A senior European official has warned that without a change in energy policies at both the European and national levels, “we will lose our energy intensive industries — and we will lose our economy long term.”
One of the biggest themes at Davos this year — and one that was not there last year — was “competitiveness.” You encountered it whether in the public sessions in the Congress Center, or in the private sessions, and at the various dinners in the hotels strung along the Davos Platz.
This particular rivalry pits the United States head-on against Europe. And, no question — at Davos this year, the United States was judged the clear winner, much to the dispirit of the Europeans trudging back along the icy, snowy streets of this mountain village.
This concern, however, was hardly limited to the annual conclave in the Swiss Alps. It reverberated with simultaneous developments in both Brussels and Berlin that point to the beginning of a major, if difficult, rethink of Europe’s energy policies.
Of course, competitiveness among nations gets measured in many different ways. Sometimes, it is in terms of rule of law and sanctity of contracts, regulatory predictability, risks of litigation and class-actions suits — or even the length of time it takes to start a new business.
But this year at Davos, it was calibrated along only one axis — energy. And that measure is creating great angst for European industry. It is also emerging as a challenging issue for policy makers, who, until now, have been quite assured that Europe was on the right course when it came to energy policy.
It all comes down to shale gas and the energy revolution it has triggered in the United States. As a result of the rapid advance of shale technology, the United States now has an abundance of low-cost natural gas — at one-third the price of European gas. European industrial electricity prices are twice as high as those in some countries and are much higher than those in the United States. To a significant degree, this is the result of a pell-mell push toward high-cost renewable electricity (wind and solar), which is imposing heavy costs on consumers and generating large fiscal burdens for governments. In Germany, it was further accentuated by the premature shutdown of its existing nuclear industry after the 2011 Fukushima nuclear accident in Japan.
All this puts European industrial production at a heavy cost disadvantage against the United States. The result is a migration of industrial investment from Europe to the United States — what one CEO called an “exodus.” It involves, not only energy-intensive industries like chemicals and metals, but also companies in the supply chains that support such industries.
A year ago at Davos, this question was hardly evident. I can recall only one discussion on the topic last year, and it was over a cup of coffee in the cramped lounge halfway up the main staircase. But this year, the issue was at the top of the agenda. In one session I attended, a senior European official declared that Europe needs to wake up to the “strategic reality” that shale gas in the United States is a “total game changer.” Without a change in policies at both the European and national levels, he warned, Europe “will lose our energy intensive industries — and we will lose our economy long term.”