This commentary is by Tom Evslin of Stowe, an entrepreneur, author and former Douglas administration official. It is republished from the Fractals of Change blog.
In the brief time after Liz Truss took office as UK Prime Minister and before the death of Queen Elizabeth, Truss made her inaugural speech. Despite her conservative reluctance to interfere in markets, she said that her government will cap domestic energy prices for up to two years. That move is necessary to get Brits past the worst immediate effects of Russia’s attack on the Ukraine and to keep the British public firmly supportive of Ukraine.
Much more important for the long term, Truss announced that she will issue more than 100 new licenses for oil drilling in the North Sea and lift a ban on fracking for gas and oil put in place in 2019. She also announced an energy supply task force to negotiate long-term energy supply contracts. The contracts will not only give the UK assurance of future energy supply at known prices but also be convertible into capital for more production around the world including the US. She’s quoted by AP saying “we are supporting this country through this winter and next and tackling the root causes of high prices so we are never in the same position again.”
The price guarantee means that the government will have to borrow to subsidize oil and gas which suppliers will be selling below cost. Costs for British consumers and businesses will still be much higher than they were last year, so the subsidies don’t eliminate the incentive to reduce usage. But subsides aren’t a sustainable strategy; that’s why she limited the subsidies to two years and accompanied them by her plan to reduce prices through increased supply. She’s gambling, wisely IMO, that better long-term energy supply will have enough economic benefit to pay back what the government must borrow for the subsides in the short term. By moving quickly on supply, the UK will get an advantage over parts of Europe which have not yet come to terms with the need to end dependence on Russia for energy.
Not everyone loves Truss’ plan to increase fossil fuel supplies. According to The Guardian, “Climate justice activists, poverty campaigners and trade unionists have vowed to take to the streets and occupy key sites next month to oppose the UK government’s energy and cost of living plans… while direct action groups including Just Stop Oil saying they will ‘occupy Westminster’, with supporters prepared to risk arrest to block roads with ‘a wave of action including strikes and occupations’ throughout the month.” Not explained in The Guardian article is why anti-poverty advocates or trade unionists, whose jobs depend on factories being able to afford energy, think that lower energy prices are a bad idea.
The Guardian article does say “Experts say this [Truss’ plan for more supply] would have minimal impact on the cost of living crisis…”. However, the article doesn’t name any such experts or explain why they think lower energy prices won’t reduce the cost of living.
One of the first tests for Truss as Prime Minister is whether she can control illegal protests against increased fuel production. If she does, and if the UK actually manages to reduce its dependence on imported fossil fuel, she’ll be setting a good example not only for the rest of Europe but also for us here in the US. Although our need is not as urgent as the UK, both our green and traditional energy projects are ensnared in red tape, litigation, and vandalism disguised as protest.