Energy is an important issue cutting across some of the big problems of our time such as climate change, security and the economic crisis. What sources of energy we use and how we finance them influence how our societies will function in the decades to come.
Good decision making therefore requires reliable information on the costs, impacts and potentials of different energy sources and financial instruments. The available information, however, can be dated or shrouded by tenacious myths. (A study published yesterday by the German Institute for Economic Research for instance has found that the European Commission’s strategy documents for the energy sector significantly underestimate the costs of nuclear and coal and overestimate those of renewable energy sources.)
Our friends at Counter Balance have therefore taken a look at a number of the myths and facts related to energy production, the EU’s energy policy and the financing activities of international financial institutions.
The outcome, a series of fact sheets, helps find answers (not always easy ones) to questions like “How does the European carbon market work?”, “Which sources of energy are expensive and which are cheap?” or “How reliable is the electricity production from renewable energy sources?”.
With the energy policy revisions of the European Investment Bank, the European Bank for Reconstruction and Development and the World Bank heating up, it’s all the more important to get the basic facts straight.
Here are some points to get you started.
EU carbon trading
- Rather than enabling the transition away from a fossil fuel economy, the ETS has acted as a subsidy for major polluters in Europe.
- Even conservative estimates suggest that between one- and two-thirds of carbon credits bought into the ETS “do not represent real carbon reductions”.
Europe & coal
- Coal power plants may seem cheaper to construct when compared to renewables, but because of the very high temperatures in the burning chambers they require expensive and frequent maintenance – the yearly costs to maintain a coal power plant may be as high as 10% of the initial investment to build the plant.
Europe and energy security
- The EU recognises that to solve global environmental problems, a drastic reduction in its own use of fossil fuels is needed. At the same time, the EU is part of a global resource and energy race with other countries and its energy policy centres around the construction of a series of oil, gas, electricity and solar projects in neighbouring countries in order to diversify Europe’s energy supply.
EU policy and nuclear energy
- Plans for new nuclear build face the challenge of finding investors and the large amounts of money needed for construction, making nuclear an economic liability for the project promoters. The 2012 World nuclear industry status report finds that five of eleven nuclear companies were downgraded by Standard & Poor’s in the past five years. Moody’s also assigns a higher risk profile to companies that pursue new nuclear generation plans.
- Nuclear power and renewables are not complementary to another and cannot be used in parallel to reduce carbon emissions.
- Together with other necessary equipment and storage ponds, fracking infrastructure can cover large areas. In Europe, such land use might potentially lead to problems because of population density.
- Shale gas is still a fossil fuel and thus carbon-intensive. A study by the Commission confirmed that shale gas activities – including the process of fracking itself and burning of shale gas – release greenhouse gas emissions and are more carbon-intensive than conventional gas.
- Every drilling process (for shale gas) requires as much as 15 million litres of water. In addition, every drilling operation uses several tonnes of highly toxic chemicals.
Renewable energy sources
- In 2010, only 71.5 percent of energy produced in the EU was used by the end consumer. 23.5 percent of this energy was lost, with 5 percent used by the energy sector itself.
- The strength of renewable sources of energy does not lie in the possibility to produce large amounts of energy in one place as is the case with fossil fuels or nuclear power plants. With renewable sources of energy, people can take control of their energy supply and support the independence of communities and regions.
The European Investment Bank’s energy lending
- While the EIB is an EU institution and is required to lend for projects in line with Europe’s policies on energy and climate change, the bank at times takes a schizophrenic approach to the energy sector because of the diverse EU policies and strategies related to energy.
Project bonds in times of crisis
- With the Project Bond Initiative and the Project Bonds Credit Enhancement, the Commission and the EIB have chosen to incentivise the expansion of financial markets and to use public funds – derived from European taxpayers money – to transform infrastructure into an asset class
Energy infrastructure investments for economic recovery
- In the last decades the EU has to a considerable extent externalised its “polluting” industrial production to countries outside Europe, giving a push to fossil fuels-based energy generation in these countries.
Never miss an update
We expose the risks of international public finance and bring critical updates from the ground – straight to your inbox.