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Not really about the economics, is it?

30 Nov 2022 | News Roundup

The headline “Germany Sets Windfall Tax at 90% for Clean Power Generators”, to fund subsidies to beleaguered energy consumers, is the sort of news that prompts people to growl things like “If you need more evidence that climate is all about communism”. But that assessment may be giving it too much credit, since the communists at least tried to be systematic in their thinking (their problem was reasoning consistently from consistently deranged premises). The greens tried to ram through an “Energiewende” on the grounds that since alternative fuels are so much cheaper than the traditional kind they must therefore be subsidized heavily while hydrocarbons are taxed or banned. No, wait, that’s not the punchline. It’s the setup. The punchline is that once you’ve managed to make energy so scarce and expensive that even the new kind is making money, then you tax it into the ground and give subsidies for the fossil kind. It’s not a plot, it’s stupidity.

As Bloomberg reports:

“The [German] government is planning to skim earnings above €130 a megawatt-hour for solar, wind and nuclear, according to a draft law seen by Bloomberg News. Politicians are trying to reclaim some of the profits that companies like RWE AG are making from high power prices.”

And why? Because their own policies have made energy prohibitively expensive by accident. As the story explains:

“Germany set out a €54 billion package on November 22 that puts a cap on gas prices for companies and households from next year with more earmarked for electricity. The aid for bills will be partly financed by the windfall tax, from which the government expects to raise a double-digit billion-euro amount, according to officials.”

So it’s pretty aggressive. But do not assume that some cabal somewhere has plotted it all out and is now executing it like a Jason Bourne movie where the villains seem always to be three steps ahead of the protagonist. Actually it’s the policymakers who are reeling from crisis to crisis as everything they do misfires. Including, to their astonishment, making energy expensive and then trying to make it affordable by making it even more expensive.

Also encouraging people to invest in something and when it turns out to be profitable for whatever reason, including misguided policy, you call it a “windfall” instead of intelligent entrepreneurship and punish rather than rewarding it. Then wonder why investment is fleeing to less overtly insane jurisdictions.

Reuters noted that “The draft said in order to avoid hurting new plant investment security margins and deductions would be allowed and wholesale price setting would be left intact.” But you can’t both steal people’s profits and not steal them and entrepreneurs will know which is happening.

There’s something kind of strange about the details of this story. Apparently under this draft law which, typically in the modern world, is over 200 pages long so nobody really knows what’s in it let alone what it will do:

“The windfall tax will be applied to electricity producers based on the fuel they use. Lignite plants will be taxed on earnings above €82 a megawatt hour and oil plants above €280. The measures will apply for 10 months, backdated to start of September 2022, until end June 2023 and could be extended to end of 2024.”

Nothing like retroactive measures to build confidence in the rule of law, is there? As Finance Minister Christian Linder conceded to journalists about a parallel measure announced two days later, “This requirement from European law leads us onto thin ice in German tax law but it must be implemented”. So German tax law and the constitution must be consigned to the same flames as the economics textbooks.

If you’re trying to unravel the logic here, the differential levies on different power sources might have you thinking that if you’re a climate alarmist it makes sense to tax coal more heavily than solar. But it’s more than a bit difficult to grasp taxing solar more heavily than oil.

Or not, if you make the “what you see is what you get” assumption that these people are just as goofy about supply and demand as they are about matters from Equilibrium Climate Sensitivity to the existence of the Medieval Warm Period. To which the only real alternative explanation is that they’re plotting… against themselves. Successfully.

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