As published in The Globe and Mail
However beautiful the strategy, a wise person once said, you should occasionally look at the results.
Nowhere do those words ring truer than in the European energy transition.In recent years, it had shifted from ambition to implementation, and early results show a great and costly failure.
Europe was concurrently phasing out base-load coal and zero-emitting nuclear power, and inhibiting or rejecting natural gas development, including LNG receiving facilities. At the same time, it walked right into a massive energy-security issue with an overdependence on a notoriously unreliable supplier. When Russia invaded Ukraine, the failure of the European strategy became painfully obvious.
For Canada, we must learn from the results in Europe. And we must look to a vastly better model: The United States has stepped squarely into the resulting leadership void with measures such as its Inflation Reduction Act – based on a much different mindset and strategy.
The failure of Europe’s energy policy was not simply the expectation that Russia would behave co-operatively and could be relied upon as a trading partner; it was the size of the bet placed on this expectation. In strategy, it is axiomatic, “don’t bet the farm.” If you’re wrong, you may lose everything.
European decision makers lost sight of the big strategic risks and tradeoffs they were making. Germany, Britain and much of Europe put everything on the line: energy and geopolitical security; economic security including livelihoods and stability for the people to whom they were responsible; affordability including food prices and the impact on general price levels; corporate and industrial competitiveness; and, broadly, societal prosperity.
All that is essential to modern society was put at risk. European climate leaders also put their own credibility at risk, and arguably the credibility of the energy transition itself.
Who now wants to follow the German, British or EU model on climate leadership, and economic and strategic leadership more generally?
The costs and repercussions of failed energy policy will be felt for years, maybe decades.
The alternative model now represented by the U.S. is comprehensive and pragmatic, versus the more narrow and technocratic approach of Europe’s Green Deal and related complex taxonomies. The new U.S. policies include ambitious climate legislation but are grounded in the well-established basics of energy policy. The chief sponsor of the bill, Senator Joe Manchin, is emphatic that the first priority of this new legislation is in fact energy security.
The other standout feature is a serious attempt to integrate decarbonization ambitions into economic competitiveness and industrial policy.
A further differentiator is that the U.S. strategy is technologically and energy-source agnostic, unlike Europe’s divisive slicing and dicing of different energy-source and technology classifications, such as nuclear, green e-fuels (usable in internal combustion engines), and Britain’s on-again, off-again permitting of North Sea development.
The U.S. approach is also largely incentive- and market-based, involving hundreds of billions of dollars, versus relying on the force of regulatory mandates – a largely “carrot” versus “stick” approach in the parlance of public policy.
Energy is foundational. It cuts across all we do in society. Strategies aimed at advancing decarbonization must mirror the foundational usage of energy, taking into account the essential basics of security, reliability and affordability, where affordability is understood to include competitiveness and economic effects on all stakeholders.
A rigid path to decarbonization, based on narrow policy dictates and prescriptive regulation, risks unforeseeable adverse economic, social and political consequences affecting all that is essential to society. This is the great lesson in Europe’s current crisis.
It is imperative that we reduce emissions and mitigate negative environmental effects, but we must find optimal pathways to achieve this while recognizing the imperatives of geopolitical and economic security, of household affordability and business competitiveness, and of social and governance stability.
The U.S. approach is attempting to do all this. It will become the benchmark for all countries committed to carbon action while satisfying other critical geopolitical, economic and societal priorities.
Some will cling to the rigid singularity of the climate action path exemplified by Europe in recent years, but a more integrated, holistic and pragmatic mindset and approach are emerging.
In assessing progress and success, we must ground our assessment in results, and the results must include all that is essential to modern society.
Otherwise, public support and ultimately the very credibility of the decarbonization initiative itself may be undermined.
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