The Re-Charge of the Light Brigade

These were the parting words of a letter written by INEOS founder Sir Jim Ratcliffe to the European Commission back in 2019.

What Sir Jim was warning about, what he’d seen from his front row seat as the head of a major UK chemicals company, was the deindustrialisation of Europe. The kneecapping of The Old Continent’s productive heartlands by its own environmental policies.

The birthplace of the steam engine, the printing press, and Nikolai Tesla. The home of Mercedes, Bosch, and Bayer. The satanic mills. Sacrificed from within at the altar of net zero.

Four years later and his words - which should be ringing in the ears of every politician, investor, and foreman from Budapest to Brussels - seem absurdly prescient as the Bundestag prepares to roll out a $28bn rescue package for Germany’s once famous heavy industry that’s collapsing under the weight of unbearable energy prices.

To make matters worse, the environment, in whose name this economic and social pain is borne, is no better off as industries flee to foreign lands where standards are far more lax.  

So where did it all go wrong for Europe’s engine room?

A grave new world

Europe’s heavy industry, like any heavy industry, binges on energy. Blast furnaces work at 1300°C, factories are full of electrified robots, diesel powered trucks connect all the dots. The harnessing and application of energy enables businesses to convert materials from one form into another and to build their products and our world.

Look around you at all the straight lines and right angles. They don’t appear naturally. Order has been imposed on your environment by the channeling of energy though machines.

Affordable energy is the lifeblood of industry.

In Europe, the backbone of this cheap energy has long been Russian gas. Through thick and thin, even in the height of the cold war, Siberian molecules flowed across the East European Plain and into factories and power stations across the continent. It made us rich. It kept us warm.

But as is often the case when we have too much of a good thing for too long, us Europeans started to take this energy fountain for granted. Like Augustus Gloop gorging on chocolate, we got spoiled, we got arrogant.

We forgot how far we’d come, and how we’d come.

In our hubris and green self-righteousness, we began to undermine our critical energy system by believing we could reorient it to run on weather-dependent technologies. Germany boldly declared “Energiewende” back in 2000, a wholesale transformation of its mighty economy to ween it off the same hydrocarbons that built it and that run through its veins.  

As investment into intermittent wind and solar gathered pace in the 2000s and 2010s, power prices started to rise (“renewables” are capacity additions, their unreliability means they can’t replace existing generators so your infrastructure, and costs, swell). Environmental policy after environmental policy piled up the costs for businesses, from the significant: carbon prices, to the trivial: banning of plastic straws.

By 2019, as Sir Jim warned, Europe’s industrial economy was already spluttering and heading for the hospice. Or for Beijing.

And then came Putin.

All of a sudden, Europe’s entire economic system was being upended as fast as Russian T-72 tanks closed in on Kiev. The era of cheap gas ceased almost overnight and Europe, already weakened by its own punitive energy policies, lurched into a torrid new economic reality it was entirely unprepared for. 

Politicians conveniently scapegoat the war in Ukraine for our economic woes, but the writing was already on the wall. They put it there. The invasion was the iron rod that broke the frail mouse’s back.

Hasta la vista

Globalization is a double-edged sword for enterprise. One blade opens up huge new markets, labor forces, and supply chains. The other throws you into the arena with big bad competitors from places you’ve never heard of, and who play by different rules and were dealt different cards.

As Europe handicaps itself with some of the highest industrial energy prices in the world, it’s finding itself at the sharp end of the wrong edge. Competition in Asia, powered by coal, cares little for expensive environmental policy. Industry in the US is thriving on the ocean of cheap natural gas under its feet.

So what do you do if you build widgets in the Rhineland but your products are now too dear to compete with those from Qungzhou? Maybe you shut down entirely, lay off your staff, and reminisce about the good times.

Or, if you’re a multinational with quarterly reports and annual bonuses to focus your mind, you opt for the “if you can’t beat them join them” approach.

In 2022, BASF, a German industrial flag-bearer, announced it was “permanently downsizing” operations in Europe and investing more in China, blaming “the significant increase in natural gas and power prices”. Earlier in November, British Steel announced it was shutting down its blast furnaces at the cost of 2,000 jobs, saying it was the only way it could hit net-zero goals. Norwegian fertilizer giant Yara has slashed its output of ammonia due to “record high” energy prices in Europe. I could go on and on with examples, but you get the point.

Big businesses are voting with their wallets and their feet by leaving the continent altogether:

“Are you quite mad? Nobody, but nobody seriously invests in Europe anymore”, is how Ratcliffe’s letter starts…

Out of sight, out of mind

When these businesses pack their bags and head to Heathrow, their carbon emissions don’t disappear.

Maybe Europe can scrape them off its ledger and sleep better at night because they’re out of sight but our accounting matters not to the environment. A ton of CO2 emitted in London has the same impact as a ton emitted in Lahore.

Except in Lahore, it’s gonna be a lot more than just one ton. Asia is fueled by cheap dirty coal and has looser environmental standards across all criteria, not just carbon. So when a multinational moves operations from Italy to Indonesia, emissions will invariably climb. The environment will suffer.

The green lobby has scored many an own goal but this is perhaps its most dismal blunder.

So Europe loses jobs, taxes, competitiveness, progress, vigour, wealth, experience, prestige. All the while, the environment gets dirtier. We have been blindly chasing decarbonisation but instead we’re getting deindustrialisation.  

“We’re leading by example”, the realty-blind environmentalists will tell you.

No. It’s not leading if no one’s following.

Can you short a continent?

Germany has kindly shown the rest of us what not to do. They’re the battered proof of what happens when physics and reality eventually catch up with ideology and dogma.

It’s not an exaggeration to say that Energiewende has been the biggest domestic policy blunder of the 21^st century and the Germans will suffer its consequences for generations.

But, rather than heed this cautionary tale, other European leaders seem intent on following Germany off the cliff. The UK’s Labour party, which will almost certainly come to power in 2025, has declared it will strive for the impossible task of making the UK’s power system 100% zero-carbon by 2030. That they’ll even try is a terrifying prospect that should make you shudder.

But even when the current crop of politicians are swept out by the inevitable, eventual popular backlash, there will be no quick fix. Once multi-million dollar factories shut down, they aren’t coming back anytime soon. Energy infrastructure investments are decades-long commitments. All that nous, expertise, and education can’t be relearned overnight.

It may sound dramatic but, like the light cavalry that charged Russian gunners at the Battle of Balaclava, Europe’s industrial sector is lost.

As the meme goes, we fucked around with our energy system and now we’re finding out. Our best hope is to double down on energy-lite services and technology, and build our future economies off our brains rather than the industrial brawn that has served us so well in the 20^th century.

I can’t tell you how wrong I hope I am.

Thanks for reading. 🛢️⚡⚛️