Born to be free

We live in an age unlike any other in history. When we flick a switch, a light comes on. Turn a dial and gas comes out of the hob. We can keep entire buildings bright and warm even in the depths of winter.

But this mind-blowing power is based on an incredibly complicated global system that digs gas and oil from a handful of locations around the world and transports them over vast distances to your home. And it seems this system is more fragile than we thought.

The global energy market has had the worst year imaginable.

Thanks to a cold spring, households kept using central heating for much longer than usual, eating into energy reserves. Then demand for energy spiked as Covid-19 restrictions were eased and heavy industry fired up again.

In late August, Hurricane IdaA Category 4 hurricane that struck Louisiana in the southern USA in late August. devastated the Gulf of Mexico, where the USA produces much of its oil and gas. Production fell by 40% for two weeks as the country struggled to deal with the aftermath of the hurricane.

At the same time, Russia, which is Europe's biggest supplier of oil and natural gas by a long way, has been reducing flows to the continent, a move that experts think is meant to strengthen the case for the controversial Nord Stream 2 pipelineA proposed offshore pipeline that will bring natural gas from Russia to Germany. Critics claim that it will give Russia too much power over the EU..

Renewable energy has taken a hit as well. There has been little wind this year, meaning that electricity from wind powerPower generated from wind turbines. Because of Europe's relatively little sunlight and few sources of geothermal energy, most of its renewables have to come from wind., the backbone of Europe's renewables supply, has fallen sharply.

And to top it all off, last week a fire struck the IFA-1 electricity cable, which supplies 2,000 megawatts of power to the UK, taking it out of action for the next month.

This has brought energy supplies to an all-time low. As a result, gas prices across Europe are four times higher than usual, and many energy suppliers are going bust. By the end of winter, 60 of the UK's 70 suppliers might have folded.

Yesterday, UK Prime Minister Boris Johnson promised that the crisis would end as the market recovered. But some feel this is proof that the free market cannot be trusted with key natural resources like energy.

According to free market theory, the government should never intervene to keep businesses afloat. If they go bust, they will be replaced by more efficient companies.

But in reality, businesses in important sectors know how damaging it will be for the economy if they go under. So in recent years, whenever there has been a crisis, they have demanded that the government bail them out to save the economy. In 20082008 saw the biggest global financial crisis since the Wall Street Crash of 1929 after banks lent too much money that they could not recoup. Most of the world slumped into recession as a result., many banks were rescued by government funds after making bad loans. Last year the travel industry demanded a bailout of its own.

Now British energy firms want the government to set up a "bad bankA government-funded body that would absorb customers who cannot afford their energy bills. In effect, this would mean that poorer people would have their energy subsidised by the state, while energy companies continue to bill richer people at a higher rate." to provide energy for customers who cannot afford the higher prices. In effect, this means that the companies get to keep their profits, and the taxpayer foots the bill for their losses.

Some feel they are essentially holding the economy to ransom: threatening that if they are not given a bailout, they will stop supplying vital energy to homes and businesses.

Have free markets gone too far?

Yes, say some. According to free marketeers, the state should never be allowed to intervene in the economy. Yet it seems clear that no government can afford to let a vital industry like energy collapse. That means they will always end up keeping them afloat with taxpayer money.

Not at all, say others. Any kind of economic system would be challenged by a supply shockAn unexpected event that affects the supply of a particular commodity. like this one, and energy companies cannot be expected to weather the storm alone. Free markets are still the most efficient way of distributing energy even if sometimes they have to be subsidised.