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Since when did banks produce energy?

It takes a special kind of cynical self-interest to make people pay twice for something they already cannot afford, while claiming you are doing them a favour.  This though, is the energy price relief package announced by Liz Truss yesterday.  The package plays that old political card of being not quite as bad as it might otherwise have been, while still being a lot worse than it was.

Politically, the announcement confirms a great deal of what we suspected.  In recent years there has been a growing belief that the Versailles-on-Thames technocracy pulls the strings and that incoming prime ministers are simply given their script on arrival in 10 Downing Street – this is born out by an energy package – drawn up by technocrats over the last six weeks – which is wholly at odds with Truss’s policy announcements during her leadership campaign.  The announcement also demonstrates that despite her third-rate tribute act, Truss is no Margaret Thatcher, nor even the economic liberal that she claims… because a true libertarian – and likely Saint Margaret herself – would have allowed the energy companies to go bust rather than ignore the inflationary impact of state intervention… so now we know.

The package itself involves capping the average energy bill at £2,500 for the next two years, rather than the immediate rise to £3,549 and the anticipated rise above £6,000 in 2023.  There is also a reduction on the regressive standing charge for electricity as the various green levies are removed.  A reduction in VAT is also expected in future, and the national £400 bill reduction, together with the £650 for people on low incomes remains and may be extended next year.

So far so good, if you are a glass half-full type.  But then there’s the bit when you get to pay for it twice.  Unlike the opposition proposal to use a windfall tax on energy company profits to fund or at least to part-fund a relief package, the government is looking to borrow some £150bn.  The government claims that this will be disinflationary because the reduction on household energy bills will outweigh any increases in spending by those at the top end of the income ladder who will now have an additional £1,000 in discretionary spending than would otherwise have been the case.

The package is though, an inflationary time bomb for two reasons.  The first is that interest rate rises in the USA, along with a global dollar shortage are already hammering the value of the pound – which is at its lowest level since 1985.  Further government borrowing is likely to weaken the currency even further, causing the price of imports into the UK to skyrocket unless the Bank of England uses economy-crushing interest rate rises in an attempt to shore-up the pound.  This is merely the froth on the top of the inflationary beer though, because the real failure in the energy package is that it does nothing to address the underlying reason why energy prices are so high… shortages!

The political class will try to convince you that it is all the fault of “madman Putin” for shutting down the gas pipelines to Europe.  This though, ignores the way in which the political class left us so dependent on Russian gas in the first place.  And in any case, it wasn’t Putin who disconnected Europe from the gas it needs… that was an EU technocracy who wrongly believed that without sales to Europe, the Russian economy would collapse, and the Russian people would rise up to overthrow Putin.  And while it is clear that Russia is going to leverage gas shortages this winter, even the story about Putin switching off the gas is mendacious given that Canadian and German sanctions have prevented the return of vital pumping turbines.

The true causes of our energy predicament go much deeper.  At one level, they are the consequence of the same European technocracy taking seriously the plaintive whining of a Swedish teenager who dropped out of school without learning enough about physics and engineering to understand that the global energy system is not plug and play, and that firm fossil fuel and nuclear energy cannot be replaced by diffuse and intermittent wind and solar unless you are prepared to accept the standard of living of Britain’s dark-age Anglo-Saxons.  For most of us until recently, “going green” meant little more than recycling and swapping plastic straws for paper ones.  But for the technocracy, it meant the wholesale destruction of the energy system before anyone had figured out how to run an advanced global economy without the fossil fuel energy which – even today – powers some 85 percent of it.

Coal plants were demolished.  Alternative generation – such as nuclear in the UK – went unbuilt.  Under Merkel, Germany went even further, closing down perfectly good, functioning nuclear power stations on the spurious grounds that Germany might be at risk of a Pacific tsunami.  Non-renewable renewable energy-harvesting technologies (NRREHTs) were added at breakneck speed in far greater numbers than was safe within national grids which were not designed to cope with intermittency and within which no viable energy storage options existed.  And in practice, gas power stations proved to be the only mechanism for balancing the intermittent output.

This, of course, brings us to an even deeper facet of our predicament.  When vast gas deposits were discovered in the North Sea in the 1960s, European governments went on a drilling spree, treating a precious finite resource as if it was forever.  Britons of a certain age will remember the huge national effort to convert the UK’s gas network and gas appliances from town gas (coal) to natural gas.  For Britain, it was the beginning of the “curse of oil,” as the revenues from North Sea exports allowed governments to avoid some hard decisions about the future of a small island in a big world.

There were far fewer of us in those days.  Car ownership was only then becoming common following the development of a series of affordable small cars such as the iconic Mini.  Most houses had just a few electrical wall sockets simply because there were so few electrical gadgets to plug into them.  Colour television had only just been developed and was still a luxury for the well to do, while most people still rented old-fashioned valve black and white sets.  And since there were just two channels – neither offering much worth watching – TV sets were more an ornament than the axis around which domestic life came to revolve.

Abundant energy – particularly oil and gas – changed everything.  It allowed populations to expand without forcing an equivalent decline in living standards.  Consumption expanded too.  As vast quantities of oil arrived on British shores in the 1980s, car ownership accelerated.  Two-car households became commonplace and commuting over hundreds of miles in search of better-paid work became an accepted practice – even today, unemployed people are expected to take work up to 90 minutes travelling time from their homes.  The offshoring of industry to the Far East, corresponding with the “digital revolution,” resulted in a flood of cheap electronic goods from laptop computers to microwave ovens and from smartphones to electric toothbrushes… all of it powered with energy which, if not quite too cheap to meter, was easily affordable on the back of the income from North Sea exports and City of London money laundering.

All good parties come to an end.  This one was no different.  In 1999, UK North Sea oil and gas production peaked.  Norway, with its much smaller population and its widespread hydroelectric power still had reserves.  But even these would be eaten away as exports to Europe expanded to fill the growing void of declining UK output.  By then though, the neoliberals had borrowed vast quantities of unrepayable debt into existence on the back of oil and gas income which was fast disappearing.  The UK became a net importer of oil in 2004 and of gas the following year.  Corresponding, however, with the global peak of conventional oil production and the global dollar shortages which created the 2008 crash, Britain avoided further consideration of just how vulnerable its economy had become.

Germany, at least on paper, remained an economic powerhouse via the manipulation of the euro – allowing the poorer economies of eastern and southern Europe to hold the value down in order to make German exports far cheaper than would have been possible under the old Deutschmark.   But as with the UK, the illusion of prosperity was based upon ever-growing quantities of energy from sources which had yet to be identified.

Turning to Russia as that country emerged from its post-collapse depression made sense given Russia’s stated desire for closer integration with Europe.  Every one euro paid for imported Russian gas generated ten euros of German exports.  And so, the drive to build new gas pipelines to connect Europe to the West Siberian gas fields became unstoppable… even if it meant leaving Europe increasingly vulnerable to interrupted supply – something that the closure of coal and nuclear plants and the increasing use of intermittent wind exacerbated.

What Europeans could never accept was that the brief couple of decades of copious energy consumption were an anomaly.  Faith in the religion of progress blinded us to the reality that, without some alternative to our depleting fossil fuels, European living standards were bound to collapse.  Physicists and engineers have long warned the politicians and technocrats that NRREHTs could never replace the energy from fossil fuels.  But there was – and is – an awful lot of money to be made from the deployment of NRREHTs… mostly by the same energy companies that sold us oil and gas.

And so, we are where we are.  We have insufficient energy to power our indulgent lifestyles, and we are going to have to power down in the worst possible way, with those at the bottom literally starving and freezing even as those at the top attempt to cling onto their ill-gotten gains.  By using the money trick of borrowing to lower bills – in effect, bailing out the energy companies – the Truss government and the EU technocracy have guaranteed blackouts this winter and, indeed, for several winters to come.  Energy rationing might be a fairer way of managing this.  But given that the official rationing plans were drawn up in the 1970s and have not been updated to factor in the impact of intermittency, they are likely to be about as good as the official pandemic plans turned out to be.

Beyond the immediate hardship, two equally impossible futures are vying for policy-makers’ attention.  The first is a doubling down on the energy policies which got us here – build even more intermittent NRREHTs in the hope that someone will finally discover how to make them power an advanced economy.  The second is a kind of rose-tinted return to past glories in which we dig up coal that has already been burned and frack shale deposits for gas which doesn’t exist in order to keep the party going for another decade or so while clever people somewhere else figure out what to do next.  But neither of these is going to happen overnight.  Indeed, with the economies of Europe rapidly imploding – with the UK leading the charge – both may soon be beyond us anyway.  Which, of course, brings us to the option we are going to take even though the political class dare not mention it – we are going to have to make do with less.  As John Michael Greer reminded us this week:

“Those of my readers who remember the energy crises of the 1970s, as I do, may be forgiven a certain sense of déjà vu.  Back then it was a war between Israel and an alliance of Arab nations that caused a major fossil fuel supplier to yank their product from the market, sending prices skyrocketing.  The reactions of the affected countries, however, is much the same:  confident assurances that such things can’t possibly have a significant impact on the world’s wealthy nations, followed by blind panic and ineffective flailing once the impact shows up anyway. Plenty of ordinary people have already hit the second stage, while the politicians and the chattering classes of the world’s rich countries are still mired in the first…

“When governments fail to do anything useful, as so often happens, individuals, families, and communities have to step up to the plate themselves. That was one of the lessons of the energy crises of the 1970s…

“Let’s start with the most crucial lesson, the thing that should be written in letters of fire in your brain right at the outset:  it is always easier and cheaper to conserve the energy you have than to bring in more energy to replace it. ‘Weatherize before you solarize!’ was a slogan we heard a lot back in the day, but the rule can be extended much more broadly. Conservation is the key to getting by in a world where energy is expensive. That’s the thing the green energy revolution we all heard so much about never grasped, and that’s why it failed. Learn to squeeze each erg of energy until it yelps, and you can thrive.”

It would have been preferrable to have done this with government support.  But there again, the technocracy was never going to support something which would lead to the collapse of their profiteering friends in the energy industry.  It is also what the high market price of energy should encourage us to do – the correct response to rising prices is less consumption, not subsidies to the energy companies dressed up as government support to households and businesses.  That £2,500 price cap is not a target to be reached.  And with the kind of deep energy saving that John Michael Greer writes about, even at today’s prices it is possible to get by on just ten percent of that.

It goes without saying that if we all engage in conservation, profiteering energy companies will be bankrupted soon enough – although without cheap and abundant reserves, that was going to happen anyway.  Nevertheless, we are increasingly forced to make hard decisions which would have been so much easier if we had made them half a century ago.  And no amount of borrowing to bail out energy companies is going to save the day.  Far from saving us from an energy crisis, the Truss plan accelerates and deepens it… and there will be no going back.

As you made it to the end…

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Let us not forget that beyond hard-pressed bill-payers are thousands more who can no longer afford electricity at all