A Cold, Dark Winter Ahead?

As the calendar turns to September temperatures will begin to cool in the Northern Hemisphere.

There is no place in the world that this transition bears watching more closely than Europe.

Energy costs in Europe have soared as the promise of a "green" future has met the stark reality that there is no ready replacement for fossil fuels.

We will soon see what price Europe pays for betting big on that "green" future, while neglecting fossil fuel exploration, and putting most of its reliance on Russia to provide the oil and natural gas required to power their society and economy.

After all, energy exploration is a dirty business and few European countries were interested in getting themselves dirty doing it. 

The problem is that having access to efficient and affordable energy is inextricably tied to economic sustainability and growth.

The "greens" like to talk about sustainability but the truth is that almost nothing is sustainable if you do not have the energy to power your society.

There is a clear and unmistakable relationship between energy and the economy.

Energy makes the world economy go. We need it for anything we want to do. It needs to be available and it needs to be affordable. The economy does not work without energy. The consumer cannot spend on other things in the economy if they are spending excessive amounts on energy. If the consumer doesn't spend, the economy does not grow. If the economy does not grow, more and more people go without jobs.

If you doubt there is a relationship between affordable, available energy and economic growth consider this chart that compares world GDP growth with energy consumption growth over the last 200 years. 

Could there be a better correlation?

Credit:Mike Haseler

This chart was produced by Climate Scientist Mike Haseler who writes a blog named the Scottish Sceptic. Haseler points out that this relationship exists because GDP is the sum total of what humans produce. 

When muscle power was the prime energy source in the world we could produce very little. Firewood and domesticated animals improved our ability to produce. However, the introduction of energy sources like coal, oil and gas allowed us to greatly leverage our productive capacity. 

Compare the increase in GDP beginning around 1900 as oil and gas was discovered and deployed widely and the explosive growth of GDP after WW II as this development spread around the world after WW II.

What is going on right now in Europe with electricity prices?

The map below shows average day-ahead market prices in various European countries on August 29, 2022.

For context, two years ago the average price was about 50 Euros per MWh.

This graph from Bloomberg gives you some perspective on day-ahead wholesale electricity prices in the UK since 2010.

The UK is at about 600 Euros per MWh today.

France, Italy, Austria and Hungary are now over 700 Euros per MWh.

Germany is getting close to that number.

Credit: https://twitter.com/JavierBlas/status/1564147030955593728/photo/1

 

Electricity costs up more more than 10 fold in two years?

This simply is not sustainable.

The entire economic system is not built with these types of costs in the equation.

Something has to give.

Right now it is real wages that are taking the hit.

The inflation caused by high energy and food prices in Europe is taking a terrible toll on worker wages.

Credit: https://twitter.com/MacroAlf/status/1563924619815309313/photo/1

It will only get worse when the weather gets colder and the days get shorter.

Germany is on track to a point where it will cost around $3,000 a month to heat a 2,500 sf home this winter.

A small coffee shop owner in Ireland got a bill of nearly 10,000 Euros for 73 days of electric service and posted it on Twitter.

All of this is being caused by the fact that energy has become a scarce resource in Europe that has driven the price to astronomical levels.

If nothing changes when winter comes, it may become an issue not only of cost but of whether the energy is available at all to service both consumer and business demands.

Many countries in Europe may soon have to decide whether the limited energy available goes to keep factories and businesses going or to keep the lights on and homes warm.

Of course, limiting energy supplies to businesses puts people out of work.

People out of work further hurts the economy and puts pressure on government budgets

Curbing supplies of energy to industrial giants like BASF in Germany, which make a wide range of products that serve the agricultural industry, could have major ramification on food supplies next year.

Once the dominos start to fall, more dominos follow.

Energy prices may ultimately be driven down by falling demand as the economy spirals into recession or depression.

At some point the economic system will equalize but it may have to collapse to get to that point.

Energy prices could revert to lower price levels if supply increases. 

The approaching winter months could well cause Europe to put a lot more pressure on a resolution of the Russia-Ukraine war.

Might we also see Europe decide that exploring, drilling and fracking for oil and gas is not all bad?

Perhaps they will decide that burning coal is also not so bad if lives are at stake right now compared to concern about a degree of global warming in 50 years?

Elon Musk, the man who brought us the electric car Tesla, which the liberal intelligentsia believes is the be-all, end-all solution to usher in a new era of green sustainability, seems to understand the realities of the world today.

He said this in Norway this week.

Elon Musk said the world still needs oil and gas in order to avoid civilization from crumbling, Reuters reported.

He made the comments at an oil and gas conference in Stavanger, Norway and also mused on climate change, renewable energy, and population decline.

"Realistically I think we need to use oil and gas in the short term, because otherwise civilization will crumble," Musk told delegates, per Reuters.

"One of the biggest challenges the world has ever faced is the transition to sustainable energy and to a sustainable economy. That will take some decades to complete."

He also said "at this time, we actually need more oil and gas, not less," and would not "demonize" fossil fuels in comments reported by Bloomberg.

Musk refers to decades of transition ahead to transition to think about moving away from fossil fuels.

And this is from a man who wants to sell electric vehicles.

Yet, California has just adopted a new rule that bans the sale of new gasoline-powered vehicles in the state by the year 2035.

Did anyone ban horses (and their manure) when the transition began to automobiles?

By the end of this decade, California is requiring that 68% of new vehicles sold in the state must be zero-emissions. That is just 8 years away.

Zero emission new car sales were 12% in 2021.

Source: https://www.cnbc.com/2022/08/25/california-bans-the-sale-of-new-gas-powered-cars-by-2035.html

Will California have to face the same reality that Europe is right now?

It is great to issue an edict that all cars must be electric. However, where does the energy come to power the electric grid that is necessary to do that?

The battery in an electric car just stores power. It does not create it. It must come from an energy source.

California has already been facing challenges in providing all the electric power that is needed in the state as it is.

The only good news for the rest of the United States is that we can view the events in Europe and California from some distance and see how all of this unfolds.

Will we see a cold, dark winter in Europe that might serve as a cautionary tale to the rest of us?

Will California continue to crumble as it goes all-in on a far left liberal agenda based on dreams while ignoring the realities of the relationship of energy and the economy?

What is truly sad is that so many millions of people in Europe and California will have to bear the costs and burdens of the lessons to be learned when ideology comes face to face with reality.

The cold, hard truth is that voters need to be much more careful in selecting those who are supposed to represent their interests.

If not, there might be many cold, dark winters ahead.