The cost-of-living crisis has escalated to a point where many working people in Europe and around the world face a choice between heating and eating. Governments have broadly failed to address this crisis. In Britain our politicians betray a lack of vision. Rishi Sunak, the Prime Minister, kicked off 2023 with pledges to bring down inflation and reduce the national debt, which suggests curtailing public services. The next day Keir Starmer, the Labour leader, said that his party would not be “getting its big government chequebook out” if it wins the next election in 2024, thus making clear his economic policy would not differ significantly from that of the Conservatives. For both parties the go-to answer to rising prices seems to be austerity.
Meanwhile the German government has discovered to its own surprise that it has the biggest chequebook in Europe. But it has used this power primarily to subsidise a shift from Russian fossil fuels to Qatari fossil fuels. Long-term delivery contracts, vastly oversized liquefied natural gas (LNG) terminals and increased short-term coal extraction all signal that the coalition of Social Democrats, Greens and Liberals is ready to tackle inflation at the expense of climate policy. This is a nonsensical strategy not only because climate breakdown poses existential dangers, but also because it is contributing to inflation – and without rapid emissions reductions this will only get worse, exacerbating the very problem the coalition seeks to solve.
What British and German politicians fail to see is that this is a watershed moment. Existing “solutions” to inflation either sabotage working people or sabotage climate goals. But there is another way: we can solve the cost-of-living crisis directly, with universal public services, and taking this approach can help us achieve our climate goals at the same time. The social crisis and the climate crisis can and must be solved together.
Not everyone has been hit by the current price shocks in the same way. Energy companies, for one, posted record profits in 2022. The chief financial officer of British Petroleum bluntly told investors that “it’s possible” his company “is getting more cash than we know what to do with”.
But while corporate profits have rocketed, workers are being asked by the Bank of England not to demand wage raises. In this context, rising consumer prices effectively shift income away from working people – a point that movements like Enough is Enough in the UK have been making forcefully. Recently even prominent mainstream economists have realised that inflation is, in essence, a distributional conflict.
Current policy responses, namely central bank interest rate hikes, are only aggravating the problem. If this approach works at all, it does so by depressing incomes and destroying jobs – predominantly jobs done by the most marginalised workers. We need to be doing the opposite. Instead of causing additional suffering, we need to ensure a just way out of this crisis – with interventions that directly target the underlying drivers.
According to European Central Bank (ECB) statistics, inflation in the euro area over the last months has been driven in large part by food, transport and housing. Energy costs play a key role in all of these, and this in turn is directly related to the climate crisis. Although the ECB has begun to talk about “climateflation” and US democrats have rebranded a climate-related industrial policy bill as an “Inflation Reduction Act”, concrete policies that address the connection between the climate crisis and the cost of living are sorely lacking.
Fossil fuels accounted for up to 50 per cent of consumer price inflation in the eurozone during the spring of 2022. The degree of dependence on fossil fuels is strongly correlated with consumer price inflation across EU member states. High demand for energy in the Covid recovery, paired with constrained supply of Russian fuel exports since the invasion of Ukraine, has driven price increases which have been exacerbated by speculation and price gouging by energy oligopolies.
Climate change is already impacting energy production. In the summer of 2022 a massive drought eliminated much French nuclear power capacity because dried-up rivers were no longer able to cool plants. In China the biggest heatwave ever recorded forced hydropower plants off the grid, leading to higher demand for fossil fuels to replace the missing energy. When energy demand presses up against the limits of supply, prices react.
While many countries in Europe have responded to energy price increases with cash transfers, direct measures are much more effective at stabilising prices. Such policies include taxes on windfall profits to limit price gouging – as the UK, Italy and Spain have done to some extent – as well as redistributive price controls.
But the only long-term solution is that Europe needs to phase out fossil fuels and increase renewable energy production. And to do this fast enough to meet existing climate commitments it is necessary to reduce excess energy demand. Achieving this in a just and equitable way requires two things: first, reducing the purchasing power of the rich (who use extremely high levels of energy), and second, ensuring that everyone has guaranteed access to the essential goods and services they need to live a good life.
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This forces us to confront a paradox at the heart of our economic system. Wealthy economies have high levels of production, with resource and energy use vastly exceeding sustainable boundaries, but they still fail to meet many basic human needs. This occurs because, under capitalism, the goal of production is not to improve well-being or achieve social progress, but to maximise and accumulate corporate profit. So we get plenty of SUVs, fast fashion and planned obsolescence, but chronic shortages of essential goods and services like public transit, affordable housing and universal healthcare.
Ecological economists argue that one of the best ways to deal with this problem is to establish universal public services. Public services mobilise production around human needs and well-being, and can deliver strong social outcomes with lower levels of resource and energy use. It also enables a more rapid, coordinated shift to more sustainable systems. By decommodifying and democratising key sectors such as food, mobility and housing, we can solve the cost-of-living crisis – by directly reducing prices – and help solve the climate crisis at the same time. This requires reversing the current tendency of neoliberal governments to defund and dismantle public services, which has led to the extraordinary crisis that is presently engulfing the NHS and the railways in the UK.
The cost of food has been impacted not only by the war in Ukraine, export bans by Russia and India, and Covid-related supply chain issues, but also by global heating. The entire American West, China and large parts of Europe are facing severe droughts, which has led to a number of crop failures, lower yields and higher prices. This is a long-term trend that will only accelerate if we don’t increase climate action. In 2020 the Intergovernmental Panel on Climate Change projected an increase of up to 30 per cent in the price of cereals by 2050 due to more extreme weather.
The capitalist food system is a major driver of climate change and ecological breakdown. Addressing this problem requires a general shift towards more plant-based diets, relocalisation of production where possible, less food waste, and regenerative production methods. This approach would also help to separate agriculture from the fossil fuel sector, as food production would be less reliant on fertilisers and transport, thus helping to insulate food systems from related inflationary pressures. As food price increases are also driven by financial speculation, banning this practice would contribute to stabilising prices.
In fact, a major step in addressing the cost-of-living crisis is to decommodify access to food. To do this, governments can fund regenerative farms and gardens linked to public grocery stores and community kitchens to ensure universal access to nutritious, affordable, vegetarian foods. Such a system would reduce food waste, land use and energy use, delivering significant ecological benefits while also relaxing pressure on food prices.
The costs of transportation throughout Europe have increased substantially. As of July the transportation inflation rate for the EU was hovering at around 14 per cent, well above the average of 9.8 per cent across the entire consumer price index. Energy prices and Covid-related shocks have contributed to this, but climate impacts are also a significant cause. Extreme weather destabilises transport infrastructure. This summer 47 per cent of continental Europe faced drought conditions, leading to river levels so low that ships were only able to carry a fraction of their normal load.
For consumer goods transportation, inflation can be controlled by localising production where appropriate, thus reducing the need for long-distance transport, and by reducing production of and demand for luxury or otherwise less-necessary goods. This approach deals with costs while also delivering important benefits for climate and ecology.
As for personal mobility, we can directly reduce costs by investing in public transit systems. Spain offers an important example here, where the government used a windfall tax on banks and energy companies to fund free regional public transit. Affordable or free public transit systems helps to protect people from energy price inflation. And this approach is also necessary for climate policy, as transit systems use far less energy – and emit far less carbon – than private cars per passenger mile.
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Housing, meanwhile, constitutes the single biggest budget item for most people, and costs have increased dramatically in past decades. People often spend 30-50 per cent of their wages on rent alone, and buying a house is often unaffordable. These dynamics are driven by rising energy costs, constraints in the global supply of construction materials, and the commodification and financialisation of housing as an asset class. Recent Euro-area inflation has been driven in large part (nearly 20 per cent) by housing costs, including the costs of domestic energy use.
Ensuring access to affordable housing is essential to minimising cost-of-living threats. This can be done through prioritising owner-occupied homes and socialising the rental sector, thus ensuring fair and affordable costs. Vienna offers an example, where two thirds of the present housing stock is social housing, a key contribution to the high standard of living in the city.
Housing is a major driver of emissions, and a public housing programme can be used to ensure a rapid transition to more sustainable buildings. Massive public investment is required to insulate and retrofit existing buildings to improve energy efficiency and reduce emissions. At the same time, homes in areas affected by heat waves need to be designed to maximise natural cooling and ventilation. This is a matter of social equity as well, as the poorest and the elderly are often most affected by inadequate housing and extreme temperatures.
Universal public services can deal with the cost-of-living crisis by taking steps to decommodify living, while at the same time reducing energy and resource use, ensuring the possibility of a good life for all within planetary boundaries.
This approach should complement, not replace, collective bargaining. Strikes certainly make sense in this moment, and universal public services should be added to unions’ demands. As for immediate fiscal transfers that help struggling households, these are clearly necessary right now but do not ultimately solve the problem. Universal public services address the crisis at its root, and amount to a strongly redistributive fiscal policy, since the commodities that now provide essential services make up a larger proportion of costs for lower income households.
Increases in the cost of living driven by the climate crisis are a long-term and escalating phenomenon. Tackling it requires taking democratic decisions about how resources, energy and labour are deployed – shifting production away from capital accumulation and toward what is necessary for human well-being and ecology.
The current crisis provides an opportunity to form a new and potentially powerful alliance of movements united behind the demand for universal public services. As a famous yellow vest slogan puts it, coping with the end of the month and coping with the end of the world call for one and the same political struggle.
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