I read an interview with an JSO campaigner this week. I was struck that her argument went much further than stopping oil, she wanted systemic regime change, and the end to capitalism, it would be labelling her to say that she was a communist, but some of what she was calling for that would not be out of place in the manifesto. It got me thinking about the balance of free market economics and the need for central planning in the energy system.
The case for the free market: Throughout 2022 global energy markets very effectively rerouted energy supplies to where they were needed. The lights stayed on in Germany because LNG flowed in when Russian gas was reduced. The downside was an increase in price, but this is exactly how the free market is supposed to operate.
The case for central planning can be based on some of the failures of the free market. The free market hasn’t moved quickly enough to implement the environmental change that we need, it doesn’t price in externalities (like CO2 and pollution), and without regulation we will completely deplete the planet’s resources. I’ve long held the view that only governments will build mega projects like nuclear power stations, and make the anticipatory investments needed for energy transition.
But in general Government intervention doesn’t end well, there are many examples where centrally planned agricultural systems have resulted in starving populations. I’ve heard many people say that the most likely effect of the Inflation Reduction Act is higher inflation.
Around the world almost every conceivable model for the energy market is in existence from fully state owned and planned to free markets with limited regulation. There’s no clear evidence that one of these models is the clear winner.
Perhaps the answer isn’t so simple for energy and there are times and places for each model, the tough part is deciding which model to use when.
