The false virtues of energy independence
Article published exclusively on the Institut économique Molinari’s website.
« The State must ensure the energy independence of the nation. » This is one of the most usual justifications of « economic patriotism » in the energy field. It was recently used to support the French government’s decision to merge GDF and Suez, blocking a possible takeover by the Italian Enel on the latter.
« The State must ensure the energy independence of the nation. » This is one of the most usual justifications of « economic patriotism » in the energy field. It was recently used to support the French government’s decision to merge GDF and Suez, blocking a possible takeover by the Italian Enel on the latter. « Economic patriotism, » the defence of « national champions » and of « strategic sectors » are the current talk of the day. That did not fail to disturb the summit of EU Heads of State which was held in Brussels on 23 and 24 March , as they were supposed to talk about a common energy policy. However, a policy of energy independence, either national or European, by no means guarantees the best conditions of provision and harms citizens’ purchasing power.
Idealistic notions proclaiming the country to be in danger are not a good substitute for an authentic analysis of the issues. « The national interest is at stake, » they tell us and « All the great world States, beginning with the United States, but also China, India and Japan support their companies from inside the country. » This position is quite bizarre. How does the economic patriotism of other States demonstrate that it is an advisable policy? A « national » fervour consisting of reproducing what foreigners do, because it is what they do, appears somewhat paradoxical to us in any case. Moreover, if for eigners show such an amount of wisdom, why not entrust our industries to them?
No, it is necessary to return to reason. What is energy independence? A country is said to be dependent when it is a net importer of energy. A country that produces all the energy that it consumes would be purely independent. Why is independence not already standard practice? Because « dependence » has considerable advantages. Taking into account the distribution of energy layers on the earth’s surface and differences in productivity of the factors of production, the specialisation of certain regions in energy production and international trade allow the people involved to be more prosperous than if they chose isolation. The « energy dependents » obtain a better energy deal and energy producers profit from what they obtain in exchange. In other words, the international division of labor serves some purpose, including when it is a matter of energy.
The most obvious way to bring about energy independence would be for the government to block any energy imports. Admittedly, foreigners could not cut the gas any more but it is because the national government would already have cut it to a large extent. It is true that by destroying international competition, a new national production would become profitable and partially fill the vacuum created, but independence would imply for millions of consumers less provision and higher prices. It is the consequence of the relative inferiority of national production. This incapacity to provide consumers with lower prices is precisely the reason why these new producers could not sustain foreign competition.
The government could it is true compensate by pushing production beyond its profitable threshold through subsidies, thus making prices lower. However, such an attempt to revive the former relative prosperity would be largely illusory. Indeed, whatever would not be paid directly in the purchase of energy would be paid through taxation and higher prices for goods whose production would be reduced following the displacement of the factors of production towards the energy sector. Behind the « patriotic » fervour, the ideal of energy independence promises above all a generalised impoverishment.
Of course, to impede a takeover of Enel under Suez by creating a « national champion » does not take us so far, but it is a step in this direction. With a giant dependant on political power, the possibilities of approaching the goal of energy independence are larger, as its supporters point out. It would today be politically impracticable to prohibit imports, but government supervision over national industry via public shareholding and subsidies creates a distortion of competition with respect to foreign producers, making it possible to increase energy independence… to the detriment of consumers.
Xavier Méra, associated researcher, Institut économique Molinari