Across the European Union, factories in energy-intensive sectors like chemicals, steel, and fertilizers are closing or reducing output, a trend analysts link to structurally higher energy costs following the 2022 crisis. This industrial decline persists despite a fall in wholesale gas prices from their 2022 peak, prompting a debate over the true cost of Europe’s energy transition.
Europe’s shift away from Russian pipeline gas to more expensive liquefied natural gas (LNG) has increased the “energy cost of energy”—the amount of energy required to secure new supplies. The process of liquefaction, shipping, and regasification consumes significant energy, reducing net system efficiency. While policymakers have focused on lowering headline prices through mechanisms like price caps, subsidies, and windfall taxes, critics argue these measures redistribute costs rather than reduce the fundamental system-level burden.
A 2024 analysis by think tank Bruegel noted that falling wholesale prices, driven by cheaper marginal generation from renewables, do not reflect rising fixed costs for grids, storage, and renewables support, which are often socialized via levies on consumer bills. This separation allows prices to appear stable while total system obligations grow. Economists warning about this dynamic point to “energy cost of energy” (ECoE) as a metric for the physical resources diverted to secure energy, which directly impacts the economic surplus available for other sectors.
The outcome, observers note, is demand destruction within heavy industry as firms relocate or scale back. Competitiveness is declining not solely due to policy missteps but because a larger share of economic output is now dedicated to obtaining energy. This challenge requires confronting the physical limits of the energy system, rather than solely adjusting financial or policy levers.
The situation raises a long-term question for European industry: whether current administrative approaches can reverse the trend without addressing the underlying thermodynamic and resource constraints of a more expensive, less efficient energy mix.
