M. Dubnikovas: “Tax Breaks Do Not Solve Energy Problems but Only Delay the Necessary Solutions”

M. Dubnikovas: “Tax Breaks Do Not Solve Energy Problems but Only Delay the Necessary Solutions”

Sukurta: 10 February 2022

foto2021 DubnikovasThe recent surge in energy prices for residents and businesses is likely just a part of an even bigger problem. The rise in prices is influenced by many factors, but one of them is being increasingly discussed in energy shortages. On Vilnius University (VU) podcast, Mokslas be Pamokslų, Marius Dubnikovas, an economist and Partnership Associate Professor at VU Business School, discusses why there are energy shortages in the world and what actions need to be taken immediately to prevent the situation from escalating.

What will the energy future look like?

Energy consumption is projected to increase by 60% by 2023. This is due not only to the world’s growing population but also to the states phasing out of fossil fuels and transitioning to electrical devices. According to M. Dubnikovas, the situation is not yet dramatic but future challenges call for preparation. “The direction is clear - Lithuania must strive for energy independence and invest in the green technologies we are already familiar with, solar and wind power plants. Another option is to produce hydrogen gas from excess energy and then reuse it for electricity generation,” the economist listed alternative measures.

Asked what will happen to nuclear energy, which the European Union seems to recognize as green, M. Dubnikovas said that the love for nuclear fuel is a bit forced because, naturally, when electricity prices reach €500 per megawatt-hour, it makes one think about where to get that energy. “Today, we are facing a huge risk to do with gas supplies because relations with our eastern neighbors are not the best, which is also driving up prices. Therefore, we are forced to turn to nuclear energy, which seems to have many advantages: it does not emit CO2, is consistent (unlike renewables), but also has a huge disadvantage: utilization and closure, which requires huge costs.”

Nevertheless, the expert stressed that nuclear energy will remain in our environment for a long time to come and will have its place as a source of balance and leveling out inequalities, as renewables are not stable.

The direction is energy independence

Naturally, electricity is a cleaner, easier, faster way to achieve the goals and the future will revolve around it, but there are considerable challenges involved. According to M. Dubnikovas, in terms of electric cars, the infrastructure in Lithuania is not yet adapted and developed, there are very few charging stations. The British have a simple solution, electric car charging stations are mounted on light poles. Lithuania will also have to go through this stage.

In general, the demand for electricity in Lithuania will also increase, and we must start making decisions on how to increase its production in our country as today over 70% of electricity is imported.
“We must realize that the surrounding countries will face the same challenges, they will need more and more electricity, electricity competition may increase; therefore, Lithuania should be concerned about and facilitate the implementation of electricity generation,” M. Dubnikovas said.

According to him, one way could be the installation of wind farms by the sea. On the other hand, with the current high energy prices, residents must consider installing their own solar power plants or purchasing remote power plants. The bad news is that in the future, energy will be expensive, maybe more expensive than it is now, and whoever stays energetically dependent on someone else may face problems.

“Of course, electricity from solar energy won’t be that cheap either, its cost will depend on the market prices. But if we install solar cells, even though electricity will be expensive, we will not overpay and, ideally, produce as much of it as we consume,” Marius Dubnikovas explained.

According to him, if Lithuania, especially businesses, could produce energy not only for themselves but also for sale, we would become completely independent like Norwegians when it comes to the rise in oil prices, which only makes them happy because they do not consume oil, they only sell it.

Tax breaks mean burying one’s head in the sand

The economist regrets that Lithuania is moving from traditional to green energy too slowly. It lags behind Germany 10 times in terms of installed green energy per capita. “The pace is too slow, and while there is a debate today about reducing taxes on heating and energy, there is certainly no need to do so. If we choose to cut taxes to temporarily halt the rise in prices, it will be like burying one’s head in the sand. All breaks only delay the necessary solutions. “If we fail to do our homework today, we will suffer the same issues even 10 years later,” he is convinced.

He suggests that the better solution would be investing the money collected from taxes in building energy infrastructure. Sooner or later, it will have to be built. Today’s high energy prices should be the biggest motivation to start acting right now instead of waiting until there’s no other way.

And people, especially companies, can already take the first steps. M. Dubnikovas assures that as soon as Lithuanians see the economic benefits of investment, solar panels will quickly appear on every roof and a greater breakthrough will take place.

According to the economist, if we do nothing, we could face even the most life-threatening situations that existed in China when the country reached a critical point of electricity shortage and the system was shut down. One can only imagine how a long-term situation like that would affect, for example, hospitals. During the winter, Europe was also close to situations like this. Due to energy shortages, there were claims that if the temperatures at the beginning of January had dropped by a couple of degrees, some states would also have experienced a blackout.

It seems completely unthinkable that the old continent could run out of energy, but there are shortages thereof. Therefore, those who can produce green energy for themselves and for sale could become a leader in the region. “This is more difficult to do for Poland, which still produces 60% of its energy from the coal industry, and closing it would cause many problems. Meanwhile, Lithuania does not have any electricity industry that should be closed, so we can create a new one more easily.”

The deeper consequences are labor shortages

To meet the growing energy demand, it is not enough just to invest in innovations or new technologies or the new generation of power plants. We must also consider additional labor, which Lithuania is already lacking in almost all areas of work.

“Of course, we will face labor issues, as the birth rate in Lithuania is almost two times lower than it was a decade ago. We will, naturally, run out of labor force, and we will feel this particularly strongly in the next 10-15 years. Therefore, we will inevitably have to open our borders and let people in from countries close to us. The only question is whether we will do it chaotically, as always, when a problem arises, or whether we will start negotiating to let more people in now, choosing what we need to be better prepared for that decade,” M. Dubnikovas said.

So far, there is no consensus, some fear that emigrants will take away jobs from Lithuanians, but, according to the expert, the opposite is true - the whole state is winning from immigration and the major economies are admitting them, all you have to do is allow entry to the right people. We must also prepare for the integration of those immigrants who will come to Lithuania with their families. This will require teaching the Lithuanian language and adapting kindergartens, schools, and health care services.

“The inability to be fast and adapt to changing conditions means that the population of a country is living in poverty. We really shouldn’t wait for someone to help us, but take matters into our own hands and be the winners. By the way, we are doing quite well, because in the last 30 years of independence we have come a long way, all we have to do is look at what the Baltic countries look like in the context of other formerly captive states and understand the enormous differences. All we have to do now is carry on, move forward and be more optimistic than pessimistic,” M. Dubnikovas said.