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Corbyn Avoids Real Choices with Call for Nationalization of Energy

Jeremy Corbyn presents the new economics (or is it the old economics?).

Labour Leader Jeremy Corbyn has called for the nationalization of the UK energy industry in order to deliver the transition to a low-carbon economy. That may sound radical and ambitious, writes Karel Beckman, editor-in-chief of Energy Post, but it is not a solution at all. According to Beckman, the Labour Leader is shirking the responsibility to come up with realistic and effective climate change policies.

Jeremy Corbyn, leader of the UK Labour Party, laid out his vision for the energy sector in a speech he held on 10 February to the Alternative Models of Ownership Conference.

The speech is worth a closer look. Variations on this debate are taking place in many countries, although few will want to go as far as Corbyn is proposing.

Corbyn has two general points to make. First of all, he argues that the privatisation of the energy sector in the UK has been a failure.

He says: “It cannot be right, economically effective, or socially just that profits extracted from vital public services are used to line the pockets of shareholders when they could and should be reinvested in those services or used to reduce consumer bills. We know that those services will be better run when they are directly accountable to the public in the hands of the workforce responsible for their front line delivery and of the people who use and rely on them.  It is those people not share price speculators who are the real experts.”

“Energy independence for some will mean rising bills and unreliable energy for the rest”

According to Corbyn, in many countries privatisations are being reversed, though he mentions no examples from the energy sector. “There are very good reasons for whats taking place”, he notes. “The neoliberal ideology that drove the privatisation frenzy forgot a key lesson thats understood even by conventional neoclassical economics; that where there are natural monopolies, markets fail.”

The architect of Thatcherite privatisation, Professor Stephen Littlechild thought regulators could mimic market competition but he was wrong. The regulators have proved too weak, [too] close to the companies theyre supposed to be regulating and too prone to corporate capture

Corbyn says that “Without genuine competition or public accountability private ownership of key utilities has meant customers at the mercy of rip-off price fixing. The case for public ownership is so clear and so popular and weve demonstrated how its an investment with no net cost for the taxpayer.”

“… Weve all seen how the big energy companies jack up prices too knowing full well most people dont switch suppliers.”

And the energy grids are even worse, overcharging customers by £7.5bn over the last 8 years, according to Citizens Advice.”

Greatest market failure

The second point he makes is that nationalisation is necessary to be able to tackle climate change: “We need to take back control of our energy system because, as [the economist] Nicholas Stern described, the greatest market failure the world has seen is climate change.”

According to Corbyn, “the challenge of climate change requires us to radically shift the way we organise our economy.” Why? Because “A green energy system will look radically different to the one we have today. The past is a centralised system with a few large plants. The future is decentralised, flexible and diverse with new sources of energy large and small, from tidal to solar.”

He notes that “Transforming the grid will require investment and planning on a scale that is simply not happening under the current system. Price cap regulation encourages private grid operators to cut costs and pay money out in dividends, not to plan how the grid will need to work in 25 yearstime, or to make the necessary long-term investments we need to get there.”

“Our energy system needs to change but it cannot be workers and local communities who pay the price”

Grid operators are notorious for overcharging and causing delays in connecting renewables because they have no incentive to make it easy for clean, community generators to connect to the grid, or to encourage community grid initiatives that might end up undermining their profits… With the national grid in public hands we can put tackling climate change at the heart of our energy system, committing to renewable generation from tidal to onshore wind.”

His vision is one of “Investing to connect renewable energy to the grid, giving impetus to the kind of research and innovation that will make our grids smarter, more flexible, and capable of genuine optimisation. And actively devolving power to local communities, by giving community energy practical support and encouragement.”

Does this mean he approves of the “prosumer” model? Apparently not. “There are some who hanker after a Thatcherite so-called prosumer model where people produce and consume their own energy and whole communities opt out of the grid”, says Corbyn. “But not everyone has the resources  natural or financial  to go it alone. Energy independence for some will mean rising bills and unreliable energy for the rest. We need a publicly-owned grid to act as the great leveller, distributing energy from where it is plentiful to where it is scarce and guaranteeing that everyone has access to clean, affordable energy  all of the time. Anything else is not only unjust, it risks doing immeasurable harm to the climate cause.”

The Labour Leader stresses that “our energy system needs to change but it cannot be workers and local communities who pay the price. The devastation wreaked when our coal mines were closed, leaving a legacy of decline that former mining communities are still living with, is a brutal reminder of what can happen when those communities are silenced and disregarded in the process of change. Never again. In public hands, under democratic control, workforces and their unions will be the managers of this change, not its casualties.”

He concludes his speech by calling for the creation of “an energy system that doesnt jeopardise the future of our planet, a joined up transport system that helps us, rather than hinders us, from moving away from reliance on fossil fuels  A society which puts an end to wasteful leakage and environmental degradation, which puts its most valuable resources, the creations of our collective endeavour, in the hands of everyone who is part of that society. Extending the principle of universalism, right across our basic services. Free at the point of use to all who use them. Thats real, everyday, practical socialism. And were going to build it together.”

Mimic competition

I believe both points Corbyn makes are questionable. Even more importantly perhaps, it is not clear at all what he means exactly when he speaks of “taking our public services back into public hands”.

With regard to the “failure of privatisation”, according to Corbyn, public ownership of utilities is both more efficient and fairer. But there are of course countless examples of utilities ineptly managed by bureaucrats and politicians, and as often as not to their own advantage rather than “in the public interest”.

Far from being “directly accountable” to the public, as Corbyn claims, publicly owned entities are monopolies that offer the public no alternatives. Do we want the energy sector to be run like the National Health Service?

Market players on the other hand surely are, contrary to what Corbyn claims, “directly accountable” to the public. That is to say, if markets are genuinely competitive. Ask Kodak.

Customers in the Netherlands do switch suppliers. Just a few weeks ago I got a €200 bonus when I switched my supplier

The problem with many privatisations is not the private ownership that goes with them, but the fact that the privatised entities retain monopolies and no real competition takes place. Corbyn may well be right to argue that regulators cannot “mimic market competition”, but that’s not an argument against genuine markets or in favour of nationalisation.

In this context, it should be noted that in most EU countries the electricity grids are regarded as natural monopolies and are publicly owned. In my own country, The Netherlands, the grids are owned by state-owned entities. The rest of the energy market is liberalised.

Contrary to what Corbyn claims, this has led to a much more efficient market than the state-controlled set-up of the past. Customers in the Netherlands do switch suppliers. Just a few weeks ago I got a €200 bonus when I switched my supplier. Electricity prices in the Netherlands have gone down by 13% over the last ten years.

Overall, electricity prices in European countries have risen considerably in recent years, but these increases are mostly caused by higher taxes and levies – i.e. by the State, not the market. If energy poverty is on the rise, as it is said to be, is it because so much of the energy market is still controlled by state institutions?

No net cost

Corbyn’s second point, that we need public ownership of the energy sector to combat climate change, is at least as questionable.

The problem is that it is not at all clear what Corbyn means by public ownership. What assets and activities are supposed to be publicly owned or controlled? The grid, yes. There is not much gained by private ownership of the grid as long as the system is controlled by the regulator. The fact that, apparently, in the UK investments in the grid are lacking is the result, as Corbyn acknowledges, of “price cap regulation”. This is not a real market.

But what about the rest of the energy sector? Offshore wind farms? Solar farms? Production of electric vehicles? EV charging networks? Grid-scale batteries? Are they all supposed to be nationalised? Corbyn manages to avoid this crucial question.

When Corbyn says, “We need a publicly-owned grid to act as the great leveller, distributing energy from where it is plentiful to where it is scarce”, whose energy is he talking about?

Will Tesla not be welcome anymore in the UK?

Will there be no room anymore for commercial companies supplying solar PV panels? Will Shell not be allowed to build EV chargers? Will Statoil be banned from building offshore wind farms? Will Tesla not be welcome anymore in the UK?

If all energy production is to be controlled by “energy communities”, as Corbyn seems to imply, then who will control the energy communities?

If you doubt that Corbyn wants to go that far, note that he says that “basic services” should be “free at the point of use to all who use them”. Tesla and Shell will not deliver free energy. Only the State can do that – although I doubt that it can be done at “no net cost for the taxpayer”.

Yet in the end nowhere in his speech does Corbyn specify the extent of the “democratic control” he is envisioning. It is left purposefully vague.

Policy failure

Let’s assume the entire energy sector is brought under “public control”, would that necessarily result in more renewable energy and lower greenhouse gas emissions, at lower cost?

There is no reason to think so. “Public control”, i.e. direction by the State, can work in different directions after all, depending on who is in charge of the State. Ironically, when Corbyn says that, “The past is a centralised system with a few large plantshe forgets to mention that this centralised system was a creature of the State. As was the coal mining industry. He also forgets that the renewable energy sector is a hotbed of private entrepreneurship.

Nor is there any reason to believe that, even if the direction of his state-controlled system is towards lower greenhouse gas emissions, the means chosen will be efficient, or the solutions innovative. Corbyn is in effect arguing that to supply everyone with decent food, the best way is to nationalise the supermarkets. Would that be a good idea?

It is clear why policymakers are afraid to take effective measures: because they are afraid these will be unpopular with voters

True, the private sector will not “automatically” deliver lower greenhouse gas emissions. But to call this a “market failure” does not make sense.

The release of greenhouse gas emissions is an unfortunate by-product of the use of fossil fuels. It is a form of pollution in the sense that it affects the environment we all live in. This cannot be controlled by any individual producer or user of fossil fuels. It requires society, governments, to step in and take measures to limit or stop. It does not require nationalisation of economic activities, but effective rules and regulations. For example, a carbon tax. Or strict emission limits.

These are exactly the measures policymakers are failing to take, if we consider that the Paris Climate Agreement is merely a non-binding and still inadequate commitment.

This is policy failure, not market failure.

And, if we look at the UK and other western countries for a moment, it is clear why policymakers are afraid to take effective measures: because they are afraid these will be unpopular with voters. (I am ignoring the politicians who deny that there is a problem in the first place.)

Corbyn is no exception. His call for nationalization of the energy sector may sound oh so radical and ambitious, but it is, in fact, a clever way to avoid real responsibility, to avoid having to step up and advocate measures that would be much less popular than a promise of “free energy” at “no net cost to the taxpayer”.

Original Post

Karel Beckman's picture

Thank Karel for the Post!

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Bas Gresnigt's picture
Bas Gresnigt on Feb 18, 2018 10:04 pm GMT

Thanks. In the past UK nationalized and then privatized electricity generation and its national grid. Nearly unbelievable that he now wants to nationalize all again….

UK wholesale prices are higher than those at the continent (~3cnt/KWh in NL/Germany vs ~5cnt in UK) , while UK govt arranged a deal with EDF to construct a new NPP at Hinkley which implies higher prices as all produced electricity (7% of all UK electricity) will be bought at 12cnt (£102/MWh) to be inflation corrected until at least 2060.
Compare Dutch govt expectation that av. Dutch whole sale price will be <3cnt/KWh in 2035.
So apparently its UK govt whose policy increases electricity prices.

Nationalization of inherent monopoly activities, such as the transport of electricity, can be cost effective.
But generation, trade and sales of electricity are not inherent monopoly activities as shown by the ~40 sharp competing utilities in NL and ~1,000 utilities in Germany.

Such competition delivers innovation, so we now can choose wat kind of electricity we buy; e.g. electricity generated by Dutch wind turbines, etc. etc.
Virtual Power Plants come up. Those combine surplus rooftop and small wind electricity of thousands of owners (with some trading at the power exchange) to deliver a full service.

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