Russia’s war on Ukraine has led to sharp reduction in Russian gas exports to Europe. This has unleashed an energy crisis that is hitting Europe hard.
European electricity prices are set by a market system which links them to the price of gas (or whichever form of energy is the most expensive).
In many cases the price of electricity has jumped fourfold. The price of coal has also risen dramatically. Across Europe, this is leading to higher energy and heating costs for ordinary households and businesses. In the UK, prices will rise even higher than those in the rest of Europe.
Kosovo is already experiencing rolling power blackouts as fuel to run power stations is rationed.
Emergency measures
Governments have been forced into taking emergency measures to reduce the impact of the energy crisis.
The EU has released a plan to reduce its dependence on Russian gas by two thirds. EU governments have also agreed on a plan to reduce overall gas demand by 15%. These are ambitious targets, and will probably not be achieved.
“Gasumlage”
The German government has proposed a subsidy to gas companies, to be paid through an additional tax, the gas surcharge (the “Gasumlage”). It is not surprising that this has provoke major opposition.
Germany and other countries have turned to coal to make up for gas shortages, importing coal from Australia and other big exporters.
The EU has called on member countries to stockpile gas for the winter. Germany has already increased its stockpiled gas to levels approaching what will be required. It is also rationing heating and lighting in government buildings.
Governments are introducing a range of measures to reduce the impact of higher energy prices on households and companies. These consist mostly of price caps on energy costs and direct cash subsidies. These will cost many billions of Euros.
Drop in living standards
No-one knows haw bad this winter will be, but most Europeans will see a drop in their living standards as energy prices increase while inflation climbs to record levels. Many will be living in homes that are not properly heated.
Europe was totally unprepared for the shock of Russia’s sanctions. The energy market is currently out of control, with gas prices many times their 2021 levels, before the crisis began. Top officials are alarmed that the crisis will undermine support for the EU, and are calling on the EU Commission to take urgent steps to tame the market.
In its economic war with the EU and the west, Russia has now blocked virtually all gas exports into Europe by closing supplies through the Nord Stream 1 pipeline. This will only make the crisis worse.
EU governments have now apparently agreed on a price cap on gas to assist consumers. They also plan to decouple other energy prices from the gas prices, which will stop electricity prices from increasing at a similar rate to gas prices. The details are as yet unclear.
Principles for dealing with the crisis
What should climate activists and socialists demand? The principles must be:
- No increases in energy prices above the rate of inflation for ordinary households;
- Any rationing of electricity must be carefully targeted, aimed mainly at non-essential users and households that consume large amounts of electricity;
- Very rapid implementation of renewable energy;
- A complete winding down of coal as soon as possible.
This would require the EU to do away with many of its competition laws, and for governments to intervene directly in the energy market. (EU bosses and politicians from member states have already accepted that some changes will be necessary.) Specifically, activists should demand:
- Price caps on all energy imported into the region, and on gas, coal and oil sales to retail energy companies.
- Establishment of EU wide energy companies to import energy, operate power plants and sell gas and electricity to consumers and start winding down fossil fuels as soon as possible.
- A cap on prices that energy companies can charge to household consumers. Companies that cannot afford to operate within the purchase and sale prices to be socialised (brought under public ownership). (The UK market was thrown into turmoil when many small energy retailers went bankrupt during the past year.)
- EU wide subsidies for new renewable electricity infrastructure and upgrading of distribution networks.
- The cost of maintaining stable energy prices and the construction of renewable energy infrastructure to be funded by a tax on fossil fuel and energy companies and a wealth tax.
CO2 emissions
EU leaders have shown that they are prepared to relax their free market rules in their attempts to protect their citizens and their own jobs. They are willing to take strong action to prop up their political support. But not to support the environment and fight climate change.
Despite EU politicians’ willingness to break their own rules, the proposed measures will not be enough. Without a massive intervention in the market and the imposition of large taxes on companies, especially those profiting from fossil fuels, the energy crisis will continue. Hardship for citizens and delays in reducing CO2 emissions will be inevitable.
