Decarbonising industrial capitalism is not straightforward. It comes with many contradictions, one of them being energy poverty induced by rising energy prices.
Economic recovery, after the pandemic deadlock, produced an increasing demand for energy. Renewable energy sources are not yet able to meet this demand. Because green technologies and infrastructures are not ready nor accessible for all, natural gas and other fossil fuels regain importance, while divestment in particular into gas storage facilities led to bottlenecks. All the while, climate change policies point in the opposite direction and, ironically, make the production and distribution of conventional energy even more expensive. This is the ‘Penelope’s Web’ of energy transition that risks jeopardising social cohesion in Europe and beyond.
The escalation of energy prices induced by energy shortage, and the increasing demand of natural gas both involve a series of dramatic social and economic effects. Rapid energy-driven inflation, the erosion of real wages, and the income of poor households, all depress the economy, worsen unemployment, and further disempower vulnerable workers. As winter is approaching in Europe, and the demand of energy will further increase, the ETUC warns that the mix between low wages and growing electricity prices can leave 3 million workers at risk of poverty and without heating. The same goes for low-income groups throughout other countries in the northern hemisphere.
Causes and consequences of the energy conundrum
Analysts are clear that this wave of energy-driven inflation is primarily due to increasing global demand for natural gas, still a key component of the EU energy mix. Moreover, supply chain bottlenecks have sent shipping costs soaring and left manufacturers short of key production goods. Nonetheless, in contrast to what popular press labels as ‘greenflation’, rising energy prices and poverty are not the outcomes of decarbonisation policies. On the contrary, they are the result of policy mistakes made by the EU and other advanced economies in the last thirty years: too much fossil energy dependence, slower than the planned deployment of renewables, and too much deregulation in energy and gas markets. Lessons can be drawn, but these policy mistakes cannot be ignored and then quickly adjusted.
Even if not due to decarbonisation, the current energy conundrum delivers an important message for the transition away from fossil fuels: until renewables and other low carbon technologies are not available on mass scale and accessible to everybody, any market driven carbon price policy (ETS and the prospective ETS2, CO2 tax, etc.) would have a price increasing effect and would greatly impact the impoverished. To ensure that ‘leave no one behind’ is not only a void policy slogan, EU and state coordinated responses are needed in order to address the effects of sudden price fluctuations and to prevent vulnerable people from paying the cost of the transition to renewables. This should be a key component of the EU strategy to facilitate a ‘just transition’.
EU responses to rising energy prices
On 13 October 2021, the Commission adopted a Communication on Tackling rising energy prices, in which a toolbox to support appropriate measures to mitigate the impact of sudden price hikes was presented. The toolbox comprises both short-term and long-term measures. These measures include price caps and temporary tax breaks for vulnerable energy consumers, stepping up energy market surveillance to avoid anti-competitive behaviour, and investing in energy efficiency and critical infrastructures for renewables. While aids targeted to low-income groups would be critical, it is also important that these policies will not subsidize everyone’s energy bill.
To mitigate the risk of energy poverty, governments are invited to create safety nets and social security mechanisms to protect vulnerable groups. The proposal of the European Commission for establishing a ‘Social Climate Fund’ already pointed in this direction, although this initiative specifically targets the social impacts of the new emissions trading for buildings and road transport (ETS2). Since the ‘Social Climate Fund’ will only kick in from 2025, when ETS2 will be set up, it would hardly offer relief any time soon. To gain access to this funding, each Member State should submit to the Commission a Social Climate Plan pursuing two objectives. Firstly, to provide the necessary resources to finance and carry out investments in energy efficiency and in decarbonisation of heating, cooling and mobility. Secondly, to mitigate the impact of the increased cost of fossil fuels on the most vulnerable.
Implications for wage policies
While the focus on ‘the most vulnerable’ groups is reasonable, and tackling energy poverty should be prioritised, the escalation of energy prices will have a wage impact far beyond the poverty line and specific economic sectors. It will negatively affect real wages of the lower middle-income workers and of those that are not necessarily in poverty. Rightly so, the ETUC calls for a strong EU action on wages in order to insulate workers against energy-driven inflation and avoid the growth of impoverished areas. Unions in some EU Member States are already calling strikes for higher pay as eurozone inflation raises.
On closer inspection, however, the most effective and immediate policy lever to tackle energy-driven inflation would hardly be wage bargaining or statutory minimum wage. This is for two reasons. Firstly, the drop of real wages caused by energy prices is immediate, while on the other hand, mechanisms to adjust wages to inflation takes too long and can be politically complex to manage. This is especially true when it comes to collective bargaining. Secondly, acting directly on wage levels could negatively impact employment, specifically in firms that will be mainly affected by the escalation of energy prices and in those that are greatly suffering from material shortages. Arguably, in addition to social security mechanisms, the tax lever could be a better and fairer policy option (at least in the short-term). Reductions in wage-related taxes, which in some countries are extremely high, could be proportionate to income levels (the lower the income, the higher the tax reduction).
The importance to democratise the energy system
Most importantly, the spectrum of social conflict over the energy transition should not be used as an expedient to procrastinate more democratic alternatives to fossil fuels and nuclear corporations' strongholds. Trade unions and other social forces should be vocal on this and join in collective action to create the mid to long-term material conditions to eradicate the root causes of energy poverty. Without democratising energy production, distribution and consumption, workers and unions are vulnerable to fossil fuels. They are fated to ‘praising’ jobs and bending wage bargaining to chase energy prices.
Recent EU legislation opened a possible way to re-socialise and democratise the energy power. With the Clean Energy Package, energy communities received full recognition and protection under the EU law (see Articles 2(11) and 16 of the so-called e-Directive and Article 22 of the so-called Renewable Energy Directive). Although the prospect of a total disconnection from industrial grids is difficult to imagine, energy communities could prove to be a realistic alternative in achieving energy independence for individuals, families, and small businesses, while offering great potential for the relocation of the energy power around human-scale economies rooted more closely in the communities they serve. The flourishing of renewable-energy cooperatives and communities in many EU countries, North America, and in the Global South provide an example of successful alternative economies. These are usually characterised by some form of democratic control or shared ownership by the people and communities involved, showing how socialising the power of energy sources can make an important contribution to sustainable development and its social acceptance, while maintaining the market space embedded within the broader socio-ecological one. Should 21st century trade unions have a role in this? Or should they leave this socially and environmentally progressive end to consultancy firms and financial experts?