By Finghin Kelly
This week, European Commission President Ursula Von Der Leyen addressed the European Parliament in the annual ‘state of the union’ address.
In that address, she said that the energy market “is not functioning anymore” and that the Commission will be “proposing a cap on the revenues of companies that produce electricity at a low cost” as these companies were making profits “they never dreamt of”.
Free market propaganda exposed
Despite President Von Der Leyen and other representatives of capitalism saying how the market is ‘broken’ or ‘not functioning’, the reality is that it is working as it was meant to.
The liberalisation and privatisation of the energy utilities has ushered a bonanza of profits.
In Ireland, the ESB went from providing the cheapest electricity in Europe to Ireland now having some of the highest in the EU. This is in no small part to the ESB being forced to jack up prices to allow for profits to be made for private operators. This happened across the continent. So much for the market and competition lowering prices!
The model of marginal pricing designed by the EU – where prices are set by the most expensive form of fuel used to generate electricity rather than the average price – was deliberately designed to give super profits to energy-generating companies. This was a very conscious decision and guided by the false idea that investment will follow profit which in turn will see an increase in investment in cheaper energy sources like renewable sources. Of course, that is not how capitalism works.
Capitalists do want to maximise their profits, but they will invest elsewhere including in useless and harmful speculation if they can get a better return. The result is that the liberalised energy market in Europe has delivered bumper profits to energy companies – for a long time and not just with the recent crisis – while the investment in renewables is far behind what is needed.
When you see the extreme reluctance from the Irish government to touch even a cent of the profits of big business, on first glance you might be forgiven for thinking that the EU Commission is shifting to the left. However, further scrutiny will show that this is nothing of the sort.
The cost of energy is a massive headache for capitalism. European capitalist classes in particular are feeling the pressure due to the war in Ukraine, but also not having access to their own sources of energy, made worse by the lack of sufficient investment in renewables.
This pressure is happening at a time of increased competition and rivalry in global markets from the likes of China and the US. The pressure coming from big business, in particular manufacturing, to lower energy costs is real.
This is not the only factor pushing the Commission and governments to act, there is also a palpable fear from the capitalist classes of the political impact of rising energy prices. They fear further political instability, and also working-class people getting organised to fight for higher wages and measures to mitigate and defend their standards of living.
These are the factors behind the Commission moving to implement its windfall tax.
To underline that this is not a permanent move, in her speech Von Der Leyen emphasised the temporary nature of the measures and how “profits are good”.
It is estimated that the windfall tax could bring in €140 billion. This would be a certain shift in wealth from those companies that are raking in the largest profits in this crisis. It is yet to be seen, however, who would benefit the most. Many governments will be keen to use this windfall tax to mainly benefit big business. It is essential that this is used instead to ease the burden on households and small businesses that can show a need for relief from spiralling costs.
When you look at the details of the proposal, you can see that the Commission is still not really tackling the profiteering. It proposes to take one-third of the profits that are 20% over their average profits in recent years. Therefore, these companies will still be allowed to boost their profits by 20%, and even then will keep two-thirds of their profits over this!
We will also inevitably see many of these companies avoiding these taxes through accounting tricks to lower the level of profits declared on their books. As a result, this windfall tax will not end the profiteering, nor will it bring about affordable energy for working-class households.
If these energy profiteers were brought into public ownership, instead of being paid out to shareholders all their profits could be used to lower bills and to invest in renewables and other essential infrastructure. The Commission’s €140 billion figure shows that over many years hundreds of billions, or even trillions of euros could be used for this.
Relying on market mechanisms to bring about a transition to a zero-carbon economy has utterly failed. The tinkering from the Commission will have no impact on this.
Liberalisation and privatisation has meant an essential commodity like energy, which is fundamental to living in the modern world, has turned into a source of speculation and profiteering. It also is a model that is devoid of the planning that we need. It is no surprise therefore that the threat of blackouts is a real threat this winter.
A socialist plan, that would see energy generation and distribution under public ownership and run in the interests of the majority, and on an environmentally sustainable basis by rapidly transitioning to 100% renewable energy, would provide electricity and heating according to the needs of society. Such a system could ensure that these vital utilities would be provided cheaply, and even for free at the point of use for regular households. Public utilities that are focused need and not profit would be able to invest heavily in renewable generation, upgrading of distribution networks and in projects to drastically cut energy wastage such as through retrofitting of homes and buildings.