It is time to treat energy as a public good, not a market commodity. There are better ways to provide economic and social relief from rising energy costs than subsidising prices through fuel allowances and VAT reductions (which we all will pay for). Regulating energy prices is the first step towards a ‘public good’ status for energy.
Energy costs; they have spiralled upwards with further increases likely. This is due to a range of factors largely outside the control of actors within the state. Though we are assured this spike in prices is temporary, it will be of little consolation to households and businesses facing into higher bills over the winter – especially low-income groups who pay a much larger percentage of their incomes for heat and light.
The political debate has so far revolved around subsidies through social protection payments and a temporary suspension of VAT on energy products. While these measures would provide immediate relief, and are therefore better than nothing, they amount to subsidies to the energy companies. When subsidies start chasing prices, costs can escalate.
The alternative is to cap energy prices. The Government, through the Energy Regulator, could impose price ceilings on electricity and gas prices. In this scenario, energy companies would absorb the cost of reducing energy bills to the state, households and businesses. The Tánaiste claims this option will be considered:
‘Maximum price orders will be considered by Government to halt galloping gas and electricity costs, the Tánaiste has told the Dáil. However, Leo Varadkar warned that energy companies were going out of business because of price caps in the UK . . . Mr Varadkar said: “We’re not going to rule out using maximum price orders.” ‘
Spain is introducing such caps while the UK has operated price ceilings since 2019. And the cause of energy companies going out of business is not, ultimately, because of price caps but rather the long-term effect of privatising the UK energy market.
In May of last year, the Minister for Enterprise at that time, Heather Humphreys, stated this in relation to maximum price orders for handwash and sanitiser products:
‘The power for Government . . . to fix by order the maximum price at which a product can be supplied to consumers applies only where an emergency order is in force in relation to that product . . . if the Government are of the opinion that abnormal circumstances prevail or are likely to prevail in relation to the supply of a product, the Government may by order declare that a state of emergency affecting the supply of that product exists.’
‘Abnormal circumstances’ adequately describes the current energy market.
If the state were to intervene in market pricing, it would need to be clear about what its objectives are. It is not, in the long term, about suppressing fossil-fuel energy prices. These prices will rise over the long term with the transition to renewable energy sources. The objective is to smooth out spikes to provide certainty to consumers and protect them from high prices during periods of high demand. Under a price control system, price spikes are temporarily blunted and increases postponed until normal supply chains are restored and demand is reduced (e.g. into the Spring).
This simple measure, though, begs larger questions which go beyond managing the market. Energy – electricity, gas, petrol – is a vital public good, necessary to the very functioning of economies and societies. Given this, there is a strong argument that the generation and distribution of energy products should be publicly managed, if not brought into public ownership. In the former, private ownership would continue but would operate along democratically accountable lines – not just in pricing but in investment decisions (all the more urgent given climate justice and Just Transition) and stakeholder relations.
Michael Davies-Venn writes in the European context:
‘The urgency of decarbonising Europe requires policy consistency, not ad hoc reactions . . . the European Council [should consider] an unorthodox solution—removing electricity as a private commodity from a liberalised market and treating it as a public good . . . The commission should allow states to (re)nationalise electricity companies, which would remove a driver of energy poverty.’
Price regulation can help reduce fuel poverty. The Regulator could require all companies to provide the first X amount of energy (gas or electricity) free or at greatly reduced prices. Companies could make up the difference with higher rates on energy consumption above this amount. In this way, energy consumption would operate like the tax system, with its tax-free credit and reduced tax rate on low incomes.
In the long term we will experience more of these spikes and disruptive events. With policy dictating a move away from fossil-fuel production, long-term investment will be wound down. Winding down and shutting these plants could have severe consequences on energy supply if we don’t ensure equivalent amounts of consistent renewable energy coming on stream. This can’t be left to market forces and market signals. This needs to be planned.
Ultimately, we need to see energy as a public good. Price regulation is preferable to subsidising energy costs, though in the short term we may have to use subsidies while we establish a robust regulatory regime.
As Joseph Baines and Sandy Hager write in the UK context:
‘ . . . bringing the energy sector back under public control will redress many of the failures of privatisation. Public ownership won’t solve the problem of rising wholesale gas prices, but it would bring much-needed stability to an energy market racked by the chaos of failing private suppliers. And since public suppliers are not beholden to shareholders and pressures to pay dividends, they are better positioned to provide effective subsidies to reduce household energy bills and meaningfully invest in the renewable energy infrastructure the UK urgently needs.’
This is the destination.
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