Soaring gas prices: a consequence of the Green Deal

14 October, 2021

soaring gas prices

Underlying the steady rise in electricity prices there is a structural element: the speculative emissions markets created by the Green Deal. What European governments seemed not to have counted on is that this would be compounded by a steep rise in the gas prices. But in fact the latter is only a consequence of the general framework created by the Green Deal and its impact on the various imperialist strategies.

Table of Contents

Russia, the Nord Stream and the gas prices

Nord Stream 2, the pipeline of discord, is at the source of the gas price hike
Nord Stream 2, the pipeline of discord, is at the source of the gas prices hike

Since the Madrid COP26, before the pandemic, it became clear that the big game to revive the accumulation of global capital that is the Green Pact, would feed the imperialist contradictions in Europe and between Europe and the United States.

The “ecological transition” is unfeasible without natural gas and very difficult without uranium. The same countries that are threatened with being excluded from trade with the major markets if the “green trace” becomes a non-tariff barrier, happen to have at hand the key to “transition” energies enabling the same move that excludes them. Or at least they have the opportunity to fight for them.

As if the cataclysms accompanying the trade wars and keep pushing these conflicts towards their militarization were not dangerous enough, the “way out” envisioned by capital is going to accelerate them even more.

The Green New Deal’s flip side, 12/13/2019

This is what became evident with the Nord Stream 2 pipeline soap opera. Germany was covering for the same Russia it sanctioned through the EU, staging a bitter rift with France and facing sanctions from the US, in order to push ahead with a new direct gas connection to Russian plants.

The last Nord Stream 2 pipe was laid in the first week of September, but with Biden breaking his July deal with Merkel and implementing new sanctions, the use of the infrastructure was threatened with significant delays. Worse, the leakage of the European Commission’s “green investment taxonomy” sketch in March had set the anti-gas lobbies and the French diplomatic machinery in motion.

The “taxonomy” itself is nothing more than a list of energies and facilities for which investment will qualify as “green” and benefit from the flow of capital generated by the European Green Deal. German industrial capital is betting on the inclusion of gas, its pipelines and gas-fired power plants as “transitional energy”, thinking of its own industry and the sale of power plants to Eastern countries, forced to abandon coal. This, evidently, will not change under a SPD government.

By contrast, France sees in the end of coal the opportunity to sell its nuclear power plants en masse throughout Eastern Europe and has organized a 10 country-strong front pushing for nuclear, before gas and in any case with better conditions than gas, to be the main energy source for the coming decades in Europe.

Russian gas exports to Europe, a key factor behind the gas prices hike

Russia could not be expected to take a passive attitude. Putin had to be able to claim that he was not using the gas as a weapon, despite doing so just yesterday. But the speculative market rise in CO2 emissions automatically magnified any change in supplies. Moreover, the EU had become accustomed to keeping stocks low in order to take full advantage of Russian one-off sales in the short term.

Russia’s strategy to accelerate the start-up of Nord Stream 2 could thus scrupulously honor its long-term contracts but reduce supply appreciably by reducing one-off sales. Not only did the rising gas prices and political pressure to open the pipeline at once compensate it for the unsold gas, but, thanks to the EU itself, the gas withdrawn from the European market had found a new buyer.

China, the emissions pledge and the gas prices hike

Xi publicizes China's 2020 entry into the Green Deal. Emissions reduction will force China to change its energy matrix and impact gas prices.
Xi publicizes China’s 2020 entry into the Green Deal. Emissions reduction will force China to change its energy matrix and impact gas prices.

The EU soon understood the usefulness of the Green Deal for its imperialist policy. Since 2018 Macron used the Paris agreement against Trump and Brussels, with the support of Germany, Denmark and Sweden, used it against Chinese “low cost” freight.

The European strategy – joined by the US once Biden became president – was brutal: either China joined the Green Deal, created an emissions market and gave itself drastic emissions targets, or it would be left out of the big new capital market. In case there was any doubt, as soon as it became clear that the Green Deal was going to result in new tariffs – the CO2 “adjustments” at the border – China knew that if it failed to make a powerful enough gesture the European market would be significantly closed to it.

The swerve was drastic. China went from resistance to making “green is gold” into an official slogan. Literally. The plan between now and 2030 is based on an accelerated development of nuclear production with proprietary technologies. But nuclear power plants are not built overnight. And in the context of a “recovery” doped by public spending, the industrial demand and emissions have only been able to be accommodated based on shutdowns and production reductions already being felt in terms of GDP.

To prevent the disaster from dragging on through the winter, China’s energy bureaucracy maximized reserves by multiplying its gas purchases and planned an intensive development of thermal power plants through 2035. The demand pull immediately impacted on the gas prices. The US diverted much of its energy exports from Europe to Asia. But Russia was the big winner. Putin’s bet on the “Siberian Power”, a gas pipeline inaugurated in December 2019, was paying off.

Europe fell into its own trap.

Gas prices and the absorption of labor income

Biden and Yellen explain to business leaders this week the policies of increased spending and Green Deal. The issues with industrial shortages and rising gas and electricity prices were dismissed as conjunctural problems.
Biden and Yellen explain to business leaders this week the policies of increased spending and Green Deal. The issues with industrial shortages and rising gas prices and electricity prices were dismissed as conjunctural problems.

The most striking thing about all the media coverage regarding the boom in electricity prices and gas prices is that, in some European countries, including Spain, there is a deliberate avoidance of even suggesting any connection with the Green Deal…. which, as we have seen, is its direct origin.

In Brussels, on the other hand, the debate is frank. The Commission’s responses are of course quite a different matter. Timmermans, European Commission vice-president in charge of the Green Deal, responded to the evidence by only blaming the speculative CO2 market, which by then, with gas prices soaring, was only responsible for just over 5% of the price of the last hike. Despite criticism, he ignored the link between the EU Green Deal and the gas prices.

His rhetoric, contested even by the Greens, was intended to turn governments’ concerns into a further acceleration of the shifting of the energy matrix. And in fact, the measures finally approved have been… non-existent.

The measures are not even addressing the main path to lower electricity prices proposed: separating gas from the final electricity pricing mechanism. Now all electric sources are paid at the price of the most expensive one – which is already, obviously, gas. The proposal was to pay all at the second most expensive price and gas generation at its own auction price. But this would obviously cut into the windfall profits of the electricity monopolies.

In principle, such a refusal is surprising when the blow to electro-intensive industries such as aluminum is already brutal. But we should not forget what the Green Deal actually is about: a massive movement of income from labor to capital in order to recover the latter’s profitability disguised under a call for a climate “Sacred Union”.

Neither the EU, nor the US nor China are going to be moved by a few industries making losses or even going bankrupt. And they are certainly not going to reduce the flow of income already underway from workers to capital. Cutting the currently soaring extraordinary profits of the electricity companies would set a bad precedent. Even the Spanish government, which cosmetically cut a part of the extraordinary profits in order to avoid the political instability that it threatened to generate, is already cowering in front of the electricity companies.

The Green Deal is the great global strategic move of capital. It will not step back unless it meets direct resistance from workers.