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The Times: Back to the future on energy

February 15, 2008
Antonia Senior: Business Commentary

If you were not already frightened by the prospect of climate change, here is a reason to become very afraid: a multinational oil company has just issued a call for wholesale government intervention and regulation of the energy industry.

Of course, governments already regulate and tax energy on a large scale but this is different. Shell wants government to take charge. It wants politicians to decide what energy we consume and what form it should take, what investments should be made and which technologies should be adopted.

Only a decade ago, such a statement from a pillar of multinational capitalism such as Shell would be unthinkable. In the 1990s, the buzz was deregulation, privatisation and market solutions. The deregulation of Britain’s gas and electricity markets was held out as a triumph of market forces in which the UK led the way. The gas price plummeted and consumers rejoiced.

We now have energy companies nodding sagely that a massive burden must be placed on energy consumers – Shell talks of a carbon price of almost €100 per tonne – and that extensive additional regulation is needed over the composition of transport fuels. The only possible explanation for such a shift in thinking is that the big bad energy companies have been given a bit of a fright. The alarm bell has rung on the bridge of global oil and gas and the multinationals can see their options dwindling rapidly. Their access to good profitable hydrocarbon reserves is closing. The cost of producing extra barrels is soaring to levels that wipe out much of the profit from $100 oil.

At the same time, they see random actions from politicians taking spurious initiatives on the hoof. In the UK, government declares its support for nuclear power stations but washes its hands of any economic responsibility for a colossal programme of construction and adoption of untried and untested technologies. Likewise for carbon-capture and storage schemes, a technology that has never been commercially tested but is held out as the answer to everyone’s prayers for a future world of relatively benign climate. Europe asks for a massive conversion to renewables – what renewables and how?

The private sector will provide, say the politicians smugly.

It will not and it cannot without huge levels of co-operation, support and, yes, financial help. We are about to go back to the future. We need a Department of Energy and it must get a grip, very soon.

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