Truss mines magic money tree, mithering multitudes marvel at the munificence

Blighty has a new Dear Leader, under what has been an excessive interregnum to feed the ego of a small part of the Tory party. A four-month delay to collect their prognostications is fair enough for a party in opposition, but is far too long to replace an incumbent PM. Would we have had to wait four months in the depths of the pandemic if Bozza had been pasted by Covid? Or if Putin novichoked him or nukes London?

New! Dear Leader says shes is going to fix energy bills, after people have been working themselves up trying to find a way to pay a doubling of rates up to 51p a unit from October, while working minimum wage. After spending four months hollering from the rooftops that she is not in favour of handouts the likely solution looks very like handouts to me 😉 Indeed it looks tremendously Third World to me, subsidising the price of something. La Truss delivered herself of some pithy statements in her former life as a candidate:

On the eve of the price cap announcement, Ms Truss acknowledged that soaring energy bills were a “massive issue”.

But she said the government couldn’t “just bung more money into the system”.

Ms Truss told the hustings in Norwich: “What we need is to fix the supply of energy.

“If people think this problem is going to be over in six months they’re not right.”

I happen to agree with the sentiments, although not for the same reasons. Arguably fixing the supply of energy is a great idea. But to get there you wouldn’t start from here, but perhaps many years ago, although a hat tip should be given to the significant progress that has been made, particularly with offshore wind which is a resource Britain has a lot of, comparatively.

I also agree with Dear Leader that this won’t be over in six months. The well-repeated narrative is that it’s Putin wot done it by turning off the gas pipeline, indeed what surprises me is he didn’t do that earlier, General Winter is an old friend Russia knows well. See Napoleon, Hitler and Monty’s rule one on page one of the book of war. I don’t believe the narrative. Putin supplied the shock, but the response of the market prices shows there is very little spare capacity. I am of the view that this is what the foothills of peak oil looks like. It’s not a sudden bang and turn off all the things. It is increasing scarcity, and scarcity=high prices at first, and then shortages if the prices don’t depress demand enough.

That’s not going to be over in six months, and it may not be over, ever. This doesn’t mean we will be living in caves in five years’ time, but I agree with the former La Truss that the government can’t fix this by just bunging more money into the system. That’s because this money is for rising operating expenses, and while it’s sometimes reasonable to borrow money for capex, it is never a good idea to borrow money for opex.

Net zero is not about saving the planet

It may be politic to give the handout to bills to soften the transition, but it’s an ongoing drain if energy prices are going up because supply is running out of spare capacity. If you think the need for a bung is just as long as it take for Putin to prevail in Ukraine enough to get something he can walk away with, then yes, perhaps it’s a price impulse. The trouble is that the world consumption of fossil fuels shows a steady increase, because population is still increasing, and everyone would like to have an American lifestyle in terms of energy use.

can you see the falling fossil fuel consumption? Me neither

So even if Putin changes his mind, soon rising demand will consume the amount we have lost, and spare capacity is in short supply. For all the hullabaloo about CO2 emissions, humanity ain’t giving up using fossil fuels any time soon. Just look at that chart. There was a Covid retrenchment, but it’s roared back on track.

If you want to reduce CO2 emissions, then carbon capture and storage, which has never been demonstrated at scale, and tends to use a lot of energy itself, is the only way that’s going to happen. The good things about having loads of energy at hand are just so good than nobody is going to think of the  grandchildren. Sure, the West might get to net zero in penance for having been the first out of the block, and that penance will be making the fossil-fuelled air conditioning of a burgeoning Asia and Africa that little bit less expensive by taking some demand off the table.

For a declining part of the world less able to fight its way to the top in 50 years time increasing renewables is arguably not a bad allocation of capital, because electricity is not very storable and not very transmissible at transcontinental scale, so while it can displace some fossil fuel demand it can’t easily be sold to richer bidders. As a way of reducing global CO2 output? Fuhgeddaboutit, that consumption chart will be limited by supply, not going green IMO. You can feel good about the UK dropping its per capita fossil fuel usage from 46MWh per year in 1973 to about 22 in 2021.

You have Thatcher to thank there for destroying heavy industry, and the Arab-Israeli war in 1973 to thank for improving efficiency. There are echoes of 1973 now as well – in general if you do things that piss off your energy suppliers like yelling in their lugholes they are scumbags or supporting their enemies, the price goes up. Our product, our rules was the word in ‘73 too. Sometimes you have to put up with that privation, but pretending it isn’t going to happen won’t take you anywhere good.

The problem with energy is that all the alternative options suck. For an economy in secular decline, they suck bigly. You are likely to have less energy available in future, because it’s dearer, and that’s not something the government can fight. They could try and increase renewables, and they could do something about not tying the price of renewables to the price of gas – perhaps some industrial customers could live with the intermittency of renewables for a cheaper rate. There has been a historic correlation of energy-hungry industries colocating with sources of energy, from the cotton mills oop north with the abundant water power, to aluminium refining occurring near hydropower.

But for y’all at home, it’s gonna get dearer. There’s only so much money Dear Leader can magick up from taxation and borrowing because that’s the trouble with depending on the kindness of strangers It should be noted that some at the Bank of England dispute the former guv’nor’s pithy warning. Apparently Britain has foreign assets worth 4xGDP and is flogging these off at 6% of GDP to fund living above its means. So that’s all tickety-boo then, 66 years until the high-water mark reaches the low-water mark. Should see me out, that’s a SWR of 1.5% so it might even be sustainable, ceteris paribus… The trouble with life is that all things stay equal only in the grave.

We have lived with less energy before, we can do so again. We have some advantages – efficiency is better and control systems are smarter. Against that, energy is used in a lot more places quite diffusely than before the digital revolution of say the 1990s onwards. I started chasing power in the face of future energy rates of £1 for 2kWh. Saving energy at home showed that most commenters had the edge on me in the art of saving energy 😉 Despite that I hit two power hogs and continued chasing, as well as investing in renewables. And oil…

Now that La Truss has declared that the Ofgem increase isn’t going to happen for two years until the next election some of that is perhaps a misallocation of capital, and I am not going to increase my investment in renewables over and above what I have already. I am cheered not to be paying for other people’s heat pumps, solar panels and insulation, though 😉 I know it’s petty, but I don’t want to pay for your green crap through my power bill. I don’t mind too much paying for some green crap, even if it’s the same amount, through taxation¹, because CEOs will hopefully get to pay more. There’s a hint of the poll tax in the everyone pays the same amount for the green crap so we don’t have to call it taxation.

Now the magic money tree has been located, well, that’s all fine then. Inquiring mustelid minds are intrigued as to how tens of billions of pounds are going to be magicked up ongoing, the obvious solution is to make those pounds worth a bit less so the job is easier to do. Still, it will reduce near term inflation, which gives me a little bit more time to think. On the other hand, if you look at a chart of the Great British Pound against a basket of other currencies, IMF special drawing rights, I’d say

How many IMF SDRs can 1 GBP buy

going down the toilet is perhaps being charitable. Not as bad as Covid, pretty much the same level as after Brexit. Looks like night has fallen on them sunny uplands, and Putin has knocked about 15% off the value.

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1. FWIW the Ermine is and probably always will be an income tax payer, despite the non particularly economically active status ↩