By Iain A MacLeod
3 types of fuel scarcity are:
- 1. Real scarcity, the resource is not there to be extracted
- 2. Scarcity due to events – the fuel is not available due to political events e.g. due to the war in Ukraine.
- 3. Deliberate scarcity – e.g. the producing companies limit their production to push up market prices. This strategy is commonly used for oil by OPEC.
In 1989, when I heard that UK gas and electricity were to be privatised, my reaction was “Bad idea because when the supply becomes scarce, then we will need control over the supply”. I was thinking then about Type 1 scarcity. That type of scarcity for fossil fuel is coming, but we are not there yet. At present, we have types 2 and 3 scarcity. If the production of UK North Sea gas were under national ownership, the price that gas to UK customers could be controlled rather being based on inflated international market prices.
That the gas producers are making excessive profits is evidence that the market in gas is working against the interests of customers. The Government must take steps to correct this situation.
Before I discuss that further, consider the production of food. It
would not be a good idea to nationalise that because the market in food
does work in favour of customers. There is competition on the basis of
quality and price and it would not be possible to replicate the wide
choice of products by centralised planning. But if food became scarce,
then the situation would be quite different. Prices in the market would
increase, the rich would eat and the poor would starve. Something like
this happened during the Irish potato famine 1845-49. A blight caused a
type 1 scarcity of potatoes - the staple diet of the poor people.
There was no shortage of food to supply the Irish people but they could
not afford the extra cost, causing terrible hardships. While the people
were starving, food was being exported from Ireland to get higher
prices. The UK Government refused to take action to alleviate the
suffering.
Although our present government is taking action to alleviate the effect
of rising energy prices, they do not seem to be addressing the root
cause of the problem - a market that is not performing in the interests
of customers.
What steps might the government take?
In the long-term, national energy resources and infrastructure should be progressively brought back to national ownership so that when type 1 scarcity arrives, we will be able to avoid the market working against the interests of the consumers. Maybe we will find ways of replacing fossil fuel with alternative sources but the change to that state would be easier to achieve under national ownership.
In the short-term, consideration should be given to:
- Imposition of a windfall tax on those companies that are making excessive profits due to scarcity.
- The wholesale price of electricity is based on the ‘clearing price’ in a spot market. This results in the price paid for all types of generation being the same as the price for gas, irrespective of the true cost of generation for the other sources. The market arrangements should be changed so that the wholesale price paid for each type of generation is commensurate with their costs of production.
- The Government imposes various taxes on electricity, e.g. VAT, Climate Change Levy and Carbon Tax. As the price of electricity rises, the government revenue increases. We have a situation where the government, on the one hand, is pushing up the cost of electricity via this increases in revenue, and on the other hand it is paying relief to customers because of the rising prices. The methods of taxation for energy needs to be rationalised especially because the present arrangements are regressive.
- Determine ways of providing direct financial support for only low-income people rather for everyone in the population.
The opinions expressed are those of the author and do not necessarily reflect the views of IES.