Notes on the Front

It’s not as if the Government didn’t have time.  With Covid and subsequent supply-chain interruptions, the Russian invasion of Ukraine, the 12-day bombing of Iran last year – there are any number of reasons why energy prices would spike.  And now, the resumed attack on Iran and the closure of the Strait of Hormuz. 

The Government can’t be blamed for the capricious actions of the US regime.  However, given the recent past, it had the opportunity to put in place a new price infrastructure during times of emergency – given that we have had emergencies aplenty.  They didn’t take it.  And now everyone is scrambling to come up with measures to assist households and the economy.

No one doubts the centrality of energy in a modern society – both supply and price.  In fact, it is too important to be left to the decisions of a handful of energy suppliers.  In normal times (remember them?), prices trend in line with global prices.  However, when there is a shock, there is a danger of prices spiking suspiciously high, leading to claims of ‘price-gouging’ or opportunistic pricing.  This is why MEP Lynn Boylan’s helpful revelation of the disconnect between price rises here and the rest of Europe made such an impact.

What is needed during these times of shocks is energy price accountability. 

The principle behind energy-price accountability is relatively straight-forward.  In times of emergency, which would be declared by the Government, the price of energy (electricity, natural gas, home-heating oil), would be frozen.  Energy companies would be able to increase prices in line with input costs and historical profit-margins (e.g. pre-covid margins), but they would have to apply to the Energy Regulator for such an increase.  The Regulator, after examining all the evidence, would determine if the price increase would be allowed.

This is not a solution to price increases which are largely out of our control.  But it can help prevent price-gouging which we can control.  This could provide some relief to households and the productive economy in the short term.  And even if the price increases we have experienced are justified, the process of accountability would instil confidence in price-setting. 

Such an infrastructure would require considerable reform.  The Regulator would be given statutory powers to regulate prices; namely, to accept or refuse requests to increase prices.  Energy suppliers’ financial information would be fully transparent.  All inputs from various energy sources would be open to public scrutiny.

It is not possible to establish such an infrastructure in the short term, though some ad hoc steps could be taken, in particular, real-time price-setting transparency.  However, we need to start constructing a comprehensive energy price accountability infrastructure to meet future contingencies.  We should expect a future of shocks, especially as fossil-fuel companies will fight to maintain their energy dominance and resist a truly authentic Just Transition to renewable technology, potentially causing price and supply disruptions.

This, of course, doesn’t address the immediate needs of households and businesses.   But if there are cash transfers to households, these should not be delivered through tax cuts (VAT, excise, carbon).  Such cuts are regressive and deliver higher subsidies to high-income groups.   

Ultimately, energy pricing needs to be made subject to democratic accountability.  Price regulation, transparency, new pricing structures – we need a new energy dispensation which will lead us to make a complete break from fossil-fuels through a massive and urgent investment drive in renewables.

On the way to that goal, a little bit of democratic control would help a whole lot.