The Revealing History of Neoliberalism and Energy

Introduction

Since the 1980s, neoliberal ideology has become the dominant economic paradigm in many countries around the world. Neoliberalism advocates for deregulation of industry, privatisation of state assets – and almost almost everything else, free trade, free markets, reduced taxation, reduced government spending, a minimization of state intervention in business affairs and overall minimal government – or more accurately, minimal regulation by government but as much state interference as needed to safeguard hallowed property rights, even when such property has been acquired by unfair and biased laws and policy, underhand methods or outright cheating and stealing.

Neoliberal policies aim to transfer control of economic factors from the public sector to the private sector, often by sleight of hand. Supporters argue that free markets without government interference lead to increased economic growth, innovation, and prosperity. Markets, they claim, are self-regulating when left to their own devices. However, critics – and history – argue that neoliberal policies lead to increased inequality, instabilities, and concentration of power among wealthy elites and corporations.

One sector that has been profoundly and negatively affected by neoliberal ideology since the 1980s is energy. The energy system involves the production, distribution, and consumption of fuel sources that power society. Previously, energy was often managed by state-owned companies or regulated public utilities. Neoliberal so-called reformers argued that privatising energy assets, deregulating energy markets, and opening the sector to competition would deliver cheaper prices and better service for consumers.

However, the impact of applying neoliberal ideas to the energy sector has been complex and often the opposite of what was claimed. On one hand, in the short-term, consumers may get an increased choice of energy provider and declining energy bills. But deregulation has also enabled issues like market manipulation, deferred maintenance on infrastructure, and reduced oversight of environmental and social impacts. The influence of neoliberalism on the energy system provides an insightful case study of the real-world implications of neoliberal policies. This complex interrelationship between neoliberalism and energy will be explored throughout this article.

The Rise of Neoliberalism

Neoliberalism as a political-economic ideology first rose to prominence in the 1970s and 1980s. While the intellectual foundations of neoliberalism were laid decades earlier by economists like Friedrich Hayek and Milton Friedman, it wasn’t until the late 20th century that neoliberal policies began to be enacted on a wide scale.

The global economic crises of the 1970s, including the 1973 oil crisis and stagflation, caused many governments to question prevailing Keynesian economics. Keynesian policies, dominant since the 1930s, involved considerable state intervention in the economy including spending on public works, regulation, and management of aggregate demand.

However, Keynesian policies struggled to address the unique economic problems that emerged in the 1970s. The 1973 OPEC oil embargo led to skyrocketing fuel prices and inflation in many countries. At the same time, stagnating economic growth led to increasing unemployment – a phenomenon dubbed “stagflation”.

These issues challenged the typical Keynesian toolkit. Policies like deficit spending to boost demand seemed ineffective and possibly inflationary given the supply-side shocks to oil and other commodities. Allowing deficits and inflation to rise went against typical Keynesian thinking. Yet tamping down inflation through austerity risked worsening slow growth and unemployment.

This stagflation crisis revealed macroeconomic problems that expansionary fiscal and monetary policies could not easily solve. It opened the door for new economic ideas that favoured less government intervention and more market-based solutions. Neoliberal economists argued that deregulation, privatisation, tax cuts, and monetary restraint could cure stagflation – claims that aligned with the free market ideology of leaders like Reagan and Thatcher.

In essence, the inability of Keynesianism to address the 1970s stagflation and other economic troubles swiftly paved the way for the rise of neoliberalism. The perceived flaws of Keynesian theory during this tumultuous period drove many nations to adopt the alternative model of neoliberalism in the following decades. This marked a pivotal turning point in economic policymaking.

Thus, free market advocates like Hayek and Friedman presented neoliberalism as an alternative to Keynesian thought. They argued that removing regulations and barriers to trade would allow free markets and competition to flourish, benefitting all of society. When Margaret Thatcher came to power in the UK in 1979 and Ronald Reagan in the US in 1981, they began translating neoliberal theory into actual policies.

Thatcher and Reagan’s administrations focused on deregulation of many industries, privatisation of state assets, tax cuts, reduction of social services, weakening of unions, and other neoliberal reforms. These policies also diffused to other countries over the next decades through policy coercion and institutional channels like the IMF and World Bank.

Some of the major neoliberal policies enacted starting in the late 1970s and gaining steam into the 80s and 90s included deregulation of major industries like airlines, telecoms, and banking. Privatisation of state-owned assets and enterprises was also pursued aggressively, even in traditionally public services like transportation. Tax rates were lowered for high earners and corporations. Social safety net programs were reduced through austerity measures. These policies aimed to minimise state intervention and unleash the power of unfettered markets.

The rise of neoliberalism under Reagan and Thatcher marked a pivotal shift toward free market ideology that would reshape economies around the world. The energy sector was one area that would be significantly impacted by this neoliberal turn.

Neoliberalism Transforms the Energy Sector

In line with neoliberal principles, the energy sector underwent significant deregulation and privatisation starting in the 1980s. Vertically integrated electric utilities that previously operated as regulated monopolies were broken up and segmented into generation, transmission, and distribution. Electricity generation and retail sales were opened to competition and private independent power producers.

State-owned oil and gas companies were privatised through public share offerings. New private companies entered energy markets as competition increased post-deregulation. Advocates argued this would lower prices, while critics warned it could increase market manipulation.

Deregulation enabled the rise of national electricity and gas markets. Supporters claimed this increased efficiency through competition, but it also reduced accountability. Transmission networks were privatised in many countries, shifting control from the state to for-profit operators. Overall, neoliberal policies fundamentally transformed the structure of the energy sector.

Specific examples of neoliberal reforms in the energy sector include the UK privatising its state-owned oil company BP through stock offerings during the 1980s, the US breaking up of interstate electric utilities like AT&T into separate generation and transmission companies during the 1990s, and countries like Argentina implementing sweeping electricity deregulation policies throughout the 1990s.

In many cases, consumers did benefit from increased choice of provider and more competitive pricing in newly deregulated retail energy markets. However, deregulation also enabled predatory companies like Enron to engage in market manipulation tactics that exploited volatility for profits, contributing to the 2000-2001 California electricity crisis. The lack of oversight and accountability under deregulation resulted in a range of unintended consequences.

Neoliberal Ideology and Fossil Fuels

Neoliberal principles tend to favor fossil fuel dominance over renewable energy alternatives. Fossil fuel industries have benefited enormously from free market policies like deregulation, limited environmental oversight, and preservation of subsidies/tax breaks.

For example, loosening regulations on offshore drilling enabled increased exploration and production. Keeping fuel taxes low through neoliberal reforms subsidizes fossil fuel use. Limiting environmental regulations on emissions from coal plants or oil/gas extraction reduces costs for the industry. The absence of carbon pricing schemes under neoliberalism provides a competitive advantage to high-carbon fuels.

These policies align with neoliberal ideals of unfettered markets, tax reductions, and minimal state intervention. But they make renewable energy less competitive. Providing targeted subsidies or incentives for clean energy is discouraged under neoliberal theory. The result is continued fossil fuel dominance rather than a transition to sustainability.

Under the logic of neoliberalism, subsidies and tax benefits for fossil fuel production are justified as a means of encouraging more supply and lowering prices. However, critics argue these policies externalise the environmental costs of fossil fuels and inhibit the growth of renewables.

For instance, analyses show renewable energy sources like solar and wind would be more cost-competitive if fossil fuels did not receive preferential tax treatment and other subsidies. But neoliberal principles resist policy interventions to close this gap. The outcome is reinforcing the status quo dominance of incumbent fossil fuel industries rather than enabling cleaner alternatives.

Critiques of Neoliberal Energy Systems

Critics, including me, argue that applying neoliberal ideology to the energy sector has led to increased inequality, loss of accountability, and environmental harm. Deregulation and privatisation has prioritised corporate profits over universal service obligations. Critics also point to incidents like Enron’s manipulation of energy markets and PG&E’s negligence causing wildfires as evidence of insufficient oversight.

Energy prices may decline on average but become much more volatile after markets are deregulated, harming disadvantaged consumers. Neoliberal policies provide windfall profits to energy companies while reducing their public obligations. The failure to account for environmental costs like carbon emissions in energy pricing leads to long-term harm.

For example, in the UK residential electricity prices decreased for a period after market liberalisation. However, prices then increased significantly in the 2000s as private utility companies aimed to maximise profits. Low-income consumers suffered disproportionately from the volatility and lack of protections. Since the Russian invasion of Ukraine, already rising natural gas prices, have reached extraordinary levels causing huge pain and misery to millions of people.

The state also lost numerous policy levers for managing the energy system for public benefit under deregulation. Reduced ability to guide long-term energy planning and investment can threaten energy security.

In sum, critics contend that the neoliberal focus on free markets, profit maximisation, and deregulation makes for an unsustainable and inequitable energy system over the long run.

The Search for Alternatives

In response to the shortcomings of neoliberal energy policies, counter-movements are emerging that aim to transition toward clean energy systems grounded in justice and sustainability. One example is municipalisation campaigns that allow cities to take electrical utilities back under public control in order to pursue decarbonization goals.

Community choice aggregation is another model where municipalities aggregate electricity demand in order to purchase cleaner power while still using the private transmission infrastructure. These community-driven approaches can inject public purpose back into the system.

There are also proposals for larger structural reforms like the Green New Deal that would greatly expand clean energy while providing green jobs and social welfare policies. These visionary plans aim to transition toward 100% renewable energy in a way that is equitable and, ideally, leaves no communities behind.

Some cities like Boulder, Colorado have succeeded in municipalising their electricity utility in order to accelerate clean energy adoption. Others like Chicago have implemented community choice aggregation programs that rapidly expand renewable energy procurement through the power of collective buying.

These local empowerment models provide working examples of ways to restructure energy systems to be more democratic and sustainable. They offer hopeful counterpoints to neoliberal policies by reasserting community control. More cities and states can pursue similar energy democracy models to drive the renewable transition.

Conclusion

In conclusion, the relationship between neoliberalism and energy systems over recent decades reveals a complex and very unfortunate interplay between ideology, politics, and governance. Core neoliberal policies like deregulation, privatisation, and market liberalisation have substantially transformed the energy sector since the late 20th century, almost universally for the worse.

While neoliberal theory promises efficient outcomes, in practice applying its tenets to energy has enabled issues like reduced accountability, deferred infrastructure maintenance, and expanded fossil fuel production. Counter-movements contesting neoliberal energy policies envision more progressive alternatives focused on decarbonization, affordability, and social welfare.

Ultimately, more radical systemic changes will almost certainly be required for an energy future aligned with even the too distant and constantly watered-down goals of stated climate and sustainability goals, rather than pure profit maximisation. Almost any serious renewable energy transition calls for contesting the dominance of neoliberal ideology in the energy realm. Community organising and widespread political mobilisation will be key to realising a more just and sustainable energy paradigm, but it is currently not clear how that will happen given the controlling power of neoliberal governments and corporations.