The energy crisis currently ratcheting up across Western Europe, and increasingly the world, is proving to be a significant factor in the UK’s cost of living crisis. Heating our homes with natural gas will cost around five times more this October than it did a year ago. Wholesale prices have risen 250 percent since January. Suppliers are failing week by week. Over the last month, nine domestic suppliers have been forced out of business pushing 1.7 million consumers to new suppliers and higher prices.
One consequence of this is a greater concentration of the energy market in a small number of firms. Over the last decade, the dominance of the Big Six has eased somewhat with their collective market share slipping from 90 percent in 2014 to around 70 percent in 2019. As the big players absorb customers from the collapse of smaller suppliers, this trend will surely begin to reverse.
This all comes as inflation rises (we could see rates of four percent in December) and as the government cruelly ends the uplift in Universal Credit payments introduced during the pandemic. The winter is facing up to be a serious challenge for the poorest and many working families. This isn’t deterring Boris Johnson from pushing ahead with the introduction of a levy on gas, supposedly designed to fund low-carbon alternatives. Ahead of COP26, the latest round of international climate negotiations, hosted by the UK in Glasgow at the beginning of November, the Prime Minister seems anxious to boost his green credentials.
The timing couldn’t be much worse, though. This policy underlines the potential injustice of the energy transition when managed by a callous Tory government. A reliance on regressive taxation and tweaking markets betrays a disregard for its impacts on working-class people as well as an ideologically motivated refusal to embrace the economic transformations the climate crisis requires.
Society’s poorest will not just be hit by this crisis as consumers, but also as workers. Sharon Graham, general secretary of Unite the Union, has called on the Prime Minister to ‘get a grip’ warning that jobs and wages are at threat: ‘Unite’s members must not pay for this crisis—which is absolutely not of their making—with insecurity and attacks on jobs and pay.’
Graham highlights that otherwise viable industries may have to shut down operations as energy costs rise too high. According to Gareth Stace, the director general of the UK Steel trade body, the steel industry has already seen some companies suspend production. The government, however, has refused to intervene or provide extra support for energy-intensive industries. State intervention is abundantly necessary to deal with both the short and long-term consequences of this. Unsurprisingly, the government is nowhere to be seen.
A Predictable Crisis
Ofgem, Britain’s independent energy regulator, has claimed that the energy crisis has not been a failure of regulation. Jonathan Brearley, the organisation’s CEO, argued that ‘no-one could have predicted the kind of gas price rises we have seen.’ This may or may not be so, but the causes of these crisis should not be profoundly surprising to anybody let alone Ofgem. The failure has not only been of regulation, but of an approach which sees relatively hands-off regulation of a volatile energy market as at all sufficient.
This crisis is a monumental failure of economic planning and preparation, in that there has been none. It indicts both the UK’s market-based energy system and its weak governance. The private ownership of energy production and distribution is failing to keep prices down for consumers just as it is failing to effectively transition to clean energy.
The move towards clean energy is taking place slowly and erratically through the mechanisms of the market. We have not seen sufficient investment in renewable and low-carbon energies, nor the technologies to store them. With investment in coal declining and gas upheld by the fossil fuel industry as a bridge fuel, demand for gas has grown. At the same time, Europe’s own gas supply has become more scarce and more precarious rather than less.
Heading into winter, when demand expectedly rises, ‘inventories at European storage facilities are at historically low levels for this time of year.’ The Groningen gas fields in the Netherlands were ‘designed to be a significant swing supplier’ functioning to balance supply with demand by adjusting production accordingly. Its future now looks uncertain because its reserves are now steadily decreasing while recent earthquakes have negatively impacted homes and businesses.
Although the UK receives much less (around one percent) of its gas imports from Russia, continental Europe receives over a third of its gas supplies from Gazprom, the Russian state-owned energy company most famous for its sponsorship of the UEFA Champions League. Many arguing for a larger gas industry, for example by kickstarting fracking, have invoked the need for energy independence from Russia.
Misguided as this may be in the British context, Europe’s dependence on the Russian state for energy further underlines the precarity of the whole system in which we are implicated. As well as geopolitical uncertainties, this settlement leaves Europe vulnerable to evolving trends in global demand for energy. China, for example, is a major economy looking to clean up its air and beginning to retreat from its previously entrenched commitment to coal. With millions of people newly connected to China’s gas grid every single year, demand for this scarce resource will keep growing.
Is Vladimir Putin rubbing his hands with glee and playing games with energy prices? Or is Russia simply prioritising domestic energy supply? The International Energy Agency believes that Russia could feasibly increase its supply of gas to Europe by 15 percent this winter. Gazprom asserts that it will only consider upping supply to Europe once its refilled its own storage this month. Regardless, neither geopolitical volatility nor resource protectionism are especially unexpected dynamics for European governments and regulators.
The causes of the energy crisis are numerous and together have formed an unfortunate cocktail, but they are not exogenous shocks and they should not have been excluded from any scenario planning. The reality seems to be that this planning has just not taken place.
We can put this down to the incompetence of our leaders and with this Tory government that must certainly form part of the picture. More substantially, however, we must point to the structural failings of an energy system primarily geared towards generating profits for fossil fuel and energy companies. Left to the market, profits have continued alongside a rise in both prices and emissions.
Planning the Transition
Within the eye of this storm, the government must make immediate interventions to avert the cost-of-living crisis. We need to see a hard limit imposed on energy prices and, at a minimum, the cut to Universal Credit must be reversed with even greater support provided.
Protecting jobs must also be a priority. The government should intervene with bailouts for energy-intensive industries which cannot be allowed to collapse, taking public stakes in exchange to bring more industry into the sphere of state planning. The broader the public sector reaches across industry, the greater levels of coordination the government can provide during a transition or a crisis, and the greater protection can be provided for workers.
All of this must be undergirded, though, by a fundamental change to the energy sector’s ownership model to secure its long-term sustainability. There is no better time than now to nationalise the industry from top to bottom. Though we can point to specific triggers, this energy crisis is substantially the result of chronic under-investment in clean energy, green technology, and retrofitting. Profit-oriented markets are simply incapable of delivering this with protections for ordinary people and on the timescale we need.
Democratic management of the industry through public ownership would allow us to finally put climate and consumers ahead of shareholder profits. While facilitating public investment in new forms of energy generation, a state-run system could also guarantee the supply of energy to homes and businesses at a reasonable price. The volatility of international prices does occur, the state can absorb the shock.
The government, seemingly having maxed out its ideological capacities for serious state intervention during the pandemic, is far away from embracing this course of action. Unlike what we may have expected during Jeremy Corbyn’s tenure, the current Labour leadership is lacking the conviction and the ideas to respond to a crisis of this nature.
Rachel Reeves, Labour’s Shadow Chancellor, calls for the government to protect jobs in at-risk sectors but cannot put forward a coherent plan for exactly how to intervene. While Ed Miliband does provide ideological leadership on these issues, asserting the need for public ownership to achieve a green transition, Keir Starmer and Reeves fall over themselves to undermine him by placating capital. During Labour Party conference, both Leader and Shadow Chancellor took the opportunity to dismiss public ownership of energy for fear of being perceived as too ‘ideological’. Keir Starmer questions the government’s handling of the energy crisis, but himself has no answers.
As usual, it is down to the Left to provide leadership on the major crises of our time. This is why a Green New Deal must remain one of our headline demands, to expand the capacities of the state to intervene during a crisis, investment to avert them in the future, and to expand public ownership across the economy—starting with energy—to ensure that we are no longer vulnerable to the chaos and injustices of markets governed by the profit motive.