Europeans are generally very proud of their unilateral efforts to save the world from climate change by limiting emissions to 23% below 1990 levels, although most Europeans do not understand how this was really achieved. Nor do most of them understand the link between this effort to unilaterally cut emissions and the current state of Europe's economy. The EU is setting for itself an equally ambitious goal of reducing emissions to 40% below 1990 levels by 2030. In some ways, this is a way more ambitious goal given the fact that the 1990 base level includes a large number of former communist countries, which just entered a period of industrial collapse back then, in the aftermath of the collapse of communism. Emissions levels in most of those countries are at least 1/3 lower compared with 1990 levels, therefore a great deal of achievement declared between 1990-2014 in fact comes from the collapse of the inefficient industries in Eastern Europe. In some cases such as Romania's, current energy consumption is now less than half of what it was in 1990.
Some interesting new data was released by Eurostat which shows the evolution of energy demand in the EU, which should be very troubling for anyone paying attention. The data suggests that far from this being the case of an economy making a successful transition to an efficient, renewable, clean energy economy, we are in fact witnessing the gradual dismantling of the continent's industrial capacity. The data shows that the process may have started about a decade ago, and it is this process which is leading to such deep cuts in emissions as we saw in the 1990-2014 period. If the EU aims to repeat this again between now and 2030, it may spell disaster for the EU economy.
Data source: Eurostat.
As we can see from the chart above, aside from Poland and Germany all countries in the graph which represents the EU's largest energy consumers, followed a similar pattern of significant energy demand growth between 1990-2005, followed by a significant decline in energy demand between 2005-2015. Poland does not follow the same pattern for the obvious reason that it underwent a significant process of industrial capacity loss in the 1990's, while it is currently starting to return to a process of re-industrialization, together with a number of other Eastern European countries.
Germany's decline in energy demand due to the collapse of communism in the 1990-2005 period may not seem as obvious, but we should keep in mind the fact that Eastern Germany's industrial base was largely shut down after the German unification. If we were to only look at West German data, we would most likely see a very similar pattern of energy demand growth in the 1990-2005 period, followed by a decline since then.
The EU as a whole is currently consuming about 2.5% less energy than it did in 1990. It actually consumed about 9% more in 2005 than it did in 1990, but since 2005 energy demand declined by over 11%, bringing us to the current situation where energy demand is now lower than it was in 1990. Just so we can be clear, this is not due to increased efficiency. If we look at the industrial production data for the main EU economies, we see a similar pattern of growth in the 1990's, followed by the beginning of industrial production decline for many countries, with the exception of Germany since the 2008 economic crisis.
Source: Value Walk.
Germany, as well as a number of Eastern members of the EU are the only ones seeing continued industrial growth since the crisis. Most of the rest of Europe is stuck in stagnation mode.
Given what we know about how the 23% reduction in emissions was accomplished in the 1990-2014 period, the fact that the EU has set itself a target to increase that to 40% should worry us in regards to the future of the EU. If we are to consider the fact that we are looking at a continuing trend of automation, which is likely to continue slashing manufacturing jobs per unit of output, the idea that many members of the EU may see a continuation of the decline in industrial output that they experienced since 1990, suggests that those countries are on their way to economic collapse.
Some may be tempted to claim that the new economy no longer depends on manufacturing jobs. We can all work in R&D, mineral extraction (wherever viable), construction and services. It is the vision that we have been sold since the 1990's and many people still seem to believe in it. But if we take a closer look, we realize that with manufacturing jobs being lost, the long term will also bring the loss of other jobs with it. It is estimated that whenever a manufacturing job is created in the US, the job creation multiplier is 4x. In other words four jobs will in fact be created due to all the economic activity that the addition of one manufacturing job creates. The multiplier effect is most likely similar in Europe, which means that in the long term, another three jobs may be lost every time a manufacturing job is lost. This may not be immediately obvious, but I believe that the economy tends to adjust itself in this regard every time there is an economic slowdown. In other words, the loss of non-manufacturing jobs, due to the loss in manufacturing will most likely happen towards the end of the economic cycle.
EU no longer has coal-to-gas conversion as a tool to reduce emissions, nor can it be done on the backs of collapsing Eastern Economies.
As I pointed out on many previous occasions, a very significant proportion of the emissions reduction achieved since 1990 came at the expense of gutting the European coal industry, through the massive substitution of coal with natural gas.
Data source: EC.
With the opportunity to continue substituting coal with natural gas much diminished and likely to be non-existent in coming years, especially given the context of Europe's desire to limit its dependence on Russian gas, as well as the desire to keep some level of energy independence in the face of declining domestic natural gas production, it is hard to see where these emissions cuts will come from in order to meet the EU goals set out for 2030. But we can be sure that EU officials will try to implement measures to make it happen at union as well as national level.
The math is further complicated by the fact that there is something of an industrial revival in the former communist members of the EU, as well as a revival in consumer demand, including demand for car ownership and better infrastructure to drive on. We can expect between now and 2030 to see a slight increase in energy demand and perhaps emissions in this region, given trends we are seeing at the moment.
Renewable energy will by no means contribute enough to the EU energy mix by 2030 to cause another 20% or so reduction of emissions compared with 1990 levels. Hydro energy is pretty much stable in terms of growth, while wind & solar require continued support where there is little support available left in terms of financial resources available to be allocated towards this goal. Not to mention the fact that Germany still wants to eliminate its Nuclear generation capacity.
As we can see from the graph, the absolute volume of fossil fuel use actually increased from 1990 levels, until the 2008 crisis hit. It was the coal to gas substitution which played the most important role in cutting emissions up until that point. It stands to reason therefore that the EU is likely looking at another drop in energy demand, similar or perhaps even higher than what was experienced since 2008 as a way to curb emissions to the desired levels. The EU is likely to do this by pushing for higher energy prices in order to destroy demand, as well as making use of its regulatory powers in order to obstruct any national initiatives which might stimulate growth in fossil fuel growth. If the current attitude will remain in Europe, it is likely to face complete economic collapse before 2030, at which point the emissions targets will indeed be met, but not in a way that is being sold to the masses.
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