The taboo on expensive energy must be removed – Joop

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The billions in environmental subsidies are mainly intended for the companies’ competitive position. However, they prevent polluting products from becoming more expensive and therefore less used. Acceptance of higher prices for energy and materials is necessary for the transition.

Subsidies are the cornerstone of Dutch environmental policy. The coalition has established a climate fund of 35 billion euros, a nitrogen fund of 25 billion and the existing subsidy for sustainable energy and climate (SDE++) has an annual size of 13 billion (in 2022). There is a free purchase scheme for farmers and subsidies for hydrogen and electric trucks. There are also tax benefits for companies’ environmental investments. In the near future, the government will make ‘tailored agreements’ with the twenty most polluting companies in our country on financing their cleaning services (read subsidies) and on state investments in infrastructure for clean energy. Since corona, the bottom seems to have disappeared from the treasury.

There is broad support for subsidies. The unspoken reason for this is that in this way the competitive position of the companies in our country is not deteriorated. However, there are serious objections to the political preference for subsidies. It is not the polluter who pays, but the taxpayers, with the result that the growth in the use of energy and raw materials does not decrease. We are not going to achieve the energy and environmental transformation with billions in subsidies, because subsidies are by definition temporary. This is why they provide insufficient security for the large investments required. The construction of wind farms and factories for green hydrogen will only really start if the long-term demand is secure. Grants do not provide that security. Once again, the government is doing just enough – or just not – to meet the 2030 targets on paper without taking into account the industrial scale-up needed to eliminate net greenhouse gas emissions by 2050.

Subsidies are only the lubricant for the changes, while regulations are the lever for the energy and environmental transition. Bans have proven effective, for example with harmful pesticides, asbestos and substances that deplete the ozone layer. Equally effective are the – mostly European – environmental requirements for factories, cars, agriculture, lighting and much more. Regulation has been by far the biggest contributor to reducing environmental pollution in the last half century. Why don’t we pass laws that gradually reduce the allowed emissions from industries, cars, airplanes and agriculture?

Strict environmental regulations inevitably lead to price increases, and this is a major social taboo. Almost all policy documents, studies and scenarios are based on the principle that clean production must compete in price with the current polluter. Why shouldn’t cleaning be more expensive than dirt? Are nature and the environment worth nothing to us? Although clean technologies are (still) expensive, it is necessary to apply them now. Politicians and companies unfortunately maintain the taboo on price increases, which undermines support for the necessary changes. Management requires the opposite: to prepare society for all the consequences of the energy transition, including those for prices.

The fact that some products will become more expensive certainly applies during the transition period and possibly afterwards as well. The market price of cleanly produced energy and materials will so far be above cost because they are still scarce. An example of this is the long wait for an electric car. In the coming decades, there will not be enough wind and solar energy, green hydrogen and CO2-free fuel for aviation and sea transport. There is also a shortage of materials such as lithium and cobalt, which are needed for batteries. Billions are needed in investments for clean energy and factories. For these reasons, we will have to accept higher prices for cleanly produced electricity, hydrogen, iron and steel, aluminium, cement, plastics and fertilizers. This in turn leads to higher prices for consumers through the production chains, especially for meat, dairy products, air travel and energy. As long as we close our eyes to these price effects, this taboo will remain a major drag on the energy transition.

Low-income people should receive generous compensation for the higher prices, largely through increased wages and benefits. As a result, the price incentive to be thrifty also works for people on a tight budget, while their purchasing power remains intact due to the additional income. In addition, practical and financial support is needed to insulate homes and purchase energy-saving appliances. It is now mainly the rich who profit from ‘free’ environmental pollution. The carbon footprint of the ten percent of Europeans with the highest income is six times greater than that of the half with the least money. The richest twenty percent of the Dutch fly four times as often as the twenty percent with low incomes and drive more than three times as many cars and often also in larger and less fuel-efficient cars. A just transition means that the rich pay the bill for what they currently use for free.

Higher prices are not only inevitable, but are also necessary to reduce the use of energy and materials. Energy consumption in our country is almost not decreasing, despite all efforts to save energy. Refrigerators have become more efficient, but at the same time larger. Technically, cars are much better, but use the same amount of fuel per kilometer as they did thirty years ago because they are more luxurious and heavier. Terrace heating quickly became popular after 2010 and has already been banned in France. The rise of the rain shower ensures more hot water consumption. These are just four examples from a long list. No less than 90 percent of the energy savings achieved after 2000 have been canceled out by new forms of energy use. Energy conservation will continue to mope with the tap open as long as energy is so cheap.

In summary, an effective policy for the energy and environmental transition consists of three core elements: 1) regulations that make it no longer permissible to pollute nature and the environment; 2) acceptance of higher prices for energy and some materials; 3) higher wages and benefits for people with low incomes.

According to these three main lines, what does environmental policy mean for the companies’ competitive position? Of course they prefer subsidies to regulations. The well-known arguments are that higher costs due to strict environmental requirements are at the expense of competitiveness and that moving abroad does not contribute to a better environment. In part they are right. To protect European companies, Europe proposes to introduce a tax on the import of dirty products from countries outside the EU. These are cement, iron and steel, aluminium, fertilizers and electricity. Within Europe, the price of these products may be higher than abroad. It is no coincidence that these are precisely the products whose price will increase as a result of the energy transition. This European approach alleviates the major environmental problems in our country without harming our competitive position and saves us a lot of money in subsidies to companies.

Still, the companies will likely continue to struggle. No business likes to see costs rise, causing sales prices to rise and growth to slow. Even on a level playing field, they are not waiting for less growth. However, they will guard against their competitive position. Companies cannot be blamed for representing their interests, but the government must independently assess the correctness of their arguments. It is not the power of lobbying, but the facts that should be decisive in discussions about international competition. This requires counter-force from a powerful Ministry for Nature, Environment and Climate. We’re not dividing the Ministry of Finance into the specialist ministries, are we?

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