The war for warmth

Russia is sending General Winter west 

Artillery Row

The West and Russia are in a state of economic warfare. However, the effectiveness of sanctions is uneven. Barring access to semiconductors or machine components will certainly lead to a slowdown in industrial production among various sectors of the Russian economy. In the long term, it will be more painful than expulsion from the SWIFT. 

Yet Russia cutting off gas supplies to Europe will have devastating and probably more immediate effects. At the time of writing this article, the Nord Stream I pipeline has been shut down, officially for repairs. It is not known whether gas transmission will resume, but it is clear that the worst-case scenario — a complete interruption of supplies to EU countries — is very likely to become a reality in the near future.

Germany has no port capable of receiving liquefied gas

Robert Habeck, Germany’s Federal Minister for Economic Affairs, has stated that if the flow of Russian gas remains at its current level, “companies [will] have to stop production, lay off their workers, supply chains [will] collapse, people [will] go into debt to pay their heating bills”. The head of the German network regulator, Klaus Mueller, warned that if the present situation continues, energy prices in Germany will double or even triple. Faced with gas shortages, Hamburg, Germany’s second largest city, has told residents to prepare for hot water rationing. It can be expected that similar scenarios are in store for the whole country.

As financial writer Byrne Hobart put it, “Russian winter has historically been more of a defensive weapon, but it looks like they’ll be able to use it in Germany this year”

What prevented this dire situation from turning into an extreme one were LNG (Liquefied natural gas) imports. Luckily, China entered a new lockdown at the time of the Russian invasion, causing its demand for LNG to drop significantly and leaving the Europeans with more liquid gas to buy on the market. 

France has won a victory in Brussels

Alas, LNG is by no means a magic bullet, the biggest problem being the lack of infrastructure. Germany has no port capable of receiving liquefied gas, and the first installations will only be ready for use in a few years. Adequate infrastructure is also lacking on the part of Europe’s strategic LNG supplier, the USA. Across the Atlantic, there is no capacity to provide as much supply as Europe needs, and its expansion is hampered by the American vetocracy: government agencies and their endless evaluation processes.

The disruption of gas flows from Russia should affect France less than Germany. French gas demand is covered only in 17 per cent by Russian imports and for Germany the figure is 32 per cent. While naive geopolitical calculations must be blamed for the energy crisis in Germany, in France the main culprit seems to be decay of state capacity. For this reason, Russian actions will be more harmful to the country than they should be.

The French crisis comes down primarily to low nuclear output. France’s 56 reactors theoretically meet more than 70 per cent of the country’s energy needs. However, the nuclear sector has been neglected in recent decades. Its power production is at its lowest level in 30 years, because as much as half of France’s nuclear fleet has had to shut down due to technical problems. Even if some reactors resume their work, this winter output will be at least 25 per cent lower than normal.

Faced with these shortages, Macron’s government has reached for a solution familiar to the French: it intends to nationalize Életricité de France. EDF is Europe’s largest exporter of electricity and is also responsible for the fleet of French reactors. Economist David Cayla called it a “nationalization of losses”, claiming that the government itself does not exactly know what to do next with EDF.

It can be assumed that the state wants to provide the capital needed to build the next six reactors announced by Macron, as rating agencies give low scores to the indebted EDF. Here, however, the French government could face obstacles from the EU, because once EDF passes into the hands of the state, such financial aid could be deemed unfair competition. Negotiations with Brussels, if at all successful, could take several years.

EDF relies mainly on infrastructure from the 1980s. Lack of investment has meant that no new talent has flowed into the nuclear sector and innovation has stalled, while expertise and tacit knowledge have been gradually lost. EDF’s projects in other countries also reflect the industry’s decay: Hinkley Point power plant is four years behind the schedule, and Finland’s Olkiluoto, although it opened this year, was expected to be operational as early as 2009.

Political will and technological progress went hand in hand

France has won a victory in Brussels over anti-technology environmentalists and the greatest opponent to nuclear, Germany: it has succeeded in including nuclear power in the so-called green taxonomy. But the losses the French nuclear sector has suffered over the years will be difficult to make up for. The stagnation and gradual erosion of the nuclear industry is the result of growing influence of environmentalists in public opinion and, above all, among successive French governments, both left and right. 

Since the second half of the 1990s, environmentalists have become such a significant force that all parties seeking to gain power have had to reckon with them. Green adversaries of nuclear energy entered government and state institutions, dismantling a sector that allowed France, the seventh-largest economy in the world, to reach 0.9 per cent of global emissions in 2019 (the best performance among G7 countries in this regard). 

Under pressure from environmentalists, Jacques Chirac introduced the “precautionary principle” into the constitution, which inhibited investment in new technologies. Nicholas Sarkozy, another right-wing president, moved energy issues from the ministry of industry to the ministry of environment. In 2019, Macron canceled the fourth-generation Astrid reactor project. With it, 738 million euros of investment, decades of experience and a valuable team of experts were lost.

Had it not been for regulatory hurdles — growing since the late 1960s due to the offensive of the ecological movement — nuclear power would have replaced 100 per cent of energy generated from coal and 76 per cent of electricity produced from gas. That future has been lost, supplanted by the dreams of environmentalists.

To stop climate change, a French green consultancy, BL Évolution, in addition to outlawing the construction of single houses, reducing meat consumption to 25 kg per year (in contrast to the 90 kg consumed in France today) and banning unwarranted flights out of Europe, recommends limiting the maximum temperature in homes to 19C during the day, and to 17C from 22h to 6h. This winter, the French and other Europeans will have the opportunity to experience further what the green’s dream world would actually look like in practice, just as lockdowns have partially fulfilled the vision of a world where there are no cars and planes and emissions fall. The executives of three French energy companies already appealed at the end of June for reducing the consumption of electricity, gas and oil, or else a situation threatening “social cohesion” could be imminent.

The French nuclear industry gained momentum in the 1970s in the wake of the oil shocks, during a crisis somewhat similar to the one we are experiencing today. Back then, President Georges Pompidou and Prime Minister Pierre Messmer recognized that if France wanted to maintain its energy independence, it had to act swiftly and decisively. Between 1977 and 1990, 54 reactors were built. Political will and technological progress went hand in hand.

Today, on the contrary, to paraphrase venture capitalist Peter Thiel, politics is in a race with technology. And politics is winning, to the detriment of the French. This winter they will have to pick up the bill for impractical fantasies and force-fed green transition.

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