When it comes to energy policy, the European Union -- and Germany in particular -- have provided the perfect model. Indeed, if U.S. policymakers want to dramatically increase energy prices, destroy jobs and impose hardship on industry, then they should follow the EU's lead.
Like the EU, they should impose national mandates for renewable electricity, provide lavish subsidies for solar- and wind-energy providers, and impose a national cap-and-trade scheme to raise the cost of carbon dioxide emissions.
Fortunately, U.S. policymakers have not copied the EU’s model. And as I point out in a paper just published by the Manhattan Institute, they should avoid doing so in the future.
Although the EU's energy measures have been undertaken as part of an effort to cut carbon dioxide emissions and thereby address climate change, they are placing huge cost burdens on consumers and industry.
In 2012, in the U.S., the average residential cost of electricity in 2012 was about $0.12 per kilowatt-hour. In the EU, in 2012, the average cost was $0.27, based on the euro-to-dollar exchange rate on Feb. 6. In Denmark -- that Valhalla for wind-energy enthusiasts -- a kilowatt-hour cost $0.40. In Germany, the cost was $0.36.
Last month, Germany's economics and energy minister Sigmar Gabriel said his country is risking “dramatic deindustrialization” if it doesn't reduce energy costs. In December, the Center for European Policy Studies, a Brussels-based think tank, found that European steelmakers are now paying twice as much for electricity and four times as much for natural gas as steel producers operating in the U.S.
To be clear, the U.S. has several key advantages over the EU. First among those advantages: a vibrant oil and gas sector. Over the past few years, the U.S. drilling sector has perfected the use of horizontal drilling and hydraulic fracturing in shale formations. Those technologies have fueled a surge in U.S. natural gas production, which has jumped by 41 percent since 2005. The surging availability of low-cost natural gas is fueling an industrial resurgence in the U.S. at the very same time that the biggest countries in the EU are seeing falling natural gas production and rising natural gas prices. For instance, between 2005 and 2012, natural gas production in the U.K. has fallen by 53 percent. In Germany, production has dropped by nearly 43 percent.
Faced with high natural-gas prices and a poorly designed cap-and-trade system, electricity generators in the EU are now burning more coal -- a move that is the opposite of what the EU should be doing if it wants to reduce its carbon dioxide emissions.
Meanwhile, thanks to abundant supplies of natural gas, which is displacing significant amounts of coal in the domestic electricity-generation sector, the U.S. has been cutting its carbon dioxide at a faster rate than has the EU. Between 2005 and 2012, U.S. carbon dioxide emissions fell by 10.9 percent. Over that same timeframe, the EU’s emissions fell by 9.9 percent.
And therein lies the punchline: at the same time as the EU is spending tens of billions of dollars on subsidies for renewables -- this year alone, those subsidies will cost Germany some $32 billion -- the U.S. economy is getting a huge boost from oil and gas production. Last fall, IHS Inc, a global research firm, estimated that the surge in oil and gas production in the U.S. has increased disposable income in the average US household by $1,200. And by 2025, that figure could grow to $3,500.
In short, the U.S. has boosted its economy while cutting emissions faster than the EU, and it's done so without federally mandated action on carbon dioxide emissions. That's a policy -- or rather, the lack of one -- that we should really support.Robert Bryce is a senior fellow at the Manhattan Institute. His report, "Maintaining the Advantage: Why the U.S. Should Not Follow the EU's Energy Policies," is available here.