On the defaults of the current energy policy

A few days ago, the Russian Finance Minister Anton Siluanov announced: Almost 14 billion Euros will end up in Russia’s war chest this year through the revenues from Russian energy sales. The lion’s share of this revenue, and thus of Russian war funding, comes from Germany and the EU.

Germany and the EU remain Russias biggest war financiers

All the talk of “successful” sanctions policy is nothing but self-deception. It was clear from the beginning of the war that only an immediate complete energy boycott could make a real impression on the oil elites around Putin. Germany and the EU, however, have still not managed to enforce such a boycott.

On the contrary, the uncoordinated and ill-considered governmental actions, especially to relieve energy customers from further increasing fossil energy prices, lead deeper and deeper into a dead end, so that Putin gets to feel vindicated: The fossil and nuclear energy dependency of the EU results in them continually filing the Russian war chest.

Only fossil prices are rising

In this context, it is important to finally stop talking about “energy prices” in general terms when we actually mean ”fossil prices”. Only the prices of fossil and nuclear energy have been rising massively in recent months, not those of renewable energies. The “commodity prices” of solar and wind energy, the sun’s rays and the wind are, after all, free. It is true that there is also a slight increase in the price of technology investments for renewable energies, e.g. through price increases for materials needed for construction. But unlike fossil fuels and nuclear energy, the prices of energy raw materials do not rise, which keeps the energy prices for renewable energies calculable and low in the long term.

Fiscal activities of the German government drive up geopolitical tensions and fossil energy prices 

The German government has so far relied exclusively on cosmetic fiscal activities to lower fossil energy prices and on a diversification in the purchase of oil, natural gas and coal, mostly from other warring or anti-democratic regimes (Qatar, Senegal, Colombia, etc.). It is thus driving geopolitical tensions and even fossil energy prices ever higher.

Legislation to accelerate the expansion of renewable energies or even effective energy-saving measures have not yet been passed, although this is the only way to bring about real and rapid relief in the energy price sector. Instead, ineffective fuel discounts and fossil energy price subsidies are introduced. All helpless activities that only drive up energy prices and national debt, fill Russia’s war chest and damage the climate.

In order to understand this, one must recall a few basic analyses and facts:

Energy prices are essentially determined by global crude oil prices. Natural gas, coal and electricity prices have been going up and down in a rough pattern with crude oil prices for decades. Of course, there are always special effects, such as the massive increase in electricity prices in France due to the shutdown of more than half of the nuclear power plants. But, while taxes and levies are not insignificant, they do not have the financial impact that crude oil prices do. As a result, energy tax cuts cannot compensate for sharp crude oil price increases at all – what becomes evident in the current situation around the German fuel discounts.

Crude oil prices are determined by the global interaction between supply (crude oil production) and demand (global fossil/nuclear energy consumption). If fossil demand exceeds crude oil production, fossil prices go up quickly and vice versa. For example, there even were negative crude oil prices in the short term when the global economy was in a deep recession due to the Corona virus in April 2020. Since then, the global economy has been picking up again, and oil prices have therefore risen sharply, well before the war in Ukraine. Oil demand, and with it the energy prices, will rise significantly again in the coming months, as global demand for oil, especially in the USA and Europe, will increase considerably due to the start of the travel season.

The rising energy prices with rising energy demand show that the supply cannot satisfy the rising fossil demand, a clear indication that the world has probably reached the peak of fossil energy production. This observation is reinforced by recent statements from the Organization of the Petroleum Exporting Countries (OPEC). The UAE’s energy minister, Suhail Al-Mazrouei, stated recently that the amounts, OPEC could deliver in terms of additional quantities aren´t very encouraging. In his opinion, oil prices are nowhere near their highs. Even though there are feverish and highly climate-damaging activities by the fossil fuel industry to open up new oil fields, they are clearly not strong enough to satisfy the increased fossil energy demand. Analyses of the Energy Watch Group have shown for years that this will even worsen massively in the coming years due to the massive productivity decline  from the oil fields that have been exploited for decades.

Tax measures such as fuel discounts can never lower fossil energy prices

To put it in a nutshell: Due to insufficient promotion and expansion of renewable energies, every increase in demand drives up fossil energy prices. Conversely, only a reduction (conversion to renewable energies, energy saving measurements) of fossil energy use can lower fossil energy prices, whereas tax measures such as fuel discounts never can.

Being aware of these principles, it is easy to understand that the recent actions of the federal government have no chance of relieving the burden on fossil energy customers. Energy tax cuts, fuel discounts, direct energy price support from the state budget – all these instruments lead to an increase in demand for fossil energy and thus contribute to the opposite effect of what is desired: Fossil energy prices rise with the increased demand and with them the national debt in Germany, Russian energy revenues as well as the earth’s temperature.

Of course, it is right to support low-income households financially in the light of the high energy prices, e.g. for their journey to work. But, the instruments must be targeted specifically at this group. However, what is happening now with fuel discounts and related instruments is a scattergun approach. Everyone, including those from the middle and upper classes, are now being given a lump-sum tax break, which only leads to increased demand. Despite high fuel prices, traffic on motorways and rural roads has increased massively this spring.

Tourist air traffic is also increasing massively again and with it the demand for crude oil. To such extent  KLM and other airlines have stopped selling tickets and cancelled flights because their staff, permanently reduced by the Corona crisis, has no chance of handling the surge in air tourists.

There is a lack of large-scale energy saving campaigns

Against this background, where are the governments appeals to save energy?  Where are the energy saving campaigns that call on citizens to the Sunday lake trip by bike or public transport or to spend the summer holidays at home instead of jetting around the world in order to stop Russian war financing?

Instead, ministers and the chancellor continue to travel all over the world – to Qatar, Senegal, Israel, Jordan – to purchase the highly climate-damaging LNG gas from other regions of the world to substitute Russia’s energy supplies and to meet the continuing high demand for fossil fuels. The fact is, that won’t help either, because all these natural gas and oil producing regions simply will not have much more natural gas and oil out of a sudden. They can only change their supply routes. Instead of delivering their previous customers in Pakistan, India, Japan, China and others, oil and LNG tankers are now being diverted to Europe as they pay higher prices.

The oil multinationals are happy about the massive increase in profits.  A special tax will hardly be enforceable against them as multinationals and would not help to lower fossil energy prices anyway.

LNG from the U.S. is no secure source of energy

One example, that shows very clearly that this fossil diversification is an erroneous path and that supply of LNG imports – also from the USA – is by no means secure, is the recent explosion of an LNG production plant of the Freeport company. The company now had to stop its production. As this plant handles about 20% of the LNG processing in the US, this event will also lead to bottlenecks in Europe and thus to further increases in the price of natural gas.

Renewables are the only way out of the looming fossil energy price spiral

There is only one effective strategy to break the looming fossil energy price spiral that continues to drive upwards: A rapid and radical switch to renewable energies in combination with energy savings. However, exactly these aspects are neglected irresponsibly by the German government and the EU.