Oil and Gas Price Rises Fuel the Case for a Just Transition Now

By staff - Just Transition Partnership, April 22, 2022

The dramatic rise in the prices of oil and gas, compounded by the reductions in supplies as a result of the war in Ukraine, have demonstrated the failings of our broken energy system. The social and environmental damage it causes have underlined the case for a just transition to renewable sources of energy, giving people power over the energy system. This must be planned to create good and secure new jobs and to protect the living standards of the poorest, the wellbeing of all and the health of the planet.

Consequences of fuel price rises for citizens and corporations

Wholesale gas prices quadrupled in the last year, according to Ofgem’s statement¹ made on 3 February when it announced that the energy price cap (the maximum prices which energy retailers can charge) would rise by 54%. Further rises are anticipated in September.

On the same day , Shell announced profits of $19.3bn for 2021. In the last few months profits made by oil corporations have soared. “The largest oil and gas companies made a combined $174bn in profits in the first nine months of the year” reported the Guardian².

National Energy Action said that in the UK the number of households in fuel poverty is expected to go up from four million in October 2021, to 6.5 million after April’s price rise³. That would go up again to 8.5 million in October this year, if the typical bill increases to £3,000.

As Unite general secretary Sharon Graham said on 3 February:“The energy price cap rise will turn the cost-of-living crisis into a catastrophe for millions of people. This will plunge at least one in four families in Britain into fuel poverty”.⁴ With rates of inflation higher than wage increases and benefit upgrade, living standards are under threat.

The consequences for employment of rising prices and falling incomes have been predicted to be negative across the economy as a whole. In the energy sector there may be some stronger recruitment where production can be increased in the short-term in response to higher wholesale prices but in a volatile market the longer-term consequences are probably going to be determined mainly by the direction of government policies on both energy efficiency and fossil fuel licensing , with the prospect of largest employment rises in energy efficiency.

Causes

The factors which have driven price rises include post-pandemic return of demand, the effects of hot summers on energy usage and drought in parts of China on hydro generation; and some restrictions on supply from, for example, Holland, Norway and Russia. However it has not suddenly become four times more expensive to extract and deliver oil and gas. It is speculation in the markets which pushes the price rises so high (and could also see them fall as much in other circumstances), to which the consequences of the war in Ukraine for gas supply in Europe have added a further twist.

This has been compounded in the UK by policies which included closing gas reserves; a regulatory regime which allowed numerous companies to enter the market and then fail, and a reluctance to place a duty on corporations to reduce price increases see . (In France the government has instructed EDF, in which it has an 85% stake, to limit increases to 4%).

The UK is also exceptionally reliant on gas for heating and power generation. Approximately 85% of houses in the UK rely on gas for heating, and in 2021 42% of electricity came from gas power stations. Successive governments have failed to take forward widespread retrofit programmes to eliminate draughty houses and install renewables-friendly heating systems. Our reliance on fossil fuels has exposed people to a volatile and international fossil fuel market. The price cap rises and social devastation to follow are the consequence.

Government responses

The duties on government in these circumstances should be to protect the living standards of citizens, in particular those on lowest incomes, and ensure reliable supplies of energy while meeting decarbonisation targets. The UK Government has introduced two measures to reduce the impacts on household bills (£150 rebate on Council Tax; a £200 rebate on bills to be paid back over 5 years). However these are much too small to protect households from significant increases in their fuel costs.

The UK Government has published a revised energy strategy which, the STUC said on 7 April “fails to address the crisis of workers across Scotland making the calculated decision between having a hot meal or a warm home. Energy suppliers have profited during a crisis”⁵. It fails to speed up investment in home insulation which could have the most immediate impacts on both households’ costs and demand reduction. It does not even aspire to ensuring a just transition and fails to show how this strategy would retain and increase unionised, well-paid jobs within the energy sector. The Scottish Government is due to publish its own Energy Strategy later this year and it must deliver what the UK Government has failed to do.

A Just Transition Plan should be implemented urgently

A properly-funded Just Transition Plan provides the best response to these crises in the short, medium and the long terms. In the short-term, rapid investment in energy efficiency (for households and businesses) and reductions in demand will have the most immediate real impact on energy bills. It will also create jobs by boosting demand in an economy in danger of recession. In the medium term, ramping up investment in renewables and energy storage is the best and cheapest way to bring new energy sources on-stream and to improve security of energy supply. In the long-term it ensures the decarbonisation and adaptation of the economy which are required to protect workers and citizens, and their environment, from the worst effects of climate change.

Some of the features of a Just Transition Plan which are most relevant to these objectives should be:

1. immediate large-scale retrofit programmes for housing, led by local authorities
2. immediate programme of energy efficiency measures for enterprises (public and private)
3. a windfall tax on the profits of oil and gas companies to help fund these programmes
4. a step-change upwards in the scale and pace of investment in renewable energy and storage
5. tight conditions on energy companies requiring the creation of good quality, secure jobs and training for workers
6. a publicly-funded skills programme to ensure there are workers available to fill the jobs created
7. Just Transition Plans for every sector and every region co-produced with workers, unions and communities

For a more detailed raft of policies for bringing about a just transition in Scotland, refer to our 2021 election manifesto on the Just Transition Partnership website:

Just Transition Partnership Manifesto 2021

Notes:

1. https://www.ofgem.gov.uk/publications/price-cap-increase-ps693-april
2. https://www.theguardian.com/business/2021/dec/06/oil-companies-profits-exxon-chevron-shell-exclusive
3. https://www.nea.org.uk/news/charities-warn-3000-energy-bill-could-leave-8-5-million-uk-households-in-fuel-poverty/
4. https://www.unitetheunion.org/news-events/news/2022/february/energy-cap-rise-is-a-cost-of-living-catastrophe-for-ordinary-workers/
5. https://stuc.org.uk/media-centre/news/1651/stuc-on-uk-energy-strategy

Disclaimer: The views expressed here are not the official position of the IWW (or even the IWW’s EUC) and do not necessarily represent the views of anyone but the author.