6 Years ago, I touched on the UK boom years from 1979 and how much of that was financed by selling state industries and taxing oil and gas. It also discussed the reduction in tax revenues and the power of private money to distort local markets that has arisen lately. https://bestemnetwork.com/2016/02/02/schumpters-cayman-island-holiday/.
Today we are in a world of record gas price rises with electricity being sold at the marginal rate of production – which is determined by gas prices. This has led to massive state interventions in the energy markets of Europe. One approach is to tax the super-profits of non-gas electricity producers and use the money raised to distribute to the poor to help with their bills (French model) and another is load up on borrowed money and distribute it to power companies and the general population through bill subsidies and caps taking no regard to income or usage (British Model). The British model leads to borrowing almost 2x the money required for the furlough scheme. They are heading for borrowing levels (104% of GDP) not seen since the end of the Second World War.
I wrote about tax systems and wealth distribution in regard to the 4th Industrial Revolution here: https://bestemnetwork.com/2021/01/08/part-2-work-trade-taxes-and-government/
It is apparent to me that political tensions are mounting around the issue of private ownership of essential services. These include things such as education, health, rail, water, and power.
The movement towards cooling the planet will require global co-operation. After the second world war trans-national institutions such as the Nato, the IMF and the World Bank were set up to ensure that we did not recreate the problems that led to the hyper-inflation in Germany of the 30’s and the Great Depression that enabled dictators to flourish – this eventually led to global conflict. Maybe access to essential services should be controlled this way in the future?
Consider this if you will. It is only a thought experiment.
Neoliberal markets seem to be failing to create public good as witnessed by the electricity suppliers’ bumper profits and freezing grannies who can’t afford to eat.
Water companies continue to pump raw sewage into the sea while taking money without any real-choice from households and distributing it to their foreign owners as dividends.
Profit seeking behaviour can lead to bad outcomes for the public if it is used to withhold goods and services essential to life and when poor behaviour towards our shared environment is rewarded.
In these situations the customer essentially has no choice but to pay. To me this sounds a lot like a tax, but where the benefit does not go to the citizens, and the “tax payer” has no control over operations whose side-effect is unwelcome.
If we are to reduce emissions, perhaps we might need to treat Oil and Gas as a controlled substance like say plutonium, or asbestos. I have been disappointed that some of the oil executives I speak to don’t really want to reduce unnecessary emissions – even when doing so would generate positive cash flow from saved fuel gas. They just don’t see it as a priority when their time can be spent elsewhere for more profits.
Perhaps the profit motive should be removed?
We also have a transition problem to deal with. We will need to develop new oil and gas fields, but we also want to shut them down as quickly as they can be replaced. That’s going to lead to some expensive risk capital and an inevitable rise in prices if the “free” market is put in charge.
One solution to capital availability and the required policy volte-face (to switch from building to shutting down capacity) might be re-nationalisation of assets. Operators can be paid a service fee to produce them.
Perhaps it won’t be a nationalisation but a super nationalisation (internationlisation? globalisation?). Setting up an institute like the IMF to control all global oil and gas operations, control the product prices and set consumption quotas to ration usage. Perhaps that might be a new role for OPEC to regulate and license consumption rather than regulating production quotas to maintain the price.
Let’s see how the political winds blow, but I feel the limits of free markets are likely to be tested when it comes to Oil and Gas.
If you have time, check out this post on energy security – it’s good to remember where we came from. https://bestemnetwork.com/2016/02/09/energy-security-and-geopolitics/