This is less of a problem for the US, which has invested heavily in shale over the past decade, than for Europe and Britain, where it was naively assumed that our fossil fuel requirements could simply be offshored until no longer needed.
It’s too late now. There is no chance of generating the worldwide boom in hydrocarbon investment needed to shift the dial on energy costs if at the same time you are trying to create a boom in alternative, renewable sources of energy. It’s one or the other.
As it is, Europe now has little option but to forge ahead with its intended energy transition, which one day may indeed deliver oodles of cheap electricity. For now, however, it traps the Continent – and Britain – in high energy costs.
So there’s one thing that is unlikely to be reversed in any foreseeable future: high energy prices are here to stay.
Nor can these indefinitely be mitigated through state intervention. The Office for Budget Responsibility has estimated the cost of the UK’s Energy Price Guarantee, together with the related Energy Bill Relief Scheme for business, at £43.2bn this financial year and £18bn for next. For this financial year, those costs equate to nearly a quarter of all Government borrowing.
This is admittedly partially offset by windfall profit taxes. Even so, intervention on such a scale is plainly unsustainable on any kind of long term view.
If wholesale prices were to return to last summer’s highs, the costs would surge to £62.1bn this financial year and £83.9bn next, according to OBR forecasts – way beyond anything that might be deemed affordable.
Replacement of the blanket subsidy with some kind of social tariff is one possibility under active Treasury consideration, such that there would be a price guarantee for bills up to a certain level, but anything above would pay the full market rate.
