It’s Still Hot, But Summer is Over in Europe
And a tough winter is coming.
I left Germany in 1990 as a long haired, smoking, bearded hippie with a guitar in one hand and a bag full of dreams of a better world.
I had just read the recently deceased Jim Lovelock’s collected works, which put me in a better mood after having spent two years thinking I needed to like the existentialists. 32 years later, the Auffhammers just returned from a glorious few weeks in Europe. Here’s a picture. I mean, come on.
If you have read my posts, you know that I like good economics and food. So let’s recap. A gallon of gas in Germany is $10 on a good day. Check. There is a tradable permit market, with a serious price on carbon ($100 yesterday!). Check. Homes are well built, insulated, and public transportation works (it’s not on time, but I am a patient person) and the place is serious about doing something about getting to net zero. Check Yes, there’s not a speed limit on the Autobahn, which is where I learned that an empty Prius xB with the AC turned off, downhill goes 120mph. Also, the food. While gas is expensive, good wine is cheap and $10 buys you a plate of food that makes you want to cry from happiness. So in the long run, things in my home continent along these two dimensions are good.
But then there are some odd things. And I am not talking about Documenta (most of which I did enjoy a lot), but energy policy. The main conversations I had over dinner in Europe were about energy policy. As we all know from reading this blog, economics-free spaces can result in some seriously misguided policy. Let me pick three European examples:
- Nuclear policy. In 2011 Germany decided to mothball its nuclear (carbon free) power plants in response to the Fukushima disaster. Whether you like nuclear power or not – and personally I do think that nuclear energy has to be a meaningful part of a carbon free future– retiring operating plants in Germany right now is a terrible idea. We are headed into a winter, with significant natural gas shortages. At the same time, the European grid is integrated and there are problems elsewhere (e.g., France). So if there are electricity supply shortages elsewhere in Europe and gas for power generation (and heating) is short, shutting down nukes now is silly. Germany seemed to backpedal recently and contemplated keeping running three nukes that were going to be mothballed. No more. I would argue that one might want to not only think about delaying the mothballing, but bringing ones that are currently offline back online (if there is enough water in the rivers to cool those plants). I am not arguing that we should build more in the short run, but these plants already exist. Sunk costs people! The argument is that keeping the Nukes online would only decrease gas consumption by 2% or so. That sounds like a little. But if your supply and demand are vertical, 2% can send prices into the stratosphere! If you don’t believe me, call Jedi Knittel.
- Natural Gas and Gasoline Pricing. Half of Germany heats with gas. If you have ever experienced a German winter, it’s cold. Not Minnesota cold, but really cold. If Russia turns off the natural gas supply, markets will do their thing and prices will skyrocket. We are seeing small signs of this in futures markets already. Yes, no one likes skyrocketing prices. But, if something is scarce, a higher price reflects this. Similarly, Germany is doubling down on their stupid gasoline policy, where they are cutting back on the value added (speak sales tax) to protect consumers from high prices. AAAAAARGGGGGHHHHHH! Let me make this simple for you. Don’t do it. What you want to do is let markets do their thing, and you take that tax revenue and you send a check to the people suffering the most from the high prices. Do not send Max with his fancy professor salary a check! Send my higher sales taxes to my graduate students. And let them decide whether they need gas more than food (which has also become more expensive).
- Transportation policy. You should always say something nice. In order to decrease gasoline demand, the Germans issued something called a 9 Euro ticket. For one month, ride as many trains as you want, for a flat fee of 9 Euro. This protects folks who do not have money for a more expensive tank of gas, gets people to realize that trains are more fun than cars (I mean, cappuccinos!) and lets graduate students visit their parents! Yes, the Bundesbahn (German Amtrak) takes a hit, but this is a subsidy I could get behind if the federal government decides to absorb it. My colleague Michael Anderson has written a large number of awesome papers showing the societal benefits of getting the marginal driver off the road. And Michael is never wrong.
So in short, I am really worried about my European friends and family. This winter is going to be tough. Ed Rubin and I have shown that low income folks in winter cut back their consumption the most. An equitable energy policy portfolio would keep the lights on, issue them a check so they can make it through the winter and make sure they have a way to get from place A to place B.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
Suggested citation: Auffhammer, Maximilian, “It’s Still Hot, But Summer is Over in Europe,” Energy Institute Blog, UC Berkeley, August 22, 2022, https://energyathaas.wordpress.com/2022/08/22/its-still-hot-but-summer-is-over-in-europe/
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Maximilian Auffhammer View All
Maximilian Auffhammer is the George Pardee Professor of International Sustainable Development at the University of California Berkeley. His fields of expertise are environmental and energy economics, with a specific focus on the impacts and regulation of climate change and air pollution.
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I share your concern for my family in Germany this winter.
Given German dependency on natural gas, and the lack thereof, is there any movement to increase domestic production? I have a faint recollection that Germany decided to forego gas field expansion via hydraulic fracturing some years ago, and wondered if the current crisis had caused that decision to be revisited.
FYI, 32 years later neither the Deutsche Bundesbahn (West) nor Deutsche Reichsbahn (East) are in operations any longer, it was renamed Deutsche Bahn.
Nuclear policy: please also consider supply of uranium (you don’t buy it from supermarket shelves and requirements/design differ between plants), waste storage and also the limitations of the grid capacity
Mostly good points. However, one question is what are the incremental capital addition costs of essentially forestalling nuclear decommissioning? For example, for Diablo Canyon, these costs could be substantial as PG&E mothballed those efforts in 2018 (and forget being able to transport and convey hydrogen and/or desalinated water out of the Central Coast due to the astronomical costs.) What has the German utilities deferred that will now have to be restarted? There are lots of hidden costs in nuclear power, and the incremental costs of new plants have been rising to well above renewables + storage. In addition, baseloaded nuclear needs just as much variable generation support as renewables (just the mirror image) and load following nuclear is extremely expensive because the overall capacity factor is reduced with high capital costs.
For the past 30 plus years, the customers of PG&E have been paying a “Nuclear De-Commissioning fee” on their bills so do Californians get their money back if they do not De-commission Diablo Canyon? Why do the Customers of PG&E pay the highest electricity rates in the nation? 39% of the electricity sold by PG&E is from the one Diablo Canyon Power plant up from 24% in 2004. Once we plug in all those new electric cars, the whole system will go “POOF” and the only people to have electrical power, in the future, are those with Solar panels with batteries or those with backup generators and 20 5-gallon cans of gasoline. Just like in Germany today, there is no plan to save the grid, only Band-Aids that will fail. We need localized battery backup and large inverters supplied by the utilities and placed in every neighborhood now. Charged by the excess electricity, produced by solar and wind midday to evening, this could solve the excess power problem that utilities complain about solar and wind production and the lack of power problems that occur at peak times on hot or cold days with the same fix.
“not wrong”
Wait! You write as if everyone doesn’t get it. Yeah, there are troglodytes that read this blog, but I assumed they were in the minority. I really hope my assumption is wrong.
What about ramping up renewables to make up any energy shortages — I thought that was the point of the ‘Energy Transition’ to begin with.
Energy storage in local storage batteries could solve all the energy problems facing our grid today. From the excess power that utilities have to deal with in exports to importing energy at peak times, local energy storage could fix all the problems.