FACING FUEL POVERTY?

In the face of resistance from green groups and local concerns over earth tremors, the UK government chose to embargo oil and gas fracking in 2019. This significantly impacted the UK's energy security and economy, leading to an energy crisis. It is currently anticipated that the nation will likely experience fuel poverty by January 2023.

Background

The United Kingdom is a global leader in decarbonization, according to the International Energy Agency (IEA), with a net-zero objective for carbon emissions by 2050. Naturally blessed in energy resources with its rich coal reserves, the country was largely reliant first on coal-fired power generation till it switched to nuclear power in the 1950s. Then oil and gas were struck in the 1960s in the North Sea, which made the UK self-sufficient.

Midway through the 2000s, a significant decline in domestic North Sea gas production pushed Britain into importing gas to meet its ballooning industrial and domestic demand from Norway, the Netherlands and Belgium. The shortfall was made up by liquified natural gas shipped from Qatar, the U.S. and Russia. However, due to restricted storage capacity (Britain can store less than 1 per cent of the capacity in Europe), an uninterrupted supply of gas is critical to keep its gas-powered electricity generation plants running. This also makes the country vulnerable to price swings as its strategic reserves are minimal.

Analysis

It might look paradoxical that a nation that previously had one of the world's most reliable and diverse energy systems is now experiencing such an energy crisis. According to a new study by York academics, by January 2023, two-thirds of families in the UK would have fallen into “fuel poverty”, even with a £400 fuel rebate offered by the government. Energy costs in the households are predicted to more than quadruple from the previous year, which is about 80 per cent from October.

This has serious implications for the quality of life of a common Briton because this price hike would eat into the household budget and push inflationary trends, rendering many households below the federal poverty line. Pressure on an already stressed chancellor of the exchequer is bound to mount as the government will have to provide greater financial assistance to impacted households.

As UK looks at measures to increase its North Sea oil and gas production to take up the slack as a result of the ban on Russian gas and oil, there are concerns being raised about how this will affect the climate change targets that the country had ambitiously announced.

Critics blame the government for its slow pace in creating renewables which have exacerbated the energy situation. A 2022 estimate by CarbonBrief indicates that the UK's energy costs are close to £2.5 billion higher than they would have been if the government had not abandoned some climate programs over the previous ten years.

In a controversial move that drew flak from the green lobby, both domestically and internationally, the government has ordered a new report into fracking. Hydraulic fracturing, popularly known as fracking, is a technique to recover gas and oil from shale rock. As the government struggles with a worsening economic situation, financial prudence may overcome green concerns to start fracking once again.

The Ukraine war and over-reliance on cheap Russian oil and gas have placed almost all European countries in a similar dire strait with regard to energy. The impact has spread as far as Australia, where the Energy Regulator increased basic power prices on May 26. For some consumers, the increase was as high as 20 per cent.

The lame-duck Johnson government has refused to bring out any new policies. Rishi Sunak has proposed a three-part plan which includes cutting VAT on energy bills and giving pensioners and those on benefit handouts extra winter fuel payments. Lis Truss has promised to reverse the recent rise in national insurance contributions and to do away with green levies on energy costs as also stop the £400 energy rebate to “wealthy” households. However, at the rate the costs are rising, these are mere drops in an ocean.