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Achtung: Learning from Germany’s energy shambles: Terry Etam

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19 minute read

From the Frontier Center for Public Policy

By Terry Etam

No one interviews mechanics about the challenge of an energy transition. In fact, the voices of the many that maintain the system get accused of disinformation for pointing out mechanical realities like “That isn’t gonna work.”

In 1880, a great author, Mark Twain, whom you may never hear spoken of again because he had the audacity to write in the vernacular of the day, wrote an extremely funny essay called The Awful German Language. “Surely there is not another language that is so slipshod and systemless, and so slippery and elusive to the grasp…There are ten parts of speech, and they are all troublesome…Now let the candidate for the asylum try to memorize those variations, and see how soon he will be elected…In German, a young lady has no sex, while a turnip has…a tree is male, its buds are female, its leaves are neuter; horses are sexless, dogs are male, cats are female-tomcats included, of course; a person’s mouth, neck, bosom, elbows, fingers, nails, feet, and body are of the male sex, and his head is male or neuter according to the word selected to signify it…My philological studies have satisfied me that a gifted person ought to learn English (barring spelling and pronouncing) in thirty hours, French in thirty days, and German in thirty years.”

I have no idea if his synopsis is sound, but I do know it is funny as hell and it comes leaping to mind upon any contemplation at all of Germany’s current energy mess. I can’t think of a better turn of phrase than to describe it as slipshod and systemless and slippery and elusive to the grasp.

The lunacy began more than a decade ago, but it took a few years before serious consequences started to appear. They are here now, in full force. Primary among them was the decision to shut down all nuclear power in the country with no suitable base load replacement other than… coal, the last imaginable energy source one could imagine Germany purposely pursuing after a decade of their energy transition shouting. In what had to have been a staggeringly embarrassing moment, the German government even went as far as destroying a village to expand a coal mine. In 2023, not 1923.

To be fair, Germany’s energy demise was hastened by the Russian war and subsequent loss of Russian gas (and to be even more fair, I recognize that as a Canadian I have absolutely no moral high ground to ridicule anyone else’s government). As The Economist put it: “By weaponising the natural gas on which Germany’s mighty industrial base relies, the Russian president is weakening the world’s fourth-biggest economy and its third-biggest exporter of goods.”

But that was an accelerant, and not the match. For more than a decade, Germany has been not just turning away from fossil fuels faster than possible, it has fed mightily into the global narrative that fossil fuels were last century’s news. The overarching anti-hydrocarbon stance, that to maintain a cent in any fossil fuel investment was to risk good money on soon-to-be ‘stranded assets’, has been allowed to take over the public discourse as a fact, with no opposition from even the likes of those now in a very bad spot for allowing these concepts to take root as modern energy givens.

The German war on hydrocarbons is all the more peculiar because of the way in which the country has wrapped almost its entire industrial strategy around them. A physicist named Shaun Maguire outlined it well on Twitter, and thank heavens for people with weird fascinations. (@shaunmmaguire: “I’ve been obsessed with the chemicals industry since I was a kid.”)

Mr Maguire wrote an illuminating thread on Germany’s economy and its relationship to both energy and chemicals (an epic quote right off the top: “Germany’s decision to shut down their nuclear facilities was one of the stupidest political decisions in history. Most of their economy is based on turning energy into chemicals.”).

A profile of Ludwigshafen points out some startling facts. First, the place is enormous. BASF, the massive chemical company, has a ten square kilometre facility in the city with its own transit system.

Ludwigshafen consumes about as much natural gas as Switzerland. The output from Ludwigshafen, per BASF’s website, supports: Agriculture, Automotive/Transportation, Chemicals, Construction, Electronics/Electric, Energy & Resources, Furniture & Wood, Home Care and Industrial/Institutional Cleaning Solutions, Nutrition, Packaging & Print, Paints & Coatings, Personal Care/Hygiene, Pharmaceuticals, Plastics & Rubber, Pulp & Paper, and, finally, Textiles, Leather & Footware. The website has pull-down menus for each category that outline a dizzying array of pretty much everything you’ve ever laid your hands on that wasn’t breathing, photosynthesizing, or dug out of the ground.

Those huge natural gas pipelines flowing into Germany are the very lifeblood of German industry, as much or more so than anywhere else. In many places, without natural gas people would simply freeze. In Germany, they would freeze in many square miles of abandoned petrochemical factories. Sure, it would be steampunk-cool way to go, but other than that there would be nothing aesthetic about it.

Last year, I stood slack-jawed in wonder at news that Germany had constructed an LNG import terminal in 5 months flat (an LNG-Importeinrichtung – feminine). How on earth… it takes a year to get a permit for anything in the western world. How could they build her so fast?

Now I know. They had to. The bedrock of Germany’s mighty industrial base depended on it.

There are no grounds for entertaining the thought that Germany is incapable of designing, building, and operating an optimal energy system. It is crazy to think otherwise; Germany is collectively a formidable engineering talent.

Yet it is equally crazy to shut down a bunch of nuclear reactors with no suitable backup base load power (and remember, the nuclear plants were put on the boat to Valhalla before Russian antics).

Some of Germany’s current energy plans are equally as crazy, such as being short of power and simultaneously activating a mass conversion to electrical heat pumps. Whatever you do in an electrical grid, the one thing you don’t want to do is increase demand peaks. An overarching goal should be to reduce them, because the highest possible load, the point of maximum demand, sets the capacity need for the entire system. If on the coldest, highest demand day of the year, a system needs 1,000 units, it needs to be built and maintained to provide 1,000 units, even if the average demand is only half that.

Germany’s heat pump rollout plan is a scheme that will do exactly the wrong thing. It will significantly increase demand at the exact worst time. It is like taking the example above and resetting the peak to 1,200 units, even if the average remains at 500. The entire system now needs to be able to provide 1,200 on demand.

What happens if it doesn’t? Well, what do you think happens if there is a power failure during the coldest snap of the year, when wind and solar output are low, or if reliance on wind/solar is too great and they can’t perform? It will be catastrophic.

So you might be driven to madness trying to unravel this knot, because on the face of it Germans can’t both be engineering-competent and simultaneously run their energy system into the ground.

The answer to this impossible scenario, how such a contradiction can exist in reality, is due to two things: the politicization of the energy system, and the failure of that energy system to explain and defend itself.

Politics, as we know, is where logic goes to die. Popularity means power; and you can gain popularity in general by keeping citizens happy (hard to do, always something to complain about), or by terrifying them. It should not be a surprise that out of that swamp (one rude Trump-derived nomenclature that I can’t disagree with) comes a plethora of committees and committee decisions made by people for whom reality will always be steamrolled by the quest for popularity (there are exceptions that prove this rule, showing up about three times per century somewhere on the globe).

Thus we get governments fighting to eliminate hydrocarbons for political reasons; because they want to be seen as ‘being on the right side’, and because one side has been so much better at it (more on that in a second), being ‘an environmentalist’ is now colloquially equivalent with being anti-hydrocarbon.

Stuck in the middle of the fear mongering are the plumbers, the farmers, the mechanics, the drivers, the people that actually keep the wheels turning, the ones with their feet grounded in reality and not in armchair-industrialism. Included in that camp are the ones that check the valves and drill the wells that keep the world’s fuel flowing. Others can argue about what it will look like in 40 years, but for the hands-on people, the story is all about today.

But those voices get lost in the noise storm. No one interviews mechanics about the challenge of an energy transition. In fact, the voices of the many that maintain the system get accused of disinformation for pointing out mechanical realities like “That isn’t gonna work.” Capable, knowledgeable people that point out the rising risks of an unreliable electrical grid are shouted down as ‘fossil fuel shills’ or agents of misinformation.

Sadly then, we are forced to live with these pile-driving spasms of bad decisions as part of a political process, democracy, that most would never abandon. And hey, it’s not easy for participants either – Imagine the chaos between the ears of German Chancellor Olaf Scholz, coming to Canada seeking more LNG, then sitting at a press conference listening to Justin Trudeau say there is no business case to be made for LNG to Germany, and being unable to speak against such gibberish because Climate, knowing full well he would go to another country to get an assured supply (and he did, Qatar).

One can’t help but summon sympathy for Mr. Twain’s German-themed bewilderment when hearing what has happened thus far in 2024. Germany recently approved $44 billion in new expenditures to build brand new gas-fired power plants (pacifying their supporters by declaring that the plants must be able to burn hydrogen and are ‘expected to’ do so by 2040 – not hard to spot the weasel words, is it). Note that new natural gas power plants can not be blamed on Russia, because this is just more consumption and not a replacement for supply. To rub salt in the Energiewende-wound, Bloomberg via Yahoo chimes in with the headline, “Germany’s Budget Chaos Leaves Green-Energy Projects in Limbo.” Seems that they found $44 billion for natural gas easily enough though. What was that transition stuff about, again?

Such mystifying behviour is at least partially explained by the second reason that energy system contradictions can exist – the dumbfounding size of the energy education deficit, and for that the hydrocarbon industry can at least partly look in the mirror, because the energy system has not done enough to explain and defend itself.

Consider Alex Epstein for example, a one-man energy-education army that has amassed a huge following. He’s written great books, and even appeared before congress, largely because he has taken the time and effort to point out the colossal benefits that hydrocarbons have brought humanity. Humanity as we know it wouldn’t exist without the hydrocarbon system, nor would most (or all) of the technological innovations we enjoy. Mr. Epstein spells this out, of his own accord, to far greater effect than the entire industry has in the past 30 years.

Many of those energy points are not hard to make, such as this foundational one that even Big Oil CEOs seem unable to articulate: “If one wishes to ascribe certain negative characteristics to hydrocarbon usage, it is only rational to consider the benefits that are derived from same.” And yet the opponents of hydrocarbons have done such a resoundingly thorough and effective job of amplifying any negativity that that simple statement is heard almost nowhere, except by Alex and a handful of others. Those earning massive pay stubs should be leading the charge, and they just aren’t. Not effectively anyway.

A general recognition of the boundless value of current fuels is coming; the question is, now much pain until that becomes commonly understood. The reality is that hydrocarbon usage continues to grow and set record consumption levels, including coal, and will for a long time. The evidence is pretty stark and clear, even for the likes of the IEA that predicts an imminent demise in hydrocarbon demand over and over and over, then keeps re-upping demand estimates as they happen.

A great number of innovative ideas are making their way to market that will start making inroads on how we deal with energy and industry. But until proven at scale, the existing system needs to be protected from frightened mobs, and someone needs to explain reality to them.

We all know what’s going to happen; an energy transition will happen over the next century at a realistic pace as new technology/nuclear/whatever becomes dominant. The challenge is: How much damage will be done before our elected representatives start choosing optimization, as opposed to whatever it is they’re doing now?

Terry Etam is a columnist with the BOE Report, a leading energy industry newsletter based in Calgary.  He is the author of The End of Fossil Fuel Insanity.  You can watch his Policy on the Frontier session from May 5, 2022 here.

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Economy

Canada’s flippant rejection of our generous natural resource inheritance

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From the Macdonald Laurier Institute

By David Polansky

The fanaticism of environmental elitists has made people unwilling to discuss the serious human and economic costs of poorly considered environmental policies.

Strategic energy resources have long been associated with some of the world’s most odious regimes. Above the surfaces that cover rich mineral and fossil fuel deposits one finds religious fanatics, brutal tyrants, and corrupt kleptocracies. And yet with one resource rich nation in particular we find not Wahhabism or gangsterism but Mounties and maple syrup.

Canada is the world’s second-largest country and its lands and territorial waters hold some of the world’s most substantial oil and gas reserves. Looking at its energy policies, one might think it was Belgium. Canada’s resource wealth would seem to be a case of the good guys winning for once. Why then does Canada flee in shame from its geological (and geopolitical) situation?

The answer is that Canada’s elites have long ceased to think in terms of its national interests or fiscal priorities but have adopted a naïve environmental dogmatism. Since it ratified the Paris Agreement in 2015, Canada has embraced an ambitious, top-down, international agenda to achieve “net-zero” emissions and limit global climate change.

But the fact is that, despite its size, In absolute terms, its output has risen marginally over the past half century, even as its population has nearly doubled. And embracing this climate agenda is hardly a perfunctory matter: it will continue to result in declining incomes for the average Canadian as well as a weakened trade balance for Canada as a whole. Canada’s economy is being sacrificed on the altar of elite preferences divorced from the realities of how Canadians actually heat our homes or put food on our tables.

An honest assessment of Canada’s flippant rejection of its generous natural resource inheritance looks more like serial masochism than virtue.

In the wake of Russia’s invasion of Ukraine and the global sanctions it triggered, The irony is that with so much of Russia’s supply coming offline, Canada could have had a remarkable opportunity to fill the vacuum with its own production capacity.

Despite being the world’s sixth-largest producer of natural gas, Canada lacks even a single export terminal for LNG. When critics of Canadian LNG production pointed to the unfeasibility of meeting overseas demand, despite the entreaties of the Germans and other Europeans, they were only technically correct. Canada couldn’t easily meet overseas demand because our regulatory regime has held up the construction of as many as 18 proposed LNG projects over the past decade, largely due to climate concerns.

Ironically, Germany—the continent’s greatest industrial power—needed to reactivate discontinued coal plants to meet its energy demands (hardly an ideal outcome from an environmental standpoint).

Much of the shortfall caused by sanctions on Russia was also made up by LNG contributions from Norway—whose leaders have maintained that reducing LNG output would only cede the market to authoritarian regimes with weaker regulatory controls around their energy industries from both environmental and human rights standpoints. Thankfully, Norway’s government moved forward with LNG production and export despite past pressure from environmentalist in the European Union that attempted to curtail its fossil fuel extraction.

Canada could have followed Norway’s level-headed approach and in that could have helped replace Russian oil in the aftermath of the Ukraine invasion. The curtailing of Canada’s energy infrastructure is not imposed by a physical limitation in the world, nor was it commanded from the heavens; it was ordered by the Canadian Net-Zero Emissions Accountability Act of 2021, supplemented by ambitious plans promulgated by Ottawa to reshape the institutions and practices of the entire country in pursuit of this quixotic goal. Not just the oil-and-gas sector, but housing, construction, agriculture, etc. must bend before Net Zero.

One can already hear activist outrage that, “to oppose this agenda is to choose temporary profits over the preservation of human life and the planet that supports it.” This rhetoric has proven effective in advancing environmental policies but it is also a false dichotomy, as it treats the dilemma as one of “good vs. greed” rather than one of complex competing goods.

A society that has signed on to this sort of imposed austerity is one with less money for infrastructure, entrepreneurship, healthcare, and defense. A lack of investment in these sectors also brings serious and immediate human costs. And further, the real issue is not the value of environmental stewardship or of taking steps to moderate consumption—both of which are worthy goals in and of themselves—but of blindly adhering to preselected targets at all costs. These apparently unassailable commitments have deprived Canada of the kind of flexible management of strategic interests that prudent political leadership requires.

Indeed, the unrealism of these climate ideals has produced systemic dissembling across the country’s major institutions, given the pressure to comply regardless of the efficacy of their practices. In other words, the fanaticism of environmental elitists has made people unwilling to debate the issues at hand or to even discuss the serious human and economic costs of poorly considered environmental policies.

The Environmental, Social, and Governance (ESG) model has had the effect of placing certain questions effectively beyond the reach of politics. But questions of policy—as environmental and energy questions surely are—are by their nature political; they have inevitable tradeoffs that should be a matter of debate with an eye to our collective interests.

Instead, we have an intolerant environmental elitism that obstructs the open and honest public deliberation that is the hallmark of democratic politics. A more truthful and practical approach wouldn’t necessarily promote any one policy, but it would allow for public discussion that recognizes the genuine toll that environmental policy takes on Canada’s domestic well-being and our standing in the world.

David Polansky is a Toronto-based writer and political theorist. Read him at strangefrequencies.co or find him on X @polanskydj.

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Economy

Indigenous Loan Program Could Pave the Way for More Natural Resource Economy Ownership

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From EnergyNow.ca

By Resource Works

“We want to be part of the oil and gas industry”

Ottawa has promised a loan program for Indigenous communities to buy equity stakes in natural resource projects, but many questions are still unanswered.

Ottawa is currently under scrutiny as it prepares to incorporate an Indigenous loan-guarantee program into its 2024-2025 budget, aimed at assisting Indigenous communities in acquiring equity stakes in natural resource projects. This commitment was made in Finance Minister Chrystia Freeland’s fall economic statement on November 21.

The government will advance development of an Indigenous Loan Guarantee Program to help facilitate Indigenous equity ownership in major projects in the natural resource sector. Next steps will be announced in Budget 2024.

The federal budget is typically presented to Parliament in either February or March, with the 2023-2024 budget having been announced on March 28 last year. While Ottawa has engaged in consultations with Indigenous leaders and organizations, there remains a notable lack of specific details, including a critical issue – whether the program will permit investment in oil and gas projects.

The First Nations Major Projects Coalition, boasting over 145 members, strongly advocates for Indigenous peoples to have the autonomy to determine their investment choices without constraints imposed by Ottawa. Although the government did assert its commitment to ensuring Indigenous communities benefit from major projects within their territories on their own terms, First Nations groups worry that the loan-guarantee program might mirror the green restrictions of the current Indigenous loan program provided by the Canada Infrastructure Bank.

This existing program allows equity stakes only in infrastructure projects aligned with the bank’s investments, such as clean power, green infrastructure, broadband technology, and transportation. For some time, the First Nations Major Projects Coalition (FNMPC) and the Indigenous Resource Network have been at the forefront of campaigns urging federal loan guarantees to facilitate Indigenous participation in natural resource projects.

Sharleen Gale, Chair of FNMPC, argues that fossil fuel investments must be a component of any federal loan-guarantee program, as equity in the oil and gas industry can empower First Nations to thrive in alignment with their values.

“We want to be part of the oil and gas industry,” says Gale.

In 2022, the Indigenous Resource Network (IRN) initiated the “Ownership Changes Everything” campaign, advocating for Indigenous ownership in resource projects. This campaign calls upon Ottawa to implement a loan program modeled after similar initiatives in Alberta, Saskatchewan, and Ontario. Robert Merasty, highlights the challenges faced by Indigenous communities due to the Indian Act, which prohibits First Nations from using their land and assets as collateral. Consequently, they lack the necessary at-risk capital to secure favorable interest rates.

“The problems our communities are facing is that there are few mechanisms to access the necessary capital for investing in projects and having equity,” says Merasty.

In 2023, FNMPC penned an open letter to Finance Minister Chrystia Freeland, emphasizing the significance of advancing major resource projects for a successful energy transition and economic growth benefiting all Canadians. They also pointed out that the Indian Act remains a significant hurdle, preventing First Nations from leveraging their assets and land for borrowing.

FNMPC estimates that over the next decade, 470 major projects impacting Indigenous lands will require more than $525 billion in capital investment, with approximately $50 billion needed for Indigenous equity financing. An illustrative case from Alberta involved energy giant Enbridge, which partnered with 23 First Nation and Métis communities to sell an 11.57% interest in seven pipelines in northern Alberta. This partnership was made possible through a loan guarantee from the Alberta Indigenous Opportunities Corp., which provides financing to Indigenous communities seeking commercial collaborations, alongside various other financial supports.

Greg Ebel, CEO of Enbridge, has joined the campaign for a national program.

“Investment in the entire energy sector and many others could be accelerated by the immediate implementation of a federal Indigenous loan-guarantee program to ensure Canada’s Indigenous Peoples have a seat at the table while also having equity that helps them secure a more prosperous future,” says Ebel.

As we await further developments, the question remains: Will a federal loan-guarantee program come to fruition, one that encompasses loan guarantees for investments in natural gas and oil? We are hopeful for a positive outcome.

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