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Every year I summarise the previous year’s energy news, and every year I make some observation about how interesting and unpredictable the market is. 2024 has been no different, but this year, politics has had a bigger impact than before, and one which probably was not easily predictable except by the most plugged in analysts this time last year.
In my earlier blog, I described the amusing attempts made by ChatGPT to summarise the year in my voice, but its final attempt was more credible, and I agree with this statement it made:
“The interplay of geopolitical conflicts, significant political shifts in the UK, Europe, and the United States, and intensifying economic pressures has created a challenging environment for policymakers, businesses, and consumers. Against this backdrop, energy markets have become a battleground where security, affordability, and sustainability collide.”
This year we began to see energy and economic policy colliding with different results in different regions. In the UK, Labour is pushing for accelerated net zero policies while its recent Budget has squeezed its financial headroom and pushed the country into recession. In the US, the incoming Trump Administration is set to focus on economic growth driven by cheap domestic production of oil and gas, while in Europe, high energy costs are driving de-industrialisation and concerns over both affordability and the personal impact of climate policies saw voters in many countries reject the status quo on energy.
The rightward lurch just about everywhere except the UK and France is not surprising except perhaps in its extent and timing. I personally was unsurprised by Donald Trump’s victory in the US election but the margin was unexpected. Labour’s victory in the UK was also unexpected, but this was not a contrarian shift to the political left, but rather a rejection of the status quo. European elections represented more of a rejection of left-wing policies, including energy policies, and it will be interesting to see what happens in the upcoming German elections – the prospect of Volkswagen closing German factories is seismic and may have a real impact on the vote.
A political mess in the UK with an unpopular new Government pushing disastrous energy policies
The UK saw what on the face of it was an opposite trend, but in reality was simply an expression of exhaustion with the status quo by the electorate. The huge Parliamentary majority won by the Labour Party disguised the lowest share of the popular vote in any post-war government. Over 3 million people signed a petition asking for a new General Election – which will be debated in Parliament on 6 January – with recent polls suggesting Labour would lose 200 seats were a new vote to be held now. This implies that the UK is not bucking the trend with a leftward swing.
The reasons behind the Government’s unpopularity are primarily a budget which is widely seen as breaking manifesto promises. Labour promised not to raise taxes for “working people” but has piled them on to businesses, clearly adopting a narrow definition of who “working people” are, and failing to understand that these taxes will increase the costs of employing people which will be reflected in lower private sector pay rises, and lower employment overall. The VAT raid on private schools is widely seen as vindictive and may yet backfire as some parts of the country will be unable to accommodate the numbers of children needing places in state schools this January. It is likely that the coming weeks will see a slew of “sad-face” newspaper reports of such children which will be very damaging to the Government.
At the same time, the country has now seen two consecutive quarters of negative GDP growth and an expectation that recession is coming (although technically it is already here, since two consecutive quarters of economic growth is the conventional definition of recession). This will further damage the Government, but with such a large majority in Parliament, Labour can easily keep going until the next General Election which is due in 2029. The only reason this would change would be if Labour MPs voted against their own Government to call an earlier election, which would be like turkeys voting for Christmas. Widespread public disorder might trigger such a vote, but Brits rarely engage in disorder on the scale that would be needed – at most there can be a few riots during periods of hot weather, but rain, and a general dis-interest, generally make such disorder short-lived. There’s a reason there has never been a French-style revolution in the UK.
Labour campaigned on an acceleration of the transition to net zero, claiming that its policies would save every household £300 per year on their energy bills. Since the Election, it has launched Great British Energy, a publicly owned energy company, whose purpose remains confused. Proponents argue it will drive investment and lower consumer costs, while critics question its financial viability, and indeed the types of investment in which it will engage, since Labour promises its investments will generate positive returns for tax-payers. A public investment vehicle might make sense for investing in innovative technologies that otherwise may struggle to attract capital, but such investments would be risky and may lose money. Investments guaranteed to generate positive returns will probably attract capital without Government intervention, rendering Great British Energy obsolete.
The launch of Clean Power 2030, Labour’s controversial plan for a net zero power system by 2030, well 95% of the time anyway, has attracted significant criticism. Almost nobody inside the UK energy industry believes it is achievable, and the National Energy System Operator (“NESO”) is facing criticism for failing to be explicit about the low likelihood of success. Yes, the report points out that GB would need to build twice as much infrastructure in the next five years as it did in the past ten, but fails to then say that this is not likely to happen. Nor is the idea that 35 GW of gas-fired generation will be put into reserve in the next five years – this would be both economically and technically challenging.
Elsewhere, energy prices remain elevated compared to pre-crisis levels, straining household budgets, and Labour’s commitment to phasing out new oil and gas exploration has sparked concerns about energy security, and attracted the opposition of powerful unions.
A new Trump Administration will prioritise cheap fossil fuel energy as a driver of economic growth
There are two main reasons in my view that explain tghe US election result – the first was the lack of a credible opponent firstly in the clearly senile Joe Biden, and secondly in the clearly incompetent Kamala Harris. Had Ms Harris been remotely competent, she would have already been President, replacing the aging incumbent. The second reason was that people are getting sick of “wokeness”.
Many so-called progressive states have seen standards of living fall and rates of crime rise – in California this has gone far enough to result in measurable de-population, with many moving to Texas, which is a rather extreme move from a political standpoint. Rightly or wrongly, Mr Trump’s promise to “Make America Great Again” resonates with many, and I feel that the Democrats failed to appreciate the “Again” aspect of the slogan – Mr Trump invited voters to believe he would herald the return to a more prosperous past, which is particularly attractive in the “rust-belt” where failing industry and an influx of cheap immigrant labour has led to anxiety about jobs.
“So much starts with energy. And remember, we have more liquid gold under our feet than any other country by far. We are a nation that has the opportunity to make an absolute fortune with its energy. We have it and China doesn’t. Under the Trump administration just three and a half years ago, we were energy independent. But soon we will actually be better than that. We will be energy dominant and supply not only ourselves, but we will supply the rest of the world,”
– Donald Trump, Republican Candidate for the 2024 US Presidential Election, Convention Speech
Mr Trump is long catchy slogans and often says outrageous and objectionable things. But what he does tends to be far more nuanced than what he says. On energy, he campaigned on the promise of “drill, baby, drill”, which sounds like a resounding endorsement of fossil fuels, and indeed, he has historically supported the production of cheap fossil energy in the US, which is unquestionably positive for the US economy and will allow it to compete with cheap energy in China. It is interesting that Mr Biden, for all of his pro-renewables efforts, oversaw a period of the highest oil production in US history, or the history of any other country for that matter. Mr Trump wants to grow the US economy and, not unreasonably, sees cheap energy as a key means of achieving this.
“The trajectory of the U.S. energy transition is now influenced by a broader array of stakeholders, including private sector investors, state governments, and international market forces. These entities are likely to continue prioritizing sustainability and clean energy, irrespective of federal policy changes,”
– Rehaan Aleem Shiledar, energy analyst at GlobalData
Mr Trump is likely to repeal climate legislation and withdraw the US from the Paris Agreement (again), but his policies will, to a certain degree, be reversed at the state level by local initiatives. However, states themselves may be stymied by market realities – the growth in energy demand for AI is already driving technology companies to sign supply agreements with fossil fuel generators. Of course, tech firms are doing deals for nuclear power and renewable generation, but they need 24/7/365 availability for which intermittent renewables are ill-suited. While some tech companies such as Amazon are using creative carbon accounting to make clean energy claims, others such as Google acknowledge that the road to net zero in tech is going to be far harder than previously thought.
“As employees, we’re outraged with Amazon’s misleading announcement today that “Amazon meets 100% renewable energy goal 7 years early.” We estimate that in the US, Amazon actually only gets 22% renewable energy from the local utilities where its data centres operate,”
– Amazon Employees for Climate Justice on X (twitter)
Mr Trump has said he intends to repeal parts of the Inflation Reduction Act (“IRA”), although some aspects benefitting Republican states may be retained. Sectors such as off-shore wind which rely on subsidies are likely to be hit, adversely impacting European businesses invested in the sector, many of which rushed to deploy capital to take advantage of the tax credits available under the IRA.
This may limit the ability of the US to attract such investment in future if global businesses lose money through the withdrawal of subsidies or tax credits (although they should remember to apply caveat emptor since things which seem too good to be true often are). The IRA, which includes tax credits worth between US$ 500 billion and US$ 1 trillion for clean energy projects, has been described by Mr Trump as wasteful and inefficient. With over 90% of IRA-related funds still unallocated, they are vulnerable to redirection under the Trump Administration. However, US solar and wind industries continued to grow steadily during Mr Trump’s first term even as federal policies prioritised fossil fuels.
Mr Trump has committed to changing the permitting process for fossil fuels and nuclear energy, removing red tape and ending current delays in federal drilling permits and leases for oil and gas production. The “pause” on authorisations for LNG export projects is expected to be lifted. The first Trump Administration attempted similar energy-focused emergency permitting reforms, but met opposition – however, with both houses of Congress under Republican control, the use of emergency powers to accelerate energy production may succeed this time around.
Right-wing populism in Europe may change the direction of climate policy
Elections to the European Parliament were held in June, which saw significant gains by right wing and far-right parties. The elections revealed growing discontent with EU energy transition policies, as high energy costs and the impact of de-industrialisation created voter concern – the Green group shrank from 10% to 7% of the Parliament. Far-right parties announced they would contest the implementation of Europe’s Green Deal – the set of climate, energy, transport and taxation policies designed to ensure the EU meets its commitment to reach net zero carbon emissions by 2050. Both Poland’s opposition Law and Justice party and Flemish nationalist Flemish Interest party opposed the Green Deal during their campaigns for the European Parliamentary elections.
The voter traction these far-right parties are seeing is prompting centrist parties to adjust their own positions, for example, the European People’s Party’s (“EPP”) manifesto announced that it would oppose the planned phase-out of internal combustion engines in cars by 2035. The EPP has recently sought closer alignment with the far right European Conservatives and Reformists (“ECR”), led by Italian Prime Minister Giorgia Meloni, which strongly opposes the more ambitious carbon reduction target of 90% by 2040 that the European Commission proposed in February 2024.
However, the Centre for European Reform believes it “would be simplistic to see the elections as a death knell for the Green Deal”, because much relevant legislation has already been adopted, so while it might be weakened, but it is probably too deeply entrenched to be easily undone. But when it comes to new green legislation, things look “bleak”. The Centre for European Reform does not attribute this to the 2024 election since the EU’s climate agenda has been struggling for some time (although presumably that is just because the elections only happened this year and not earlier – they are every 5 years). In recent months, the EPP, EC President Ursula von der Leyen’s own political group, has increasingly turned against climate legislation – for example the it watered down the Commission’s proposed Nature Restoration Law and then tried to stop it entirely following protests from farmers.
The right-ward swing in Europe was not unexpected. Last year, the far-right secured a victory in the Dutch parliamentary elections, on a platform of dismantling all efforts to stop climate change. About a quarter of Dutch voters backed Geert Wilders’ Freedom Party (“PVV”), whose policies include exiting the Paris climate accord, repealing domestic green legislation, and abolishing measures to reduce greenhouse-gas emissions. The PVV will now form part of a coalition government although the centrist People’s Party for Freedom and Democracy (“VVD”) will lead the climate and energy ministry.
About a quarter (24%) of Dutch voters considered climate and sustainability to be one of the most important issues the election, putting climate in fifth place after subjects such as the cost of living and inflation (35%), healthcare (31%), immigration and asylum (29%) and the housing market (28%), according to an Ipsos poll. Climate and nitrogen are among the most polarising issues, with 40% of voters believing the Netherlands should not have a leading role in climate policy compared to other countries, while around a quarter think it should (27%).
Unlike in the UK where few people have heard of such policies, the issues of nitrogen emissions has been deeply divisive in the Netherlands and propelled the Farmers’ Citizen Movement from formation in 2019 to being the largest party in the Dutch Senate in the 2023 elections and now a member of the new coalition government. 30% of Dutch voters believe that livestock numbers should be greatly limited to reduce nitrogen emissions, while 40% strongly disagree.
In early November the German Government collapsed with new elections being called for February. The root of Germany’s political crisis is the collapse of its economic model – for decades Germany relied on cheap Russian gas and cheap consumer goods imported from China, as well as high-value exports particularly in the automotive sector. All backed be the security provided by the US through NATO. Germany’s addiction to cheap Russian gas was prompted in part by its decision to reject nuclear power, leaving it with few alternatives to imported energy.
The collapse of the Government came just months after populist-right Alternative for Germany, known as the AfD, won Thuringia’s state election, marking the first victory of a nationalist party in a German state election since 1945. The AfD wants to reinstate nuclear power, end the green transition, and cease economic sanctions against Russia to get its hands on cheap gas again.
With Russian energy no longer an option, and the prospect of a new Trump Administration that wants Europe to pay its own way on security, the German model is no longer workable. The country is in recession – its economy is expected to shrink by 0.2% in 2024 – the second consecutive year of contraction.
The Zeitenwende, (turning point) announced by Chancellor Olaf Scholz in the wake of Russia’s invasion of Ukraine, should have signalled a major change in both foreign and economic policy, but little changed for either. Germany has ended its reliance on Russian gas and the country is Ukraine’s second largest donor of military aid after the US, while accepting the most Ukrainian refugees. But the German Government failed to make the necessary commitments to defence spending, with the draft budget for 2025 showing defence spending as well as support for Ukraine falling.
Germany’s economic model has also been challenged by falling exports to China, which is increasingly an industrial competitor. The important German car industry is shedding jobs and closing factories as orders slump, with Volkswagen, the country’s largest car manufacturer, announcing plant closures and layoffs as profit margins shrink in light of high energy and labour costs.
Volkswagen has never closed a factory in Germany in its 87-year history, and the reaction to the plans was significant. In late December, a deal was reached with unions to avoid closures and mass strikes – the deal includes “socially responsible” job losses of over 35,000 German factory workers by 2030, and a reduction in production of 734,000 units. But politically, the damage was done.
“The crisis at VW has become a central issue in German public debate and presents a serious challenge to the government. It is one of several developments in recent months highlighting the poor state of the German economy and its various sectors. Due to VW’s economic and symbolic importance as the global leader and the pride of the German economy, as well as to the unprecedented nature of the measures currently being considered, the brand’s difficulties are having a profound impact on German voters,”
– Michał Kędzierski, Aleksandra Kozaczyńska, Centre for Eastern Studies
Cheap Chinese EVs and new energy technologies are competing with Germany’s most powerful companies (which is also a security risk although it is unclear to what extent German politicians are willing to accept this fact – while several European countries have removed equipment made by Chinese telecoms giant Huawei from their communications infrastructure, the company holds a 59% share of Germany’s 5G network).
The break-up of the ruling coalition leaves the country with a raft of unfinished policy proposals that risk stagnation until new elections are held in February and a new government is formed. This includes urgent matters such as the 2025 budget, without which many climate, energy, and industry support programmes could be left in the balance for months, unless a minority government manages to secure enough parliamentary support to get them passed.
France bucked the EU trend for right-wing electoral victories, with the New Popular Front, a broad left-wing coalition, securing a narrow victory against President Emmanuel Macron’s centrists and the populist-right National Front. However the country is essentially bankrupt, with a 6% budget deficit.
Geopolitical shocks and high energy prices driving de-industrialisation
The ongoing war in Ukraine remains a driving factor in energy markets. Russia’s recent decision to terminate gas exports to Europe through Ukraine following the expiry of the gas transit agreement further stresses Europe’s energy balances, although the decision was hardly a surprise and must have been long since priced in. The EU has shown remarkable adaptability in the face of the crisis, with a major build-out of LNG regasification facilities and the securing of new import contracts with the US and Qatar in particular. Conflict in the Middle East added further uncertainty, with key oil and gas transit routes, particularly the Strait of Hormuz, under threat and cargoes opting to take the longer route round the Cape of Good Hope.
Although markets have largely absorbed these shocks, the prospect of supply disruptions creates price volatility. High European energy costs have eroded industrial competitiveness, particularly in energy-intensive sectors such as chemicals, steel, and glass manufacturing, exacerbating fears of de-industrialisation, with businesses relocating to regions with lower energy costs. Over 850,000 manufacturing jobs have been lost in Europe since the pandemic.
“Energy prices are now a headwind. There’s no good reason to produce certain things in Europe from a business perspective,”
– Olivier Rakau, chief German economist at Oxford Economics
The German chemical sector, has been particularly hard hit, with national industrial champions such as BASF announcing plans to scale back European operations, citing uncompetitive energy costs and regulatory burdens. It has largely moved its German manufacturing operations to China. While policy-makers like to claim that cheap renewable energy is the solution, it is ironic that 95% of European solar panels are currently being supplied by China (and of course, solar panels only work when it’s sunny and never at night, which is a problem for industrial processes which need to run 24/7).
2024 was a year of economic contraction for Europe’s technology industries, with a combined downturn of 4.8% across the metal technology, electrical engineering, electronics, and ICT and mechanical engineering sectors. The outlook for 2025 is bleak, with a further 0.5% contraction in real turnover expected by trade body Orgalim which represents 770,000 companies in Europe’s manufacturing sector.
“Orgalim’s Autumn 2024 Economics & Statistics report presents a sobering view of the challenges facing Europe’s technology industries. The combination of weak demand, burdensome overregulation, high energy prices and structural labour issues continues to hinder growth. Without decisive action from policymakers, we will likely face a third consecutive year of production decline in 2025,”
– Orgalim
The steel industry is facing similar pressures – in September the last blast furnace in operation at the Port Talbot steelworks closed. This was part of a re-structuring that will see the loss of 2,800 jobs. Labour’s proposed industrial strategy includes measures to support green steel production, but questions remain about funding and feasibility. Without significant government intervention, the risk of further closures remains.
“The clock has already struck midnight. How many more plant closures, job losses, and stalled decarbonisation projects will it take before the EU and Member States wake up? Europe’s de-industrialisation is accelerating, with steel, automotive, renewables, and batteries all on the brink. Without immediate action, Europe’s manufacturing base will disappear. We urge the new European Commission and EU governments to stop this bloodshed and adopt swift measures on trade, CBAM, energy and steel scrap, while working on a structural solution to preserve our industry’s competitiveness,”
– Axel Eggert, Director General of the European Steel Association (EUROFER)
According to EUROFER, global steel overcapacity reached 551 million tonnes in 2023 – four times the EU’s annual steel production. The OECD projects an additional 157 million tonnes of carbon-intensive, non-EU steel-making capacity by 2026. EU steel production has plummeted by 34 million tonnes since 2018, falling to just 126 million tonnes in 2023, hitting its lowest level since 1960, when EUROFER started keeping records. Imports now account for 27% of the EU market. Almost 100,000 steel jobs in the EU have been lost in the past 15 years, with more cuts expected. Capacity utilisation in the EU has sunk to an unsustainable 60%.
Proposed solutions to the problems facing European energy-intensive industries include the introduction of a Carbon Border Adjustment Mechanism (“CBAM”) which would apply a carbon tax to good imported from countries using carbon-intensive production methods. While that would certainly level the playing field for European manufacturers, it will make the cost of just about all goods more expensive, with the resulting inflationary pressures.
The current dominance of Chinese solar panels and electric cars in the European markets indicates that European consumers will not be pleased to see costs go up – they currently have a choice to buy more expensive, greener European products and opt not to. (Although there is a risk that goods at the end of the value chain may not be covered, eg fertilisers will be included in the CBAM but not food, so people may elect to shift food production outside Europe to avoid the impact of the tax.)
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2024 has been a difficult year in the energy markets, with the impact of high energy prices on industry spilling over into the political sphere. These entirely predictable results of European energy policies in addition to the prospect of personal lifestyle changes such as boiler and conventional car bans, are leading to a growing net zero backlash. The German elections will be pivotal when it comes to European energy policy and whether the Green Deal can endure or if it will need some radical reform.
The Trump Administration will also be significant for energy markets. The US economy will continue to out-perform, and European industrial woes may be exacerbated by threatened tariffs on goods exported to the US. It will be increasingly difficult for European manufacturers to compete against cheap energy in both the US and China, and it is questionable whether the Continent will be able to afford its CBAM which is more likely to be delayed than accelerated. Saving European manufacturing will come, not from the CBAM, but from making European energy cheaper. This might mean more tax-intensive subsidies, or it may mean a relaxation of net zero ambitions, the latter being more likely in the context of the growing popularity of far-right political parties.
2024 was the year in which energy cost concerns really began to feed into mainstream politics, however the policy implications of that are yet to be seen.
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