We need to talk about gas
Gas is not a popular topic of conversation. When it comes to energy, most businesses or politicians prefer to talk about their plans to invest in green energy. This is usually steeped in the familiar rhetoric of reducing our carbon footprint or severing our dependency on the increasingly unstable Persian Gulf. We are familiar with the state of the public debate on energy and most people are tired of oxymorons about clean coal or the whining of NIMBYs about how unsightly wind farms are. However, I feel we need to talk more about gas.
Whether we like it or not we are a country addicted to gas. Most homes in this country use gas in their boilers and gas expenditure makes up a significant proportion of many peoples' household budget. We are so used to stumbling into the kitchen, bleary-eyed each morning, turning on the hob and pressing the ignition button to boil an egg that we scarcely give a second thought about where gas comes from and who’s hands we putting our hard earned wages into.
Like any other dwindling resource, the price of natural gas has risen exponentially as our demand has blossomed and deposits have been drained. The production and export of natural gas almost entirely props up the bank accounts of some of the world’s richest countries and people. Without the wealth stream generated by the West’s huge thirst for gas, nations like Qatar would simply be another Middle Eastern Emirate with an overbearing monarchy and alienated citizens.
The same is true in this country. The former state owned British Gas still controls a huge section of the British energy market and millions of people rely on the company to heat their homes in winter and provide their hot water. Each year British Gas and the other suppliers raise the cost to the consumer and then post record profits a few months later. This is partly due to rising costs from the firm’s suppliers but after a few years of price rises followed by increased profits one cannot help but draw conclusions.
Recently, British Gas announced that they will be raising their domestic gas prices by 18% in August and the other home suppliers are expected to follow with similar price hikes. This is alarming in the context of the BBC reporting that the division of British Gas which oversees domestic supply posted £740m in profit last year and, that for the same period, a 22% rise in fuel poverty was recorded.
Fuel poverty is when 10% or more of your budget is spent on heating your home. This means that a rise in gas prices whilst average income and other expenditure remains constant will cause the number of households who are fuel poor to rise. At Christmas this year over 4 million homes in the UK will be classed as fuel poor with obvious effects on personal health and comfort. If economics is the science of satisfying our material needs and wants then we are clearly failing to satisfy the need to keep warm of over 4 million families across the country.
Ballooning fuel prices also has a macro effect on our economy. Senior economists at the Bank of England have largely attributed the recent high levels of inflation (currently at 4.2% on the Consumer Price Index) to rising fuel costs. Energy prices push up the costs of production of our domestic industry which in turn is passed on the consumer in the form of higher retail prices. Transport costs and the cost of raw materials are linked to fuel prices and a clear pattern has emerged recently of rising inflation and rising price of oil and gas. Rising fuel prices also have a knock on effect on the cost of food. Food prices are highly sensitive to changes in transport costs and the Bank of England has stated that recent food prices rises are greater than to be expected. In the second quarter of 2011 inflation has fallen back from 4.5% to its current level on the CIP scale, although the Bank of England attributed this to falling high street prices and noted that fuel and food costs remained high for the same period.
It is mine and others' beliefs that the government and the energy regulator body Ofgem need to do more to curb the rise in gas prices. Run-away price rises are squeezing the budgets of too many households and pushing more families into poverty. Rising fuel costs are also pushing up inflation and stunting our economic recovery, this is partly due to foreign suppliers raising their price but a government subsidy could be used to prevent this rise being passed on to the consumer. Calling for government intervention in the domestic energy market will not be popular with the political centre, or with alarmists who will conjure up memories of the coal board, the 3 day week and poorly-run, tax absorbing state owned utility companies. That said, we cannot stand idly by and wait until having warmth in the winter becomes a luxury commodity while a former public owned industry continues to post record profits.
There are not many topics of conversation in politics that can be termed as sexy but gas surely is not one of them. Energy policy has focused on (the very important issue of) moving our dependency away from fossil fuels rather than how can we distribute the remaining non-renewable resources more fairly. In short we need to talk more about gas because, unpopular as it may be, it remains an important issue.