Rishi Sunak’s Energy Delusion
The Chancellor’s suggestion that a future of dirty, expensive energy is inevitable and that the public must simply accept it is false, says Nafeez Ahmed
As British households steel themselves for a record 54% price rise in energy bills, Chancellor Rishi Sunak has claimed that “it is not sustainable to keep holding the price of energy artificially low” and that “to stand here and pretend we don’t have to adjust to paying higher prices would be wrong and dishonest”.
But this is only true to the extent that the world is sleepwalking into a global supply crunch linked directly to our continued structural dependence on oil, gas and coal: an addiction that most governments, following the leadership of countries such as the UK and US, have refused to kick.
Last September, I warned in Byline Times of “an approaching turning point in the global energy system which markets in their current form will be unable to resolve”. Those stresses, which the Prime Minister had at the time claimed would be merely “temporary”, are not going away. Instead, they are getting worse.
They are getting worse because most governments around the world, with Britain very much in the lead, remain committed to protecting the profits of fossil fuel giants rather than accelerating the transformation of the global energy system.
A month after my own warning, the investment giant Morgan Stanley published a crucial research note setting out the evidence that global oil supply would likely peak before demand. This would partly be driven, the firm concluded, by the demise in demand itself.
New investment in the oil sector has plummeted over the past decade. Morgan Stanley mainly sees this as a result of ‘net zero’ policies – noting that the decline in investment is already consistent with the International Energy Agency’s ‘net zero’ scenarios.
In other words, because investors are fleeing from the oil industry, its ability to increase production to meet demand is about to fall short.
This year, Morgan Stanley updated its analysis, finding that observable crude oil inventories were down by 690 million barrels in 2021, and were now at their lowest level in more than five years. “We expect inventories to end 2022 lower still,” the bank concluded.
What Morgan Stanley failed to appreciate is that one of the driving factors of this loss of demand comes from the unsustainable economic dynamics of the oil industry itself.
As a team of scientists funded by the French Government explained earlier this year in a landmark study, the economics of both the global oil and gas industries are crumbling because they are using more and more energy just to keep extracting – which leaves less surplus energy to contribute to economic growth.
Morgan Stanley sees us hitting a plateau and then a decline in global oil supply from now to 2024. This is broadly consistent with analyses by several other agencies such as the Geological Survey of Finland and HSBC.
A Systemic Problem
As underlying energy costs rise, this has a ripple effect across the economy.
One of the biggest dangers is how this impacts repayments of significant quantities of debt held globally – larger than even before the 2008 global financial crisis. Before the 2008 crash, rising energy costs played a direct role in people’s inability to service their debts, helping to trigger the defaults that snowballed into a worldwide banking collapse.
To cope, the Bank of England is hiking interest rates – and the US Federal Reserve looks set to follow suit in March. But, of course, while this might seem to be designed to help banks deal immediately with their own debts, it will make matters worse for ordinary people – which will then have a larger feedback effect on the wider banking system.
To the extent that we are locked into a system dominated by fossil fuels, Rishi Sunak is right – as the system unravels, these price dynamics cannot be avoided. But his effort to put the blame onto factors beyond his control is misleading.
The only reason we remain locked into these self-flagellating energy price hikes is because our governments have chosen to remain locked into the fossil system that is driving them.
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The energy crisis is just the beginning of a global crisis, as the current system proves to be unsustainable. As the fossil fuel system and the debt-laden neoliberal economy sleepwalk into the next perfect storm, the urgency of accelerating the clean energy transformation and remaking the global economy is stark.
We have all the tools we need. An Oxford University study last September found that at current rates of growth, solar, wind and batteries could rapidly and completely replace fossil fuels as early as 2040 – and save us $26 trillion in the process. Sunak’s insinuation – that a future of dirty, expensive energy is inevitable and that the public must simply accept it – is simply false.
Before we get closer to an uninhabitable planet, our hubris – intent on protecting fossil fuel profits at any cost – is about to take a huge chunk out of the global economy in 2022. Let’s not delude ourselves any longer about the true nature of this crisis: it is, fundamentally, about our toxic relationship with the planet.
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