[Scott] Next on "Energy Switch," we'll conclude our discussion of energy and climate policies in Europe.

- It takes years and years and years of policy making, and in particular investment, to create a viable working energy economy.

If that workmanship is done poorly, it only takes weeks for that to become visible; years to build, moments to pull apart.

- The whole continent has been able to be decently resilient to an event that was not ever thought that could ever happen.

But I see this as a great opportunity, not only for Europe, but for the rest of our countries.

[Scott] Coming up, EU Energy and Climate Policy, part two.

[Narrator] Funding for "Energy Switch" was provided in part by the University of Texas at Austin, leading research in energy and the environment for a better tomorrow.

What starts here changes the world.

And by EarthX, an international nonprofit working towards a more sustainable future.

See more at earthx.org.

[upbeat music] - I'm Scott Tinker, and I'm an energy scientist.

I work in the field, lead research, speak around the world, write articles, and make films about energy.

This show brings together leading experts on vital topics in energy and climate.

They may have different perspectives, but my goal is to learn, and illuminate, and bring diverging views together towards solutions.

Welcome to the "Energy Switch."

Wind and solar remain popular in Europe, and most countries want more of them, even though, combined with high energy taxes, they've increased electricity prices.

EU countries recognize they'll need backup generation to balance intermittent wind and solar.

Many are hoping this will eventually come from hydrogen.

Meanwhile, some call for technologically agnostic decarbonization policies.

We'll conclude our discussion with Jon Elkind is a senior research scholar at Columbia Center on global energy policy, and a former U.S. Department of Energy Assistant Secretary for the Office of International Affairs.

Carlos Batlle, he's an associate professor at Comillas Pontifical University's Institute for Research and Technology in Madrid, and a visiting scientist at the MIT Energy Initiative.

On this episode of "Energy Switch," EU Energy and Climate Policy, part two.

I know with the natural gas side, although the price fluctuates quite a bit, it's still about a five to 600% spread between say Henry Hub here and TTI I think in Europe.

This is a big difference.

It's tough for industries to compete.

You see that similar kind of price spread in electricity costs?

- Well it depends on the countries.

[Scott] Right.

- All the countries have intervened in the market.

So France for example what they have been doing for years is just that they are selling their nuclear generation at prices that are below the market prices.

The Iberia Portugal in Spain decided to subsidize the gas burned by the generation, electricity generation plant so prices artificially went down because of this subsidies as it happened for example in the Middle East.

[Scott] Right.

So everybody pays to help support their own industries.

- Yeah I mean there is a long tradition in Europe of sitting in solitaire.

[Scott laughs] And it's a classic because according to European regulations, it's strictly prohibited to inject capital into industries because of these European market.

But there is a very big discussion in Europe that goes more on for the policy perspective that the whole European continent has been based on this liberalization market approach in which it was supposed to be that the investors were going to make their own decisions for new generation resources and everything.

And now in the current context, there is an increasing idea that probably this cannot be the case.

So the government has to be behind all the investments on renewables.

And the European Commission now is talking about a market reform, which maybe what it means is that some members they want to retake the role of making decisions for planning and this is a major role.

- This is a big change.

How do we remedy this?

I mean what are some solutions?

- Well so this is where one of the kind of core challenges comes up.

The impulse to do wholesale electricity pricing reform is fraught with risks that may go exactly in the direction opposite to incentivizing investments in the zero carbon resources that many European's are very actively pursuing.

So sometimes in the policy world the best adage to live by is don't do something, just stand there, and a version of that may be true right now in Europe.

Choosing very carefully interventions on pricing so that the unintended consequences do not come to the floor.

That's a second part of the answer I think.

A third part of the answer is that for all of the fractious disputed qualities that we've been talking about that are part of the European energy scene, it has to be said that Europe has done, I would say an amazingly good job of finding creative accommodations.

And it's worth noting, just as one final point here, if Europe is essentially on the receiving end of an economic war from Russia, holding together has not only benefits on offer in regard to the energy sector, but also in regard to Europe's security situation.

- Oh absolutely.

- Yeah and certainly I don't know which personally which is the remedy, but I think we can know what is gonna happen, and it's going to be a stronger push for renewables.

I mean this is clearly what is in the minds of the policy makers and governments all across Europe.

2022 as far as I know wind producing, wind and solar produced a quarter of the energy consuming the continent which is a lot.

Take into account that only 10 years ago, renewables were seen in Europe as something that was expensive, that was running on subsidies all these kind of things.

Now aluminum melters, large industrial customers are signing long-term contracts for 15 years with solar farms.

Obviously they see the opportunity of actually making money because now it's much cheaper.

- Why, help me understand this, 'cause I see this in the U.S. too, all the batteries, all the load falling plants, all the cost of reliability, don't you have to put that onto solar and wind?

- Well I can tell you-- - 'Cause they're not there all the time right?

- No, no, no, but for instance in Spain you have to run with all the costs.

- It does.

- So all the cost of research that they might imply that they are not available, the question is what will happen when they get to 70% of the energy?

Then probably the storage capacity that now softens some of these costs will be that's why they push so hard on hydrogen.

- Do you see it this way?

Am I missing something here?

- I think that a lot of the price run ups in particular that have been observed since early in 2021 have come not as a consequence of the renewables but very much more as a consequence of what's happening in nuclear and natural gas, and we haven't talked much about hydro, but hydro is also a part of the picture.

2022 saw something like a one-fifth reduction in hydro production as opposed to the year prior.

And drought is a part of our ongoing future.

But as a general rule, I think there's no stopping this push for additional low carbon resources, and wind and solar will be first in line.

- I'm just surprised 'cause Europe leads the world in percentage solar wind capacity, yet they're paying so much for electricity.

I just must be missing something.

- Well in Denmark, 50% of the customer base are taxes.

- Oh it's tax-- - But not subsidize, taxes.

- Okay.

- On average, any energy customer in Europe, 30% of what they pay-- - I got ya.

- Is taxes.

- Same on gasoline.

- Same on, well even more on gasoline.

- More on gasoline.

So this pays for the social programs?

[Carlos] Exactly.

- Okay.

- So social programs and other things.

- Gotcha.

- So there is a culture of paying more for energy there than what we have here in the U.S., and this changes a lot.

And also what happens is that when prices go up or down, it affects less the electricity bill because well you know it's higher.

[Scott laughs] - Percentage.

- Of course, and you don't see-- - What's another dime?

- You don't see that much, so that makes a significant difference in the way that the customers perceive the evolution of taxes.

- Right, so now with inflated prices, and again exacerbated by Ukraine, I mean there are factories, there are companies leaving the EU to go to other parts of the world.

Will they come back?

- Interestingly through the first year of the war the manufacturing levels across Europe were not depressed as a whole, all manufacturing, in fact there was modest growth.

But for those industries including power generation obviously based on natural gas, but also pet chem, and steel, and glass, and a host of other industries including those in particular that use natural gas as a feed stock, the impacts there were brutal.

Now, whether that short-term impact translates into kind of a tipping point and a fleeing from the European market of some of those manufacturers, that really remains to be seen.

- Has yet to play out.

- And certainly the-- - Hope not.

- The softening of prices that occurred once it was clear that the winter of '22 to '23 was not as catastrophic as some had feared, that made some of the industrial production, including from those gas intensive industries return.

[Scott] Right.

- I think that Jon was raising a very good point before that in the mindset of the population and of course the politicians in Europe, this energy crisis, when looking for who to blame, it's based on gas, we were relying too much in gas fire plants, nuclear plants that didn't help us.

And suddenly the general idea is oh we did great with renewables, they have been actually saving our necks and we have to go and push forward for that.

I don't say-- - Do you agree with that Carlos?

- No I don't agree.

I don't disagree.

What I can tell you is that respective of what I think or what I don't think, the policies now are going to be even more aggressive.

- Let me ask it differently.

As you increase the amount of intermittent energy, what is going to be there for 24/7 365, which is what modern economies absolutely demand?

- I can tell you what the European policy makers and commission think is gonna be there.

- Okay.

- Okay, hydrogen and green hydrogen.

The idea from Europe is that to develop all this hydrogen infrastructure, to allow for example taking advantage of the Groningen storage formerly used for gas to store their hydrogen, to use the pipelines all across Europe to transmit hydrogen.

- Right.

- This is the bet.

Now you might think, but why they do it this way?

Europe started promoting with lots of subsidies when, 20 years ago, there was lot of contestation in that, everybody was saying this is crazy.

Now you ask policy makers and say, "We did it great, look at the prices for wind now, "they are cheaper than anything else."

And then after seeing that success, they said, "Okay we're gonna go for solar."

Now the policy makers said, "Oh we did it great once again."

In this mindset is where they now say, "Okay let's go for hydrogen, why?

"Because we're gonna make it "once again."

- Sure, sure.

- I think also part of the importance of increased electricity, interconnection in particular across Europe, goes to demand response, and goes to-- - For sure.

- Wielding of resources.

Doesn't so easily address big seasonal changes in the production of variable renewable resources.

It doesn't so easily address what do you do when your solar panels aren't producing as much because it's dark for more of the day?

- Right low latitude and yeah.

- But in general there is I think a composite flexibility story that can be constructed.

- Right.

Sure.

On hydrogen, as we go that direction, will it have the border crossing issues like other things do or?

- We were talking before about this agreement between the German and Spanish government to build a pipeline.

They got to an agreement I think in a couple of meetings, it was Thursday, Friday, on Monday the French government said, "Ah, okay this is great, but have you thought where the pipeline is going to go through from Spain?

And it has to go through all our land?

This is not gonna happen."

Which could be the motivations for this?

Well, France is thinking of investing in six nuclear reactors.

Surely they think that they can be actually producing hydrogen themselves with all this capacity.

So they might not be very happy to see how there is a pipeline in which the neighbors in the south can be doing the same thing and competing against them to sell to the neighbors in the north.

[Scott] Right.

- So all these tensions are always going to be there in the same way that you guys here in the U.S.

The question with hydrogen in my opinion is is it better to transmit hydrogen or to transmit electricity?

- I'm not the technical expert here, but when I talk to people who are, the points that they highlight are it's the smallest molecule out there, therefore it leaks quite easily.

- It's hard to keep track of.

- From many systems.

That means that the technical systems by which you address that imply cost.

And then if you start doing long-distance transmission then the economics become rapidly unattractive.

Now does that mean that you transform the hydrogen into ammonia, transport the ammonia?

- Right.

- We do lots of ammonia transport currently, is that superior?

Or do you end up coming back to the preferability of just transmitting the electrons themselves?

It's not simple, and that's why by the way, it is so important to actually go through the exercise of building the supply and the demand.

Because otherwise it's all kind of [Scott laughs] science fiction.

- Models.

Internationally, the U.S. incentive programs through the IRA, how do those affect European energy?

- From my European perspective, I would say good.

I mean we are not the only ones who are spending our money into promoting storage as in the IRA or even small scale nukes or anything like that.

So I think, I tend to be more optimistic than pessimistic about that.

- Technologically accelerating.

How do you see that?

- There is some sensitive issues about the way in which some of the provisions of the Inflation Reduction Act are framed.

And this has led to calls from some voices in Europe for case being brought to the WTO for example to dispute some of what are clearly preferential domestic content provisions in the Inflation Reduction Act.

But it has really been interesting to watch the reaction, starting from the very first days after the passage of Inflation Reduction Act.

After several months, first of it's great that the American's are moving, this is serious.

Then there was an evolution to, hold it, there are these by-American provisions that are in there, that's not fair to European companies, that was a second phase.

And a third phase that started in early 2023 was a growing awareness that much bigger issue for Europe to be thinking about is not whether the Inflation Reduction Act contains this provision or that provision, but what is China doing in terms of broad-based subsidies for its industries?

And the realization did then finally occur in the first quarter in 2023 that there's a bigger problem out there.

- Right.

And then the Ukraine, how do you see the long standing impacts of that war?

- I think that once again what it's pushing is towards a even more aggressive decarbonization process.

We have seen it throughout the year that this is going to be a big push for that.

There's no other way out I think.

- So Nord Stream won't be needed?

- Surely not.

- I mean it seems to me that there's a real fundamental question, and that's how long does the war go on?

Right, to me it is very easy to imagine a frozen conflict such as one has seen on the periphery of the Russian Federation-- - Right.

- Several times now.

What's striking is that Russia, in a very predictable way, has cut itself off from its key export market for its fuels, its energy.

[Scott] Right.

- And I'd suspect that the implications of that haven't really fully penetrated yet to decision makers in Moscow.

I do think that in Europe arguably the most important impact will be felt in terms of the awareness of decision makers to think about strategic vulnerabilities in the energy sector.

Now I don't know whether the reaction to that will be, therefore we need to enhance the processes of integration of our energy systems, or whether national decision makers say, "I have to not be strategically vulnerable to anybody including that European neighbor of mine."

You could imagine a scenario.

[Scott] Interesting.

Yeah and that kinda brings us to kinda the big picture closing thoughts.

At a high level, what do you both see as the most important issues for Europe's energy and climate policies going forward?

- One is that the whole continent has been able to be decently resilient to an event that was not ever, thought that could ever happen.

We have also seen that resiliency customers might be ready to pay much higher prices than we ever thought, most part of a population can cope with it.

The one, the major challenge, and it has been very much highlighted by European Commission, particularly after the Yellow Jacket Revolution and all these kind of things that or the riots there, is that they will have to find ways to actually go into these decarbonization process by keeping the balance of those part of Europe who are not so rich.

Not only between different member states where there are obvious differences, but within each of the countries.

And this is going to require, and there are lots of discussions in Brussels about that lots of solidarity processes that are going to be difficult to implement.

- Yeah that makes sense.

How do you see that?

- One is the importance of Europe playing to its strengths, and that means in part the political systems that have allowed the mediation of differing perspectives, differing economic potential, et cetera.

Second point is that some of European policy making around energy and climate be less technologically prescriptive and more technologically neutral.

In practice, some of the interventions that we have talked about in the course of this conversation have tilted away from what would be perfectly good, reliable, and low carbon solutions.

[Scott] Right, right.

- And a third point is an awareness that I think is needed kind of all around the globe, which is it takes years and years and years of policy making and technological development, and in particular investment, to create a viable working energy economy in any setting.

If that workmanship so-to-speak is done poorly or with shortcomings, it only takes weeks for that to become visible.

Years to build, moments to pull apart.

- Right, yeah that's terrific.

How do you see those policies, whatever Europe ends up doing, influencing the rest of the world, in terms of energy and climate?

- Well I think that the risk in the short run is that a Europe scrambling for additional cargoes of LNG is crowding out necessarily crowding out other buyers, particularly in parts of the world that have less ability to pay.

- Right.

- Interestingly it's also been as an impact on coal markets, not just natural gas markets, but coal markets globally, prices have been escalated as well.

Why, because a Japan is buying less LNG and is burning more coal, and China has been doing the same, et cetera.

In the medium and longer run I think that the impacts will be much more favorable and will take the form of reduced cost for clean energy technologies because of Europe's very very concerted focus in that space.

- I wouldn't say it better than that.

Fully, I fully sign that.

This is exactly what I think we should expect.

We're having a hard time now, but I see this as a great opportunity to not only for Europe but for the rest of the countries, no doubt about that.

I think we gonna be able to achieve savings on these technologies.

And in the end it will be a good thing.

- Gentlemen thanks.

It was.

- Pleasure.

- Just a great visit.

- Pleasure.

- Thank you.

[Scott] Most EU countries want to promote wind and solar to reduce C02 emissions, and these now make a third of EU electricity.

Backup generation to make them reliable, and high European energy taxes, have resulted in electricity prices substantially higher than in the U.S. or globally.

Though Carlos explained that many European's still blame natural gas and nuclear.

The EU recognizes they'll need firm dispatchable power to balance solar and wind, and they hope to get this eventually from hydrogen, though other experts remain skeptical.

U.S. advances in solar, wind, and hydrogen, might benefit the EU technologically, however some in Europe are sensitive to protectionist U.S. policies.

Going forward, the EU will need to make energy prices bearable for less wealthy countries, lower paid workers, and impacted industries.

Our guests favor technology- agnostic policies and measured planning that balances energy security with climate interests.

♪ ♪ ♪ ♪ ♪ ♪ [Narrator] Funding for "Energy Switch" was provided in part by the University of Texas at Austin, leading research in energy and the environment for a better tomorrow.

What starts here changes the world.

And by EarthX, an international nonprofit working towards a more sustainable future.

See more at earthx.org.