Ruggero Schleicher-Tappeser, May 2022, sustainablestrategies.substack.com
Transformative economic governance and cross-European learning processes: Most citizens are ready to get serious and responsibly tackle change. Europe must grow up.
Photo by Marcos Luiz Photograph on Unsplash
This is the third part of:
Russia, climate, and resources: Europe must grow up
1. End of the fossil era: replacing Russian supplies is just the beginning
2. Deep restructuring of the energy system: urgent and possible
3. Democracy in times of disruption: The role of Europe
It is an adaptation of the long opening post of this blog in German, Many points touched on here will be treated in more detail in future posts.
In the first two parts of this post series, I laid out that replacing fossil fuels is much more urgent than most people think, but that we also have all necessary technically and economically viable solutions at hand to make that happen. The problem is to overcome incumbent structures and habits in time. How can that be achieved?
Well-targeted economic governance mechanisms for massively speeding up change
Most necessary changes in the energy system, which will result in a significantly more cost-effective provision of useful energy overall, will initially require significant investments and a departure from old business models, market rules and structures. Although beneficial to the economy as a whole, the pace of change has been far too slow in recent decades — not least because powerful interest groups made short-sighted calculations and blocked change. This now threatens to lead to disruptive, difficult-to-calculate structural breaks with problematic social consequences. The upcoming challenges dwarf all economic crises since the post-war reconstruction a good seventy years ago. The energy resource basis of industrial civilisation must be put on a completely new footing worldwide within two decades. Technically and financially, the means to cope are available. But the market-based instruments and political steering mechanisms developed in recent decades are not capable of ensuring the necessary transition without massive social and political upheavals. The state framework conditions for the play of the markets must be realigned in a short time. The states must buffer price shocks, employment and sales slumps, provide orientation for future development, help build new structures and, last but not least, develop new markets through determined reorientation of public procurement. This requires a level of public expertise that is unfamiliar in many countries and regions and that can counter the attempts to exert influence and pressures from old and new interest groups with a clear line. It is now generally accepted that the public sector will have to put more money in its hands than before to manage change. But this increases the temptation to generously cushion every adjustment difficulty, to rescue outdated structures with dubious investments in the future, or to tout high-profile large-scale projects as a panacea.
To avoid this, transparency and a differentiated public discussion are indispensable.
Long-term investments need a reliable framework. A gradual increase in the cost of fossil fuels through CO2 levies and certificate trading has therefore been discussed more and more intensively but only hesitantly realised. A steady, albeit significantly accelerated, increase in the cost of fossil fuels through levies could offer investors a calculable framework and provide funds for a certain social cushioning of the cost increases. The ongoing reform of the European Emissions Trading Scheme (EU ETS) should hopefully provide for both accelerated scarcity and mechanisms to steady the price increase.
Uncertain prospects for fossil energies and unclear longer-term framework conditions for the alternatives led to a significant decline in investments in the fossil sector in recent years, but not to sufficient investments in renewable energies, efficiency technologies and structural changes. This resulted in a supply shortage in the post-pandemic upswing even before the Ukraine war, which led to sensitive price increases. Now, with the loss of supplies from Russia, there is the threat of a further shortage, which will lead to price jumps that, on the one hand, will cause considerable problems socially and thus politically and, on the other hand, could also cause serious difficulties for business enterprises and the overall economic development — wealthy countries in Northern Europe are still most able to cope with this.
Change cannot be cost-neutral in the short term
In the belief that the Ukraine crisis will soon be resolved, some countries have now started to subsidise petrol across the board. This benefits not only those who really need it, but all motorists. This cannot go well, because even if — which is not foreseeable — supplies from Russia can be resumed, the shortage of fossil fuels is inevitable for climate reasons. The state cannot and must not absorb all the additional costs that arise during the changeover. Fossil energy must become significantly more expensive so that investments and consumption are steered more quickly in a different direction. For a long time, politicians tried to lull the population into the illusion that the necessary conversion to a climate-friendly economy would not change anything for the citizens.
The transition, however, cannot work without massive investments by both the state and private individuals, a change in habits, and those who do not change pay significantly more for their consumption. The use of fossil fuels has caused costs for the general public that no one has paid for and that have instead been postponed into the future. Now, little by little, the bills are coming in. It is therefore wrong to assume that change must be cost-neutral in all cases. In many areas, this may be the case, because new technologies are cheaper, more efficient and more flexible to an extent that has not been dreamed of for a long time. But the fact that three times as many people live on earth today as at the time of my birth in 1952, and that billions, fortunately, live much better than seventy years ago, must necessarily result in a completely different way of dealing with the earth’s resources. Not least because of strong oligopolies with great inertia, the energy markets in their present form are not able to ensure a smooth transformation. Disruptive price spikes threaten to create political instability and short-sighted attempts at appeasement lead to unstable framework conditions that make long-term investments difficult. Therefore, on the one hand, states must increasingly use instruments to increase the price of fossil fuels as steadily as possible. On the other hand, they must be very targeted and sparing in their efforts to cushion the price fluctuations for those who urgently need it.
The Ukraine crisis has triggered broad solidarity in Europe. It has suddenly become clear to many people that we need a different energy supply, and that this cannot be had for free. This is an opportunity that can be used prudently if a convincing long-term strategy is communicated. A more flexible control of the market for CO2 certificates, the targeted use of strategic fuel reserves and possibly the targeted levying of flexible tariffs on energy imports from Russia could dampen price spikes more effectively than before, keep extra profits of fossil corporations in check and steer investments in the right direction. This presupposes far-sighted, well-informed, and flexible governance bodies.
Organising a strategic European learning process
Respecting national specificities remains important because of the different histories of energy systems, but for many things in Europe a strengthened framework at the level of the European internal market is essential. The coordination of the different national energy policies has proven to be very tough due to different objectives, structures, capacities and interests. The level of knowledge and discussion is very different and the opportunities to learn from each other are far from being exhausted.
As an immediate measure that accelerates a European learning process and does not yet require any far-reaching shift of competencies, a system of “Energy Emergency Councils” could be set up in the current situation, which are closely networked at European, national and, in some cases, regional level to prepare binding decisions by the competent bodies. They should include scientists, experts from industry, representatives of NGOs and key persons from the relevant ministries and administrations, be given a well-resourced budget for information systems, study assignments and public transparency, and always consist of at least a quarter of members from other European countries, ensuring a permanent exchange of experience. In addition, vertical networking should be established through the participation of individuals in councils at several levels.
Russia’s invasion of Ukraine has caused shock, dismay, readiness to help, and fright about their own dependencies among the Western public. To put Russia under economic pressure, actual reductions in imports are more critical than demands or announcements of boycotts. The EU and its member states indeed need a good understanding of the supply context and an assessment of the impact of measures before declaring a complete boycott of imports of this or that energy source. Independently of this, however, strong signs of determination can be set by initiating actual consumption reductions, substitutions and structural changes and communicating the successes. We already need speed limits, lowering of room temperatures, and a discussion on energy-intensive industries. Maximum cushioning of the consequences of the crisis for citizens and the economy and the illusion of a return to the status quo ante will impress no one and hinder learning processes. We Europeans must show credible determination to Russia and the rest of the world to stand up seriously for our goals. Panic price jumps are most likely to be avoided if European policy can convey that it is prudently pursuing a clear line. This has only been partially achieved.
Preparing for the next crises
Not being driven by events also means looking beyond energy issues to the next crises. Putin seems to be pursuing a strategy of pressuring his opponents with hunger. The bombing of food warehouses in Ukraine and the halting of grain exports are strategically motivated, not by constraints. Grain exports from Russia and Ukraine accounted for nearly a quarter of the world market in 2020/21 — significantly more than the share of Russian exports in world fossil energy markets. In March, prices for wheat and maize rose by 17 and 19 per cent, respectively, according to the FAO. Fertiliser production has slumped due to energy shortages and war in Ukraine. The WHO Food Price Index is up 70 per cent compared to 2019. Famine is looming, especially in the EU’s North African neighbours. While the EU’s internal food supply is secure for the time being, the EU cannot simply sit back in the event of a global food shortage. Europe will have to help its neighbours massively if necessary — if only to prevent massive migration movements. Even if Russia resumes exports — climate change is causing declining yields in many countries. Mathematically, this can be easily countered: Almost two-thirds of European grain production is used as feed for meat and milk production, 3% for biofuels, and only one-third directly for human consumption. That is irresponsible. But the international supply chains are more complicated than for energy. European livestock farmers get most of their feed from South America and sell a large part of their products to Asia. An effective contribution against the grain shortage would be reducing animal husbandry and meat consumption. Europe should set an example here. Instead of questioning the increased set-aside of agricultural land for ecological purposes that has just been decided, effective measures should be taken to halve animal husbandry in Europe. This would effectively relieve both the environment and the grain markets. The clear trend in Europe towards less meat consumption must be significantly accelerated by higher meat prices.
Especially as a result of climate change, further severe crises are to be expected before the end of this decade. If only out of self-interest, the rich countries will have to find much more significant financial resources to support poorer countries. The increased demands on public budgets that are already foreseeable today make it necessary to carefully avoid misinvestment, harmful subsidies and wasteful support for patronage groups. Given the challenges, budget discipline can no longer mean not incurring debts, but rather spending the money farsightedly and consistently on investments in a different way of doing business — this also includes buffering social hardship in the transformation.
A tough “war economy” would be the wrong answer
Again and again, in recent months, there have been calls for a “war economy” to deal with the climate crisis and the pandemic. In fact, during the Second World War, the USA, for example, achieved enormously successful coordination and focussing of human labour on the production of armaments and the organisation of an authoritarian war machine by means of a state-planned economy and moral mobilisation for several years. This would be a completely wrong approach for today: what is needed is a permanent transformation of a highly complex economy, changed framework conditions and incentives and a significant push of investments in an adapted infrastructure. A painful shift from consumptive to investment spending can probably be largely avoided through borrowing and skilful prioritisation because the new structures will be much more efficient. It is a matter of learning to overcome crises together and opening a durable prospect of a good life for billions of people by further developing the complexity, diversity, and capacity for self-management of our societies. For this, it is necessary to promote responsible action by citizens, decision-makers, consumers, and investors by changing the framework conditions. This is precisely what is at stake in the conflict between Ukraine, which is striving for a society of responsible citizens and is trying to break free from a history of authoritarian rule, command economy and corruption, and Russia, which under Putin is seeking salvation in an authoritarian, violent past.
Time and again in recent years, it has been said that this or that measure “cannot be expected of the citizens”. Politicians are often afraid of citizens who feel neglected and poorly treated. Like overtired, unreasonable children. In democracies, citizens must be treated as adults. When fear of populist movements leads to citizens not being taken seriously, crises lead to authoritarian measures. I think the shock of the last crises is enough for seriously justified restrictions and structural changes to be accepted today, as long as the demands for adjustments are not obviously unfairly distributed. It also became clear in the reactions to the pandemic measures that the vast majority of citizens reacted more maturely and responsibly than the politicians in charge gave them credit for.
Europe must grow up
European countries — and Germany in particular — have spent the last few decades comfortably ensconced in the protection of the United States, focusing on their own well-being with little responsibility for their future. But in recent years, confidence in a well-protected, continuous positive development of our livelihoods has been increasingly shaken: by the shock that climate change is already having massive consequences, by the horror of Trump as US President and his possible return to power, by the alarm at how difficult it was to respond adequately to the Corona pandemic with our established structures and procedures, and finally, by the shock of Russia’s invasion of Ukraine, which shows that it is essential that we can effectively defend our values and our common future against violent rulers who dream of times past.
In the face of these crises, our societies have initially shown themselves to be sluggish and vulnerable, little practised in taking responsibility in unforeseen situations and deciding together quickly and prudently. But in the face of these shocks, citizens and leaders are outgrowing the comfortable and familiar in many places. A new seriousness characterises social and political debates. A willingness to change is widely felt. This must be used to initiate the changes that basically everyone knows are inevitable.
This also includes a strengthened role for the European Union. Europe must grow up. Europe should take on more active responsibility. And help to prevent a relapse into old bloc thinking from hindering the urgently needed global cooperation in tackling the significant common challenges. Because of its history and its potential, Europe has a very central role to play in climate protection, human rights, and related issues.
History does not develop uniformly but in crises. In peaceful decades, we have developed a leadership elite that has navigated on sight, shied away from risks, and ignored dangers. Even in the financial crisis of 2008, there was no plan B in the drawers of ministries and companies. Everyone assumed that it was possible to muddle on. Disruptions are difficult to model. People stuck to what was calculable. We have learned in recent years that this was an illusion. Politicians and citizens in Europe should “expect more” from each other.