Energy is a statist business

Right at the start of the process that ends up heating your home, the entire system is framed by who gets to pull this stuff out of the ground in the first place. And that is the preserve of the state

Flaring_gas
Flaring shale gas
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the commentator
On 29 October 2013 10:50

Where do you think your energy comes from? The Gulf? Russia? The North Sea? All of the above, and more, if you're interested in the geographical location. But that is not quite the question we are asking, which is this: where do you think it comes from in the sense of how and by what method does your energy retailer actually get hold of the gas, the coal, or the oil that you end up paying for?

It usually starts out like this. Either a state monopoly or an extraction company with a state licence drills or mines it out of the ground. It is then put on the global market, purchased by your energy company and sold on to you.

The second, third and fourth of those stages make it look as though this is a market driven process. In reality, the energy companies operate in an oligopolistic state licensed environment (the big six in the UK), but that does not get to the core of it. Focus on stage one.

Right at the start of the process that ends up heating your home, the entire system is framed by who gets to pull this stuff out of the ground in the first place. And that is the preserve of the state. You can't just buy a patch of land in Turkmenistan, get a loan from the bank for the equipment and declare yourself an energy extraction company.

And this is the key point that much of the debate on energy prices in Britain and elsewhere is missing. This is not free market capitalism. The energy industry is, at base, state-dominated. Markets only start to get a look in after the state and its (usually corrupt) cronies around the world have already rigged the market.

You can work the argument through from here. But whatever you do, never let anyone tell you that the prices you pay are a product of a process that is either free market or fair. It's nothing of the sort.

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