The Sick Man's Back: All of Europe's eyes are finally opening. The green dream is complicated.

• Author: Sinn, Hans-Werner

Say what you will about Russian President Vladimir Putin, but his war on Ukraine did open European eyes to some long-underrated truths. One is that even after more than seventy years of relative peace on the continent, neglecting military security poses grave dangers. Another is that the "green dream" of modern economies powered exclusively by renewable energies remains out of reach--and reliable access to cheap energy supplies remains essential.

While the first truth became starkly apparent as soon as Russian troops crossed into Ukraine on February 24, the second has only gradually penetrated public awareness. In fact, many have called for an embargo on European imports of Russian gas, arguing that this would not only undermine Russia's ability to wage its war, but also accelerate progress toward green Nirvana--all at minimal cost to Europe in terms of lost GDP.

A new study exposes this argument for the fantasy that it is. If gas supplies from Russia are cut off, Germany will quite simply no longer be able to produce its three hundred most gas-intensive products. To be sure, the study notes that these products can be substituted by imports. But this assessment fails to account for the welfare losses that would result from Germany having to pay much higher prices for these products--losses that would reverberate across the economy.

Due to the terms-of- trade effect, the welfare of consumers of gas and gas-intensive goods would decline as the price of these now-imported items increases. It is only because this price increase is not included in the definition of real GDP that the effects of a gas embargo on European GDP appear small.

Moreover, it is not only direct consumers of the three hundred products that would be affected. If, for example, the methanol and ammonia that form the basis of fertilizer production and many other chemical products must be imported from the United States, rather than produced locally, downstream and complementary value-added industries in Germany may lose competitiveness. A great many jobs could be affected until a new balance is found. No wonder that BASF, the world's largest chemical company, has decided to invest up to [euro]10 billion ($10.4 billion) in a new plant in China.

Substituting renewables for fossil fuels is not the solution many believe it is. Weather-dependent fuels like wind and solar are simply too unpredictable to power modern economies reliably, meaning that "adjustable" energy sources--coal...