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Nick Butler: Is Britain’s Energy Business Being Renationalised?

Nick Butler, Financial Times

In a provocative paper published by the Institute of Economic Affairs just before Christmas Professor Colin Robinson, one of Britain’s most senior energy economists, says that the energy sector in the UK has been “effectively renationalised”.

The language is strong and the case overstated. The claim is not true in any literal sense. Companies are not being taken over or expropriated by any Government agency. There has been no transfer of ownership. But behind the rhetoric is a real trend. There has been a transfer of effective control, the consequences of which are pushing large parts of the sector back under Government authority.

Professor Robinson’s paper focuses on the UK. But the trend is not restricted to Britain. In different ways a similar shift is taking place in Germany, Japan, and even to a limited extent in the US.

In what has always been a hybrid sector built on a mixture of public policy and private capital the balance of power is shifting year by year. In each of these countries and many others Government is now determining outcomes to a degree unseen since the wave of privatisation in the 1980s.

Of course Government has already played a big role in energy issues not least through the tax system. In the UK the percentage take on petrol is almost 80 per cent. Tax also shapes the pattern of development in the North Sea. The oil and gas industry is one of the few sectors with its own unique tax regime.

But in recent years two other forms of intervention have become more common. The first is the attempt to control the fuel mix. This starts with the various prohibitions. By Government decree the nuclear sector in Germany is being run down and not replaced. In France despite the country’s long history of mining and substantial deposits of shale gas and tight oil there is to be no fracking. In Japan the nuclear sector is closed for the moment and perhaps forever. In the US regulations to control power stations emissions will lead to the closure of coal fired power stations.

None of these outcomes would have occurred if there was an open market. Alongside the prohibitions go the selective subsidies – from the lavish support for new nuclear and offshore wind in the UK to the subsidies to domestic coal and onshore wind in Germany. In the US regulations are being put in place to control emissions from coal fired power stations.

The stated logic for many of these choices is environmental but it isn’t clear, for instance, how German decisions to run down a proven and cost effective nuclear sector will help reduce emissions. There and elsewhere emotion seems to outweigh both economic and environmental concerns.

The other recent Government role is intervention at the retail end of the energy market. In France this has long meant that prices are kept artificially low. In the UK proposals for a price freeze and the alternative measures proposed by the current Government represent unfinished business. Nothing proposed so far is likely to keep prices down as intended. A break up of the sector into producers and retailers is under active consideration by at least two of the main political parties. In Germany the issue concerns the cost of energy to business.

What is clear is that across the spectrum there is an acceptance that Government now has some responsibility for the prices charged by private companies.

The net result is a confusing mix of Government interventions which in general are not delivering the intended results.

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