Why Europe’s Push for Renewables Raised Electricity Prices and Hurt Economic Competitiveness
European politicians presented voters with the continent’s green transition as a win-win: citizens would benefit from green jobs and cheap, abundant solar and wind energy, alongside a sharp reduction in carbon emissions. Nearly two decades later, the promise has largely proven costly for consumers and harmful to the economy, the Wall Street Journal reported.
Europe has managed to cut carbon emissions more than any other region—by 30% compared with 2005 levels, versus a 17% reduction in the U.S. But in the process, the rush toward renewable energy has contributed to rising electricity prices across much of the continent.
Germany now has the highest household electricity prices in the developed world, while the United Kingdom has the highest industrial electricity prices, according to a basket of 28 major economies analyzed by the International Energy Agency. Italy is not far behind. Average electricity prices for heavy industry in the European Union remain roughly twice those in the U.S. and 50% higher than in China. Energy prices have also become more volatile as the share of renewables has increased.
This is crippling industry and undermining Europe’s ability to attract key economic drivers such as artificial intelligence, which requires cheap and abundant electricity. The shift is also contributing to a cost-of-living shock for consumers, fueling support for anti-establishment parties that portray the green transition as an elite project harming workers, most consumers, and entire regions.
Energy analysts say it makes strategic sense for a continent lacking the abundant oil and gas resources enjoyed by the U.S. and some other regions to diversify its energy sources. In some cases—such as Spain, blessed with abundant sunshine, or the Nordic countries with plentiful hydropower to back up their wind farms—the transition looks promising. France’s reliance on nuclear energy helps it maintain low costs.
But in much of the continent, the transition is at risk of backfiring, contributing to economic stagnation. “We are hollowing out industry,” said Dieter Helm, professor of economic policy at the University of Oxford who has advised U.K. governments on energy policy.
Europe has pursued a different strategy in its green transition than any other region. The U.S., China, India, Brazil, and others have followed a strategy of “and”: aggressively rolling out renewables while simultaneously building fossil-fuel power plants at scale. Europe has largely adopted an “or” strategy: competing to replace fossil fuels with solar, wind, and biomass through high carbon taxes, renewable subsidies, and shutting down numerous fossil-fuel power plants.
The United Kingdom, once a pioneer in using coal for energy, last year became the first major industrialized nation to close all of its coal-fired power plants. It has also banned new offshore oil and gas drilling. Denmark plans to eliminate household gas heating by 2035. Roughly one-fifth of German utilities plan to close their gas networks in the coming years, according to an October survey by a utilities trade association. The result has been reducing the main source of energy before any other source is fully ready to take its place.
Many European consumers and companies are now stuck with the worst of both worlds. They remain at the mercy of electricity prices tied to the cost of imported fossil fuels, while also bearing large upfront costs for overhauling grids to cope with intermittent renewable energy.
Economists say Europe’s decision to reduce fossil-fuel use is historically unusual. In earlier energy transitions—from wood to coal or from coal to oil—countries continued using the outgoing fuel and added the new one on top. Worldwide, wood and coal are burned in greater quantities than ever, largely thanks to China.
Some economists and chemical-industry leaders say these policies could unintentionally result in higher global emissions. If European factories shut down due to high energy costs, their output will likely be replaced by imports from places like China, where the carbon footprint of those products is far higher, the Wall Street Journal warns.
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