Reality is unforgiving of utopian delusions

Whenever government becomes closely involved in the regulation of a market and also becomes closely involved in price fixing, either via direct subsidies, indirect tax subsidies or preferential regulatory burdens, it becomes exceptionally difficult to discern reality.  Government can seem a reality distortion generator.

In this instance, the issues are related to the broader ESG objective of Net Zero CO2.  A foolish and expensive objective with no clear strategic benefit in a meaningful time frame based on speculative theories and even weaker data.  The two big manifestations are 1) an effort to convert national power grids from coal and gas to renewables such as solar and wind and 2) the objective of phasing out internal combustion engines and replacing them with electric vehicles.

The grid issue will perhaps resolve earlier simply because from an economic and engineering perspective you cannot maintain a safe, reliable, cheap grid based on intermittent and poorly predictable power sources such as solar and wind.

And yet every day, every week, you see mainstream media articles preaching either that the cost of renewable generation is falling and/or that the cost of renewable energy is less than that of coal and gas.  The first is almost certainly true and the second is almost certainly false.

The challenge is that the nominal price of energy has to be filtered through the distorting effect of governmental subsidies and regulations.  I think the absolute cost of solar and wind, stripped of all subsidies direct and indirect and without the regulatory benefits intended to encourage those sources, would be materially more expensive than coal and gas.

The same is true for Electric Vehicles (EV).  Mainstream media trumpet increasing unit sales and market share.  But they never address cost and subsidies.  I think the price supports are very high and the EVs, without those supports, would not be viable, or only marginally viable.  

That position seems supported by what is happening in Germany right now.

From EV Sales Run Out of Juice in Europe as Germans Tighten Belts by William Boston.  The subheading is Steep drop in electric sales in Germany was main factor in sending EU sales down for the first time in 16 months.  

BERLIN—Germany’s new-car market went into a free fall in December, led by a near halving of new electric-vehicle sales, pulling the sale of new EVs in the broader European Union down for the first time since early 2020.

Automotive executives in Germany have been warning about an approaching cliff in EV sales for months, blaming the impending gloom on a combination of high manufacturing costs at home and a government decision to end incentives for consumers.

The European Automobile Manufacturers’ Association, known as ACEA, said Thursday that sales of new EVs collapsed in Germany last month, when fully electric-car sales plunged 48% and plug-in hybrid sales tumbled 74%. 

"A decision to end incentives."  I think we are going to see a lot of that in many countries in the next three years.  The hyperbole will deflate and the reckless hallucinatory policies will dissipate.  Reality is unforgiving of utopian delusions.