Heat or eat, live or die: the market will decide

Behind the rip-off increases in gas and electricity prices announced by British Gas is an industry dominated by six secretive corporations who take their cue from the international energy market to drive up profits. 

It should come as no surprise that the big six operate as an oligopoly, raising prices in unison whenever they can, but especially before the winter sets in. They decide whether people will heat or eat and, in the case of some, live or die from the cold.

While the market wholesale price for gas, for example, has risen and fallen since 2004 (see graph), the big six have ensured that the price paid by consumers has continued on its upward trend.  

Attempt to find out how the six operate and you come up against a brick wall of “commercial confidentiality”. Trying to get to the bottom of it all baffled Which?, the Consumers’ Association magazine. In its October edition it reported:

“And most of the trading they [the six] do externally just isn’t transparent – there are no details of how much electricity is sold or what prices were paid. It’s nearly impossible to find out how much your company paid for the energy it sells, and therefore impossible to work out if you’re paying a fair price as an end user.”

That’s not the end of it. Each of the major suppliers also has a power generating arm. They sell electricity to themselves. “However, this is carried out behind closed doors and the price the supply arm of the company pays to the generation arm isn’t made public.” The generation arms of these companies made average profits of about 20% in 2012.

Which? concludes that the companies are so cynical they don’t even care about losing customers as a result of price rises. In 2006, British Gas’ parent company Centrica raised prices by an astronomical 28.6%. Over 850,000 customers quit. But revenue from gas sales still rose by 15%.

You can just see British Gas executives laughing all over their faces following prime minister Cameron’s appeal yesterday for people to switch suppliers. They are not bothered in the slightest. As for them blaming the government’s “green tax” for the rise, it only accounts for 5% of your bill.

Although renewable energy now accounts for 11% of the total (even this output, by the way, is sold on the market!), Britain is still reliant on fossil fuels despite their proven connection to climate change and extreme weather patterns.

Gas and electricity prices have been rising steadily since 2004 – the year Britain first became a net importer of energy as North Sea gas and oil supplies began to fall way. Since then, first New Labour and now the ConDems have been thrashing around trying to devise an energy policy reliant on the private sector

The fact is that both the ConDems and One Nation Labour are in thrall to the corporations and the market. So we’re now faced with a market that protects profits at the expense of consumer plus the refusal of the state to create an ecologically-sustainable energy supply that breaks the dependence on fossil fuels.

Switching suppliers is, as we have seen, a bit pointless as the prices of the main suppliers are more or less in line with each other. Smaller suppliers are simply squeezed out. Labour’s idea of an 18-month price freeze sometime in 2015 is combined with a plan to “reform the market”. This is a sticking plaster approach rather than a solution.

The energy market itself is an obscenity. Fuel is a basic necessity, a social right. So no one should expect profit-driven generators and suppliers to deliver on this. Breaking dependence on the market would mean a massive switch to renewable energy generation. That will also require the return to public ownership of the energy industry.

Who is prepared to implement this solution is another question. The answer certainly lies beyond the political careerists at Westminster and a system that puts profits before people.

Paul Feldman

Communications editor

  

The market recipe for cooking the planet

The economic logic of the capitalist system is obstructing the critical transition from fossil fuels to alternative energy sources.

Though nothing could be more urgent than curbing the amount of coal, oil, and gas which is burnt, the market demand for the solar photovoltaic (PV) goods is far lower than the industry’s capacity to make them.

Last year the world had 60 gigawatts of PV manufacturing capacity, but fewer than 30 gigawatts were produced.

Far from a green revolution leading to growth and jobs induced by the scent of profit, hundreds of small German installers are now closing down, with the consequent loss of thousands of jobs.

After a period of expansion, the number of new solar power installed in Europe fell sharply for the first time in a decade last year. Globally, the solar photovoltaic (PV) industry had installed a total of 102 gigawatts by the end of 2012, up from less than two in 2001.

But new installation fell dramatically in 2012, taking Europe’s share of new capacity down from 74 per cent to 55 per cent in what the solar industry said was a “turning point in the global PV market that will have profound implications in coming years”.

Now European solar panel makers battered by a declining market have persuaded the European Union to propose import tariffs ranging as high as 68% to reduce cheaper imports from Chinese companies. This European initiative follows a similar US move last year.

Solar entrepreneur Jeremy Leggett places the blame for the developing, protectionist trade war on ‘a campaign by the companies that dominate energy markets, seeking to hold back renewables in defence of their interests’, leading to severe cuts in government support for alternative energy.

Leggett says ‘the incumbents in carbon fuels and nuclear are the root cause of the trade war. They have managed to curb soaring demand for solar, accelerating global price-cutting beyond what manufacturing economies of scale would have produced.’

A key contribution to the declining European PV market is to be found across the Atlantic in the USA where the relatively cheaper gas released by fracking has in turn reduced the demand for, and hence the price of coal.

North America’s turn to fracking pushed down US natural gas prices to 10-year lows last spring, prompting electricity generators to switch to gas from coal. Unwanted at home, US coal increasingly found its way on to European markets, where it has displaced more expensive gas as a fuel for power stations.

American coal exports to Europe increased by 29 per cent last year. The resulting oversupply, exacerbated by a slowdown in Chinese demand, sent European coal prices plummeting from $130 a tonne in March 2011 to around $86 now.

So there was a sharp increase in the level of the greenhouse gases blamed for global warming emitted by the European Union’s coal-fired power stations in 2012, as plant owners rushed to take advantage of high profits.

The rise was as high as 17 per cent according to Brian Potskowski of the Bloomberg New Energy Finance research group, while Europe’s total power plant emissions rose 3 per cent over the same period.

“I would say that the increase in power emissions is due in large part to the increased attractiveness of burning coal relative to gas in 2012,” he said.

In the capitalist dream world inside Leggett’s entrepreneurial head, the leaders of the countries where solar panel production takes place will issue ‘instructions to their ministries to think of common global energy security rather than narrow national energy insecurity.’

The rise in burning dirty fuels confirms a recent International Energy Agency’s report which showed that, “despite a boom in renewable energy over the last decade, the average unit of energy produced today is basically as dirty as it was 20 years ago”.

In the harsh reality of capitalist economics, the search for the highest profits determines the retreat to coal and accelerating climate change. The notion that market mechanisms, or indeed consumer choice, can even begin to solve the eco-crisis is a non-runner if there ever was one.

Gerry Gold

Economics editor

Coal leads the way as fossil fuels burn up the planet

The rapid expansion of fossil fuel burning which is frying the planet’s atmosphere faster than ever is entirely unnecessary and economically unjustifiable. And that’s official.

According to the International Energy Authority’s 2012 annual assessment, simple, economically-useful, energy efficiency measures could cut the growth in global energy demand by half and as a result, the demand for oil would peak before 2020.

The reduction in demand would be equivalent to the current combined production of Russian and Norway.

There would be greater energy security for countries worried about having to import their fuel and there would be huge economic growth as buildings and infrastructure were made more energy efficient. Hundreds of thousands could be employed and fuel bills cut by 20% on average.

But the direction of travel of global capitalism is the exact opposite. Subsidies are instead being poured into fossil fuel production – six times more than those available to renewables, amounting to $523 billion in 2011, up almost 30% on 2010.

As a result emissions of greenhouse gases reached their highest-ever level in 2011. Current energy plans of governments across the world will lock in a long-term average global temperature increase of 3.6 °C, not the 2.0°C governments claim they are committed to.

Renewables are the fastest growing form of energy, but that is starting from a very low level. Coal, which is responsible for 40% of greenhouse gas emissions from fuel, is going through a massive global expansion. Production is up 6% on 2010.

The rejection of nuclear by some governments in the wake of the Fukushima disaster did not lead to an expansion of renewables but to an expansion in coal burning. For example, Germany announced it would get out of nuclear within a decade, but this year it increased the amount of electricity generated from coal by 12% over 2011.

China is investing hugely in renewables, but coal-fired output grew as much there in the last decade as nuclear, wind and hydro combined.

In the US rapid expansion of “fracking”, plus new offshore finds have fuelled a dash for gas. But coal production is on the increase, licensed by the Obama administration and so the US is now exporting cheap coal all over the world.

The IEA says  that “the world is still failing to put the global energy system onto a more sustainable path” and despite an increase in low-carbon sources of energy “fossil fuels remain dominant in the global energy mix”.

The big question is why? Why are we pouring tax subsidies into fossil fuels, instead of renewables or energy efficiency? Why is a country like South Africa, an ideal test bed for solar power, pouring government funding into coal? In its post-crash-printing-money phase, the Obama administration funded excellent solar projects, which have brought major advances. Why is that not the US’s new export, instead of dirty old coal?

The “whys” are endless and exhausting but the answer is quite straightforward – it’s the bottom line that counts. Corporations use their power over governments to keep their priorities sweet. Six of the richest 100 mining billionaires are Chinese, five are Indian. The richest of them all is Brazilian Eike Batista whose personal net worth is $32 billion.

And at number 42 is Patrice Motsepe, South Africa’s first black billionaire, who bought up failing mineral businesses and made them profitable by cutting costs and increasing exploitation. You can be sure he is not pressing his friends in the ANC government to shift funding into renewables.

There’s a lot of money to be made from destroying the planet’s climate and eco-system. Only a transfer of political power to popular democracies acting in the interests of the majority and not the oligarchs and corporations, can halt the process.

Penny Cole

Environment editor

'Devil's excrement' has its revenge

The revolutionary upsurge in North Africa and the Middle East is having a direct impact on the global crisis of capitalism.

Oil prices have surged as much as 6% since Monday, rising to their highest since the collapse of demand in the global crash of 2008. If this rise is maintained, it is certain to trigger a renewed slowdown in global production.

Oil companies in Libya are in the process of shutting down the 2% of the world’s production that come from the country. Western oil companies have suspended oil production and BP has started evacuating workers from Libya.

The Libyan mission to the UN is in disarray, the country’s generals are resigning along with many ministers. As in Egypt, the army is going over to the side of the revolution

Every part of the transnational capitalist class – global corporations, capitalist governments, unaccountable global agencies - is watching events with a mounting horror. They were horrified by the revolution that brought Gadaffi to power in 1969, now they are horrified by the revolution that will end his rule.

Mostly they are desperate to find a way of halting the contagion of revolt against autocratic governments which have provided safe haven for the global oil corporations and built their family fortunes from the proceeds. Nervously they assess the risk of the infection spreading to Saudi Arabia, which is the source of close to 10% of current oil supplies.

Interviewed on Al Jazeera, a former UN official spoke for the capitalists. Now they don’t mind people having rights, they’re even in favour of them having the same “democratic”, “human” rights enjoyed by people in the West. But above all they want stability, they want to see investment, they want people to keep their jobs, they want to see economic growth. They fear a revolution that could end the for-profit system. They are wondering what they can do to stop it.

Any disruption in oil supplies increases the power of the Organisation of Petrol Exporting Countries (OPEC) consisting of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. As of November 2010, OPEC members collectively hold 79% of world crude oil reserves and 44% of the world’s crude oil production, giving them major influence over the global market.

Juan Pablo Pérez Alfonso was a prominent Venezuelan diplomat, politician and lawyer primarily responsible for the inception and creation of OPEC. In 1975 he warned that “oil will bring us ruin… Oil is the Devil's excrement” – “the devil’s. He wasn’t far off.

In the 1970s, the inflationary printing of dollars to buy its way out of a historic economic crisis forced the US to abandon the relationship between the paper currency and gold established in 1944. The value of the dollar crashed from $42 for an ounce of gold in 1971 to $800 in 1979. OPEC acted to defend the value of its commodity which was emerging as the essential, cheap and plentiful foundation of the post-war economy. The price of oil quadrupled by 1973.

Four decades later, the situation is very different.

Exponential growth – the global success story of credit-funded huge corporations pouring previously unimaginable torrents of products into the hands of debt-burdened consumers has ensured that the world’s oil is half gone.

Much of it has been used to transform agriculture from a system of food production by millions of small farmers to a global business controlled by small number of corporations whose hunger for profit puts food prices beyond the reach of billions.

Industrialised agribusiness like the rest of capitalist manufacturing is addicted to oil. The burning of oil to fuel the capitalist growth mania has brought the planet to the limits of its ability to sustain life. The revolutionary upheaval now under way brings the possibility of a different future. We have to grasp it.

Gerry Gold

Economics editor