as much as Biden; Ronald Reagan alone leased 47.6 million acres, 378 times as much. Even President Barack Obama OK’d leases with 58 times as many acres.
Biden’s delivering on his campaign vow to end the use of fossil fuels in a bid to lower the Earth’s temperature: “No more drilling on federal lands … no ability for the oil industry to continue to drill, period,” he promised. In one of his first acts, he imposed an indefinite ban on new federal leases.
No, the dearth of leases doesn’t contribute directly to recent soaring gas and other energy prices, since it takes years to produce oil once a lease is granted. Yet industry leaders warn of shortages and price spikes down the road.
Europe offers a taste: There, leaders similarly prioritized their climate war and virtue-signaled by banning fracking and shutting down gas- and coal-fired (and even nuclear) power plants without commensurate curbs in consumption, leaving them dangerously dependent on oil and gas from Russia.
Now they’re paying the price: Natural-gas prices in Europe skyrocketed more than 1,500% from August 2019 to July. After Russia announced the Nord Stream shutdown (punishment for Europe’s opposition to Russia’s war on Ukraine), oil and gas prices surged 30% on Monday alone, before ending “only” 10% up.
The situation has Europe’s leaders mulling dramatic action to stave off a deadly winter, but shortages and price spikes are also wreaking chaos on Europe’s economy, and not just by prompting factory shutdowns: The euro recently hit its lowest level in 20 years, markets have slid and traders are predicting recession.
It’s tragic: Cutting out fossil fuels wouldn’t have done much to curb global warming even if Europeans had cut back on consumption, since nations like China and India continue to increase greenhouse-gas emissions. Nor was it worth the costs, since climate change simply isn’t the world-ending catastrophe the left pretends.
Alas, Biden’s following Europe’s path — freezing leases, blocking infrastructure projects like the Keystone pipeline and generally warring against fossil-fuel production. That is, he’s leading this country toward the same horrors Europe’s suffering now.
Through Aug. 20, Biden leased just 126,228 acres for drilling, a pittance compared to all recent presidents (since Harry Truman) over their first 19 months, The Wall Street Journal found. Indeed, no other president since Richard Nixon leased less than 4.4 million acres, 35 times as much as Biden; Ronald Reagan alone leased 47.6 million acres, 378 times as much. Even President Barack Obama OK’d leases with 58 times as many acres.
Biden’s delivering on his campaign vow to end the use of fossil fuels in a bid to lower the Earth’s temperature: “No more drilling on federal lands … no ability for the oil industry to continue to drill, period,” he promised. In one of his first acts, he imposed an indefinite ban on new federal leases.
No, the dearth of leases doesn’t contribute directly to recent soaring gas and other energy prices, since it takes years to produce oil once a lease is granted. Yet industry leaders warn of shortages and price spikes down the road.
Europe offers a taste: There, leaders similarly prioritized their climate war and virtue-signaled by banning fracking and shutting down gas- and coal-fired (and even nuclear) power plants without commensurate curbs in consumption, leaving them dangerously dependent on oil and gas from Russia.
Now they’re paying the price: Natural-gas prices in Europe skyrocketed more than 1,500% from August 2019 to July. After Russia announced the Nord Stream shutdown (punishment for Europe’s opposition to Russia’s war on Ukraine), oil and gas prices surged 30% on Monday alone, before ending “only” 10% up.
The situation has Europe’s leaders mulling dramatic action to stave off a deadly winter, but shortages and price spikes are also wreaking chaos on Europe’s economy, and not just by prompting factory shutdowns: The euro recently hit its lowest level in 20 years, markets have slid and traders are predicting recession.
It’s tragic: Cutting out fossil fuels wouldn’t have done much to curb global warming even if Europeans had cut back on consumption, since nations like China and India continue to increase greenhouse-gas emissions. Nor was it worth the costs, since climate change simply isn’t the world-ending catastrophe the left pretends.
Alas, Biden’s following Europe’s path — freezing leases, blocking infrastructure projects like the Keystone pipeline and generally warring against fossil-fuel production. That is, he’s leading this country toward the same horrors Europe’s suffering now.
12) Henry Geraedts: Our climate warriors forsake desperate Europe
Financial Post, 8 September 2022
Reality is a merciless mistress: remove hydrocarbons and net-zero energy magic vanishes
Europe’s structural dependence on inexpensive hydrocarbon energy from its now-hostile Russian neighbour has had two crucial outcomes. It has amplified and accelerated destabilizing dynamics already in play, bringing about a transformation of the international energy landscape. And it has starkly exposed the spectacular failure of Europe’s 30-year, market-distorting climate policies, in particular its delusions about a renewables-based net-zero energy transition.
Reality is a merciless mistress: remove hydrocarbons and net-zero energy magic vanishes, exposing Europeans to the truly shocking social and economic fall-out of decades of wishful political thinking fundamentally divorced from reality.
In a complex, advanced economy, energy costs ultimately affect all downstream socio-economic activity. That unavoidable reality and the outcomes of deeply misguided climate policies are now staring Europeans in the face — whether as households no longer able to afford their energy bills, as actors in key economic sectors facing structural impairment or as politicians aghast at civil disobedience and growing rebellion. German politicians promising that police will not open fire on protestors this winter, unlike the Dutch police who did precisely that last summer, speaks volumes — chillingly.
Post-Brexit Britons are alone this year, facing a cumulative 400 per cent increase in their energy bills. In the Netherlands, energy costs are soaring as high as $1,300/month, while in Germany households face electricity prices of $1.00/KWh, compared to nine cents in Vancouver. That’s simply not sustainable: it effectively means that upwards of 40 of European households are being pushed into energy poverty, spending more than 10 per cent of their take-home pay on it. Even a 10 per cent increase in winter deaths, which few observers consider impossible, would mean 250,000 people.
As the collapse of Europe’s energy structure begins to unfold it’s important to understand that its impact across the socio-economic landscape isn’t yet anywhere near full force. The bankruptcy of utilities and energy providers continues. France recently re-nationalized core utility EDF, operator of its nuclear plants, while Germany opted for a €9 billion bailout to save linchpin utility Uniper.
The true and overarching danger to Europe, however, is the accelerating threat to its industrial base and small businesses. Europe’s natural gas crisis is morphing into a genuine power emergency — a vicious circle in which the skyrocketing cost of natural gas steadily drives up industrial power costs, which in turn spurs a renewed surge in overall energy prices. The large-scale return to coal notwithstanding, this dynamic is amplified by the unexpected and debilitating shortfall of base load generation from French nuclear and Norwegian hydro power. Listening in on European electricity traders is scary, indeed.
The net result of all this is surging power prices and the prospect of small businesses from restaurants to retailers facing bankruptcy: already there are reports 75 per cent of the U.K.’s pubs are considering closing. Key industrial sectors are in danger, including petrochemicals, steel, aluminium, glass and automotive, which together with their vast networks of supply-chain sub-systems represent tens of millions of jobs. Half of Europe’s aluminum and zinc smelters have already shut down while some 60 per cent of U.K. manufacturers face going out of business. We are quite conceivably witnessing the start of a “Lehman moment” for European energy.
Under normal circumstances, Europe’s crisis would serve as a sharp warning of the growing socio-economic threat to Canadians from the Liberals’ destructive climate and energy policies. In no other advanced economy has an ideologically blinded government so systematically undermined an indispensable hydrocarbon energy sector — most recently by adding agriculture as a new target of its obsessive climate crusade.
For the prime minister of the world’s fourth largest gas exporter to say there is no business case for Canada’s LNG, as Justin Trudeau recently did with an exasperated German Chancellor Scholz looking on, was both preposterous and unconscionable — the incantations of someone perilously out of touch with reality.
The Trudeau government ignores the European debacle and above all its underlying net-zero causes at the risk of rending Canada’s social and economic fabric. It was last winter’s groundswell of anti-government protests across Canada that showed Dutch farmers and other protesters throughout Europe how to escalate. Imagining the fury could not blow back across the ocean is dangerous wishful thinking.
Financial Post, 8 September 2022
Reality is a merciless mistress: remove hydrocarbons and net-zero energy magic vanishes
Europe’s structural dependence on inexpensive hydrocarbon energy from its now-hostile Russian neighbour has had two crucial outcomes. It has amplified and accelerated destabilizing dynamics already in play, bringing about a transformation of the international energy landscape. And it has starkly exposed the spectacular failure of Europe’s 30-year, market-distorting climate policies, in particular its delusions about a renewables-based net-zero energy transition.
Reality is a merciless mistress: remove hydrocarbons and net-zero energy magic vanishes, exposing Europeans to the truly shocking social and economic fall-out of decades of wishful political thinking fundamentally divorced from reality.
In a complex, advanced economy, energy costs ultimately affect all downstream socio-economic activity. That unavoidable reality and the outcomes of deeply misguided climate policies are now staring Europeans in the face — whether as households no longer able to afford their energy bills, as actors in key economic sectors facing structural impairment or as politicians aghast at civil disobedience and growing rebellion. German politicians promising that police will not open fire on protestors this winter, unlike the Dutch police who did precisely that last summer, speaks volumes — chillingly.
Post-Brexit Britons are alone this year, facing a cumulative 400 per cent increase in their energy bills. In the Netherlands, energy costs are soaring as high as $1,300/month, while in Germany households face electricity prices of $1.00/KWh, compared to nine cents in Vancouver. That’s simply not sustainable: it effectively means that upwards of 40 of European households are being pushed into energy poverty, spending more than 10 per cent of their take-home pay on it. Even a 10 per cent increase in winter deaths, which few observers consider impossible, would mean 250,000 people.
As the collapse of Europe’s energy structure begins to unfold it’s important to understand that its impact across the socio-economic landscape isn’t yet anywhere near full force. The bankruptcy of utilities and energy providers continues. France recently re-nationalized core utility EDF, operator of its nuclear plants, while Germany opted for a €9 billion bailout to save linchpin utility Uniper.
The true and overarching danger to Europe, however, is the accelerating threat to its industrial base and small businesses. Europe’s natural gas crisis is morphing into a genuine power emergency — a vicious circle in which the skyrocketing cost of natural gas steadily drives up industrial power costs, which in turn spurs a renewed surge in overall energy prices. The large-scale return to coal notwithstanding, this dynamic is amplified by the unexpected and debilitating shortfall of base load generation from French nuclear and Norwegian hydro power. Listening in on European electricity traders is scary, indeed.
The net result of all this is surging power prices and the prospect of small businesses from restaurants to retailers facing bankruptcy: already there are reports 75 per cent of the U.K.’s pubs are considering closing. Key industrial sectors are in danger, including petrochemicals, steel, aluminium, glass and automotive, which together with their vast networks of supply-chain sub-systems represent tens of millions of jobs. Half of Europe’s aluminum and zinc smelters have already shut down while some 60 per cent of U.K. manufacturers face going out of business. We are quite conceivably witnessing the start of a “Lehman moment” for European energy.
Under normal circumstances, Europe’s crisis would serve as a sharp warning of the growing socio-economic threat to Canadians from the Liberals’ destructive climate and energy policies. In no other advanced economy has an ideologically blinded government so systematically undermined an indispensable hydrocarbon energy sector — most recently by adding agriculture as a new target of its obsessive climate crusade.
For the prime minister of the world’s fourth largest gas exporter to say there is no business case for Canada’s LNG, as Justin Trudeau recently did with an exasperated German Chancellor Scholz looking on, was both preposterous and unconscionable — the incantations of someone perilously out of touch with reality.
The Trudeau government ignores the European debacle and above all its underlying net-zero causes at the risk of rending Canada’s social and economic fabric. It was last winter’s groundswell of anti-government protests across Canada that showed Dutch farmers and other protesters throughout Europe how to escalate. Imagining the fury could not blow back across the ocean is dangerous wishful thinking.
The London-based Net Zero Watch is a campaign group set up to highlight and discuss the serious implications of expensive and poorly considered climate change policies. The Net Zero Watch newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at www.netzerowatch.com.
1 comment:
I puzzled why Russia and Ukraine so opposed, but read book Through Fire and Water, tale of a woman brought up in rural Ukraine, suffered the famine and hardship of collectivisation, the German occupation, worked as forced labour in Germany, and ended days in Mt Albert. Of 7 family members killed from 1940 to end of Stalin era, one died fighting the Germans, the rest at hands of the Soviets....
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