(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON Feb 3 "I don't want us to be the only
people out there in front of the rest of the world," Britain's
finance minister George Osborne said last September, speaking
about the country's role in tackling climate change.
"I certainly don't think we should be further ahead of our
partners in Europe," Osborne went on, in comments that were
seized on by the government's critics to question its commitment
to reducing greenhouse emissions and be "the greenest government
The finance minister infuriated environment campaigners,
climate scientists and the clean tech industry by daring to
imply there might be a trade off between economic
competitiveness and weaning the country off fossil fuels.
In doing so, Osborne was breaking the taboo that insists
being an early adopter in clean energy confers a competitive
advantage: countries can become richer by doing the right thing.
Osborne is an intensely polarising figure. But he is also
one of Britain's shrewdest politicians. And his comments reflect
growing doubts among some politicians in the United Kingdom and
elsewhere in the EU about how far to go unilaterally in adopting
policies to tackle climate change if the rest of the world shows
no sign of following.
GREEN ENERGY RACE
Most senior politicians frame talk about climate change and
clean energy in terms of "leadership" or a "race," knowing that
their hearers want to be leaders rather than followers, and that
no one wants to be left behind in a race.
Framing energy and climate change issues this way is meant
to imply that adopting early and aggressive targets for
switching to wind, solar and even nuclear, while making more
efficient use of energy, will confer a competitive advantage
over countries that move more slowly and continue to rely on
polluting fossil fuels.
The Obama administration is particularly fond of framing
issues in terms of leadership. President Barack Obama used the
word leader or leadership 16 times in various contexts in his
speech to Congress last month.
"It's not just (American) oil and natural gas that's
booming; we're becoming a global leader in solar too," Obama
told Congress in his annual State of the Union address on
This was his only reference to leadership in the context of
clean energy this year. But in the past the president has
discussed at much more length how he wants the country to be a
clean tech leader.
In 2013, Obama told Congress: "The good news is that we can
make meaningful progress on (climate change) while driving
strong economic growth."
"Four years ago, other countries dominated the clean energy
market and the jobs that came with it. And we've begun to change
that," the president went on. "As long as countries like China
keep going all in on clean energy, so must we."
The president's "Blueprint for a secure energy future,"
published in 2011, promised the United States would "win the
future through clean energy research and development."
"Maintaining our leadership in research and development is
critical to winning the future and deploying innovative
technologies that will create quality jobs and move towards
clean energy economy that reduces our reliance on oil," it
"A global race is underway to develop and manufacture clean
energy technologies, and China and other countries are playing
to win," the president's blueprint warned.
America invented the photovoltaic solar panel and installed
the first megawatt-sized wind turbine. "Yet today, China has
moved past us in wind capacity, while Germany leads the world in
20 YEARS OF PAIN
The concept of a race is not confined to the United States.
EU politicians, too, have often spoken about the bloc's
ambitious emissions targets and deployment of renewables as a
source of economic advantage. If anything, the EU has been an
even more ardent user of the leadership and race metaphors.
But doubts are starting to creep in. EU politicians have
begun to express concern about high energy costs and the damage
it is doing to competitiveness, especially in energy-intensive
sectors like iron, steel and petrochemicals.
Much of the problem stems from differences in the price of
gas as a result of the U.S. shale revolution and the EU's
continued dependence on importing gas from Russia and other
suppliers on long-term contracts at oil-linked prices.
But the cost of subsidies to support wind and solar power
generation, most of which are added to customers' energy bills,
is also a growing source of anxiety for European industrialists
Even the International Energy Agency (IEA), which has
strongly supported the EU's action to tackle climate change, has
started to sound a more cautious note.
While being careful not to pin the blame on the high cost of
renewables, the IEA's chief economist Fatih Birol has warned the
EU could face an energy price gap for at least 20 years.
"Too much of the blame for Europe's high energy prices is
being directed at its ambitions on climate change while the main
factor - the high cost of imported energy - is being all but
ignored," Birol complained at a conference at Imperial College,
Nonetheless, he acknowledged the EU didn't realise the
seriousness of the competitive challenge. "Europe needs to pay
more attention to the competitiveness agenda while keeping the
climate agenda alive," Birol said ("Energy price gap with U.S.
to hurt Europe for at least 20 years," Financial Times, Jan 29).
The relationship between competitiveness, gas prices and
climate policy is closer than Birol admitted. One of the reasons
the EU has fallen behind the United States in developing more
local gas is strong opposition from environmental groups, which
fear cheaper gas would slow the transition to renewables.
FOSSIL FUEL PRICES
In the first decade of the 21st century, U.S. and EU
policymakers were successfully convinced renewables would
provide a cheaper, less volatile alternative to burning fossil
fuels like oil, gas and coal, as well as being better for the
But that prediction assumed oil and gas prices would
continue rising inexorably as reserves ran out, and all
countries would put an extra cost on burning fossil fuels
through carbon taxes or emissions trading to limit greenhouse
In practice, trading programmes have failed to generate
sufficiently high carbon prices; an international agreement has
not been concluded; taxes remain deeply unpopular; and the shale
revolution has upended assumptions about the exhaustion of gas
and oil reserves.
Official projections, such as those drawn up by Britain's
Department of Energy and Climate Change, continue to show
fossil-fuel prices rising in the medium and long term. But in
the real world, renewables and nuclear generation are struggling
to compete against cheaper gas and coal.
Commitments to renewables have not produced the hoped for
boom in manufacturing and employment either. Wind and solar
technologies are fairly simple to build. Most of the
manufacturing has already shifted to low cost factories in
Clean tech firms in the United States and the EU have
responded by filing complaints about dumping and subsidies in
China. The reality, however, is that neither economy has a
durable comparative advantage in making photovoltaic cells or
At the same time, integrating renewables onto power networks
requires a lot of expensive investment in transmission systems,
spare generation capacity and grid control technology, all of
which are pushing up the cost of electricity.
Unsurprisingly, some EU policymakers are starting to
question whether the region's leadership on climate issues is
creating a sustainable source of economic advantage, or holding
the EU economy back.
If the cost of relying on fossil fuels does rise in the
medium and long term countries that switch to wind, solar and
nuclear will get an enormous boost. But if fossil fuel prices
stay low, renewables could start to look like an expensive
Britain's Osborne is right. There are risks from getting too
far ahead of the pack on clean technology and climate issues if
the rest of the world does not follow.
(Editing by William Hardy)