A take-down of Doomberg's biased strawman argument against British energy policy
Doomberg is the most popular finance Substack, priding themselves on their ‘provocative’ and ‘practical’ research based on years of experience in private equity, industry and science. Yet their flimsy strawman about the British energy sector does not stack up. It is provocative alright, with a title like “Electing Poverty”, but seems to be based more on hatred of progressive politics than on evidence. The article vomits charts and bias at the reader without substantiating its claims properly.
First, they state that the ‘most important metric in assessing any nation’s economy’ is energy consumption and that it defines a standard of living. They provide no evidence for this claim.
It’s true that energy access is linked to quality of life and countries with higher income per capita tend to use more energy. The Our World in Data chart below tracks the log of per-capita income and per-capita energy consumption. A linear relationship on a log-log chart means that a one percent increase in per-capita energy consumption is associated with a one percent increase in per capita income. It says nothing about causality. The log scale can also obscure outliers by making numbers at the edges of the chart seem close to numbers nearby even when they are orders of magnitude different.
Energy consumption also cannot explain the whole story. Romania and Laos use roughly the same amount of energy per person, even though Romania is four times richer per capita. Once you reach a certain level of income, perhaps this relationship matters less. Countries with incredible standards of living like Denmark and Switzerland use less than half of the per-capita energy of an American. Meanwhile, standards of living in Saudi Arabia and Kuwait, for the average non-wealthy resident, are far lower than their oil guzzling would suggest – their energy consumption per capita is higher than the US even though their GDP per capita is less than half.
Doomberg later cite the UK’s decline in energy consumption (almost 30% less than in 2005) as evidence of economic malaise. The UK has indeed experienced economic malaise, but energy consumption alone is not a “surefire sign” nor have they established that it is the cause.
The UK’s productivity growth[i], according the UK government’s comparison statistics, was ~49% from 2005 to 2021, when its energy use declined 27%. They lag USA, France, Germany and Italy, whose productivity gains ranged from 61 to 69% - and by the way, those European nations all reduced energy consumption by between 11% and 20% while the US fell by 4%. Canada’s productivity growth was also 49%, even though energy consumption increased by ~2% over the same time period.
They also suggest that Britons have “40% less energy available to carve out a living than in the 1970s” without considering that perhaps the UK’s economy has changed to be less energy intensive in general. The services industry represents a 25 percentage point larger share of the economy than it did in the ‘70s. Britons also import a larger share of goods, potentially exporting their energy consumption abroad.
The next spurious claim is to use a chart of the UK’s import/export balance of energy to imply that that imports make Britain’s energy more expensive than if it were produced locally. Yet when a country imports, it is often because it is cheaper to do so than to produce it domestically, or they simply do not have the resource locally.
The most outrageous claim is about our coal industry:
“Today, the fuel accounts for less than 3% of its energy mix. The bill for such a luxury must be paid.”
Locally produced coal was in fact the luxury. Before we shuttered our mines because they were loss-making, the UK imported coal because it was cheaper than the locally produced fuel. Coal’s demise had more to do with cost than lavish environmental concerns.
In the modern day, Britain still produces oil. Conservatives argued that oil facilities should remain open or even expand, to reduce our energy prices, but this claim was flawed. Oil is a globally traded commodity and oil firms will sell it for its appropriate reference price, not at a cheaper price to domestic customers out of the goodness of their hearts. While it might improve security of supply, locally produced oil would be just as expensive for the British consumer and not change much about the “economic malaise.”
This is different for gas, as Doomberg points out, with more expensive LNG compared to domestic production or pipeline imports. Yet the UK receives the majority of its gas via pipelines, even in 2022 when gas supply was crunched in Europe as the Ukraine War began. Locally produced renewable electricity and batteries could also supplement gas in future, rather than just keeping oil facilities open in the North Sea.
Later, Doomberg states that offshore wind is a ‘questionable’ renewable energy source (though I wholeheartedly agree that biomass is anything but renewable). I’m not sure if they mean that it is questionable because it is not renewable but I think they do not – thus this claim, too, is misleading. The article they link to does not discuss emissions or renewable claims at all but merely the costs it places on the system beyond its per-kilowatt-hour charge.
They conclude that as a result of the Labour Party’s commitments, we “will have less energy at our disposal” and that it “will be more expensive and less reliable than before”. We are in our current situation after 14 years of a Conservative government championing renewables in part because we continue to maintain dependence on gas piped in from Europe.
There are other ways to achieve reliable, low-cost power than bringing back expensive coal or developing new offshore oil facilities. For example, the UK needs to fix its planning system and grid connections so that we can take advantage of more batteries and renewable energy resources. We could also build more interconnectors in Europe to benefit from energy imports and differences in renewables intermittency with the continent.
Doomberg’s team and I probably agree on a lot – we do after all share a background in private equity, industry and science. I share their concerns about the UK’s energy future, but I expected better and more objective analysis from my fellow energy enthusiasts.
PS - if for some reason you cannot access the original article, you can reply to this email for a copy.
[i] GDP per hour worked is the metric for productivity.