Sometime over the summer, energy markets in Europe broke down. Our voracious appetite for energy had run up against a series of intractable phenomena. Geopolitical chaos, the climate crisis and the limits of existing technology placed a stop order on energy supplies. When economic agents no longer trusted the market to balance demand and supply, prices exploded.
The European Commission eventually intervened, announcing new price caps on renewables and a levy on revenues from fossil fuel companies. Britain opted for price caps for consumers. But across Europe, the underlying problem of energy scarcity remains unaddressed.
Europeans have now realised that the transition to renewable energy is less like flipping a switch, and something more akin to regime change. For decades the military and financial might of the United States has been in the service of securing a deep network of extraction and energy flows spanning the world. Today, a reliable sign of US imperial decline is the growing strain on that network. One after another, large energy producers – Venezuela, Russia, Iran – are becoming international outcasts, excluded from the ruling global order.
For Europe this is catastrophic because the continent remains dependent on global flows of fossil fuels and, since the Suez crisis in 1956, is unable to direct them. As for renewables, their limits have been painfully exposed by the current crisis: a record 12 per cent of electricity in the EU this summer was generated from solar, but this remained below the 16 per cent that came from coal over the same period.
It is no coincidence that the limits of US power are being tested at a time when fossil fuel reserves are being exhausted. Taken in isolation, stocks of oil and natural gas could last for a few more centuries, but that is the wrong way to look at the problem. What we have been consuming is not gas or oil but degrees of warming from the burning of fossil fuels. When you have consumed all the degrees that humanity can bear, the energy supply has been spent.
The share of energy in the total costs of production has traditionally been very small, so economists tend to neglect its foundational role. Its contribution has been overshadowed by the overall share of capital (about 25 per cent of production costs in recent decades) and that of labour (roughly 70 per cent). But the impression of energy abundance is always the product of a previous energy regime. The main reason a permanent flow of energy is often taken for granted is our tendency to adapt our economic expectations to available energy supplies. It is only at moments of crisis that one realises energy is central to the economic process. The economy as a whole could be regarded as an engine using energy to transform inputs into outputs.
For the time being, we are still living with the fundamental inheritance of the energy revolution of the late 19th and early 20th centuries. That period’s advances include, above all, large-scale electricity generation and the use of innovations such as internal combustion engines and electric motors. As the environmental scientist Vaclav Smil convincingly shows, most of these advances are still with us, not as inconsequential survivors from a bygone age but as the foundations of our industrial civilisation. The only new primary energy source that made a substantial commercial difference in the 20th century was nuclear fission, and its impact remains limited, well short of initial hopes that it would be transformational.
From here two paths seem possible: economic and social stagnation, or an energy revolution. We may be forced to accept that energy revolutions are rare episodes in human history. Perhaps we’ll be forced to live with the decaying structures of the previous energy regime. Renewables will mitigate some of the impact of climate change, but geopolitical conflict to control energy sources will intensify and everyone will have to adapt to a world of energy scarcity.
The alternative – perhaps as a result of this painful new reality – is that the sense of impending crisis instigates a new energy revolution. Technological revolutions are not the product of free-market processes. They are the product of historical forces, resulting from the way societies deal with acute crises and the conscious need to overcome them. In the late 19th and early 20th centuries, the Second Industrial Revolution in the US, for example, was a way to build a continental economy and manage social conflict in a large democracy.
We hear about all kinds of miracle solutions to reignite economic growth: lower taxes and higher taxes; investment in education or a radical reform of the education system; economic nationalism and economic globalisation. I can plausibly imagine how these solutions might work, but none would compare to a techno-economic breakthrough that would change everything. I have in mind the discovery of a genuinely inexhaustible source of energy, such as nuclear fusion. Energy would replace labour and capital as the single driver of production, since every kind of machine could be built and operated in a world of genuine energy abundance.
Addressing climate change will force us to replace our existing energy system, but that system is the foundation of modern civilisation. It is utopian to hope it could be fully transformed by renewables in their current form, with energy sources that often have densities and efficiencies lower than those of fossil fuels. You cannot replace something with its negation. You replace it with a successor, a higher synthesis.
This article appears in the 21 Sep 2022 issue of the New Statesman, Going for broke