Western Governments Seem To Prefer High Costs And Shortages Of Energy

Western governments continued to pursue new policies last week that would serve to worsen an already-extant energy crisis that continues to expand across the globe. From new “windfall taxes” to higher artificial cost of carbon calculations, every new proposal seems designed to intentionally raise costs and exacerbate shortages of all forms of energy.

Here are some examples:

EPA Proposes a Whopping Jump in the Social Cost of Carbon – In the United States, the Biden Environmental Protection Agency (EPA) rolled out a proposal to increase the calculation of the government’s “Social Cost of Carbon” rubric from its’ current $51 per metric ton (which many critics already consider far overstated) to $190/mt.

This calculation – which does not also take into account the social benefits accruing from carbon-emitting activities – must be considered in the issuance of any federal permit. David Kreutzer, senior economist at the Institute for Energy Research (IER) notes that this near-quadrupling of the mandated level would make it much harder to build new energy-producing industrial facilities even at a time of rising energy shortages, raising the cost of energy for everyone.

“Though the previous estimates of the social cost of carbon were already exaggerated, [EPA] did not come close to justifying the existing climate regulations to say nothing of the more ambitious NetZero targets,” Kreutzer wrote in an email. “To further juice up the calculated values of the SCC, the EPA gave short shrift to the benefit side of the analysis.”

The current $51 figure, which the EPA raised from $7/mt shortly after Joe Biden assumed the presidency, is already the subject of a court challenge by more than a dozen states. It seems likely that multiplying the number by a factor of almost 4 would also multiply the number of challenges.

The G7 Acts to “Cap” the Price of Russian Crude – The G7 group of nations, with support from the European Union, delayed a final decision until next week on its effort to place an artificial “cap” on seaborne exports of Russian crude oil. The decision to delay came after the group had floated a proposed “cap” of $65 to $70 per barrel.

Some observers, myself included, were somewhat amused to note that that price level just happens to be right in line with prices already being paid for such exports of Russian crude by its two biggest trading partners, India and China. It also just happens to fall into the same price range proposed a few weeks ago by the Biden administration as the target price for re-filling America’s depleted Strategic Petroleum Reserve.

Pure coincidence, surely.

A “Windfall Tax” for…Wind? – That’s right: The government in Germany introduced a plan for a new “Windfall Tax” on generators of wind and solar power that it said would “claw back” the big profits currently being enjoyed by such companies. Under the plan, the government would levy a whopping 90% tax on profits above €130 a megawatt-hour for solar and wind generators. The country’s two remaining nuclear power generators would also fall under the provisions of the tax.

It seems only appropriate to note here that the German government has spent the last 15 years heavily subsidizing those very wind and solar industries into their current state of profitability, policies that played a significant role in creating the current energy crisis to begin with. Having distorted energy markets, thus raising the price for energy for everyone by creating shortages, the government proposes now to raise energy costs for consumers even further and create even more severe shortages by “clawing back” those subsidy dollars.

With the United States pursuing a similar set of subsidy and incentive policies through provisions contained in last year’s Bipartisan Infrastructure Law and the Inflation Reduction Act passed in August, what a cautionary tale this represents for companies now lining up to become seekers of those federal rents. Should those companies persevere and manage, with the help of those subsidies, to build profitable business enterprises, they can expect the U.S. government to at some point emulate Europe’s errors once again and act to “claw back” those subsidies. Because, somewhere in the halls of Western governments, this all makes sense.

It Isn’t Limited to Renewables – It is also key to note here that Germany’s windfall tax plan is not limited to renewable energy only. Reuters reported last week that the government will also seek to implement a 33% windfall tax on oil and gas firms that have made what the bureaucrats consider to be excessive profits.

The inevitable result of such a tax would be higher costs of energy to consumers who are already bearing painfully-high costs, and more shortages of oil and natural gas at a time when the entire European continent is already experiencing severe shortages.

It’s all the kind of stuff you could never begin to make up if you tried. Considered together, these policy actions support the thought that high energy prices and shortages are not a glitch in the plans of the governments of the West, but intentional features of them.