TCS Daily

Electric Slide

By Carlo Stagnaro - September 13, 2005 12:00 AM

A group of Italian consumers associations is organizing an "electricity strike" this Wednesday, September 14. Italians are being asked to stop using electricity for five minutes at 11:30 am to protest against rising power costs.

Adoc, Adusbef, Codacons, and Federconsumatori (the four organizations) ask that the government call all of the social forces to a "table of concertazione". The "concertazione" is a practice that took root in Italy during the 1990s; basically it means that relevant decisions are taken not only by those directly interested, but also by the government, which is seen as sort of a neutral third party. The most important example of concertazione is the discussion on renewing working contracts for strongly unionized categories (such as metal-mechanical workers and school teachers). Under the system, a national contract is negotiated in Rome by industry representatives, trade unions, and the government. Individual workers play no role at all.

The consumers associations want the government to negotiate with them, the industry, and perhaps other interests, not just about the price of electricity, but also "measures and strategies designed to reduce the effects of high oil prices". The problem is actually a serious one. According to the consumer associations' estimates, the cost of living may rise dramatically. The price of electricity, already high in Italy, is projected to rise by almost 10 percent, natural gas by more than 8 percent, and transportation (thanks to an increase in gasoline prices) by more than 5 percent.

Of course, even assuming those estimates are reliable (and they at least look plausible), asking the government to cap the price of electricity and other goods would not help. Indeed, every time and everywhere price control is implemented, the result is waiting lines and scarcity. After all, the Italian government has no power over global prices or production of oil; it has only the ability to induce Italian and foreign companies to stop investing in the country because it will no longer be profitable. If that is the case, both companies and consumers would be worse off.

There is also another problem. Virtually everybody agrees that the Italian "energy mix" -- the sources through which electricity is generated -- is unbalanced. Natural gas accounts for 40 percent of domestic production, oil for 21 percent, coal for 13 percent, and the remaining share relying mostly upon hydro power and other renewables. Nuclear power was banned in a referendum in the late 1980s, even though a significant share of Italy's energy demand is met by importing nuclear energy from abroad.

Most European countries as well as the US have a more balanced mix, in which coal and nuclear play a more substantial role. While such a strategic choice gives them an advantage now, it may well have had the opposite effect in the 1990s, when the price of oil remained under $20 a barrel. Anyway, industrial strategies should be the market's business, not that of the government or consumer associations.

There are some measures that could lower the price of energy in Italy. First, a comprehensive liberalization of energy markets. Energy companies currently have to negotiate a bureaucratic morass that requires money and time -- for example to open a new power plant. Also they are subject to political veto from virtually any level of government: national, regional, provincial, and local. Then they must address an apparently endless number of central, regional, provincial, and local agencies -- on environmental protection agencies, antitrust, labor rules, urban planning, basin authorities, courts, etc. Often these agencies send conflicting messages. Finally, companies need to gain popular support to avoid demonstrations or strikes; sometimes even tiny pressure groups can delay or even stop projects that are worth billions.

Another important step might be a reduction of fiscal pressure on fuels and electricity. Even consumers associations agree on this, yet, they have a strong enemy in... themselves. Indeed, a few months some of them joined ago a campaign for energy conservation -- as a matter of fact it was another electricity strike. They asked the government to promote energy efficiency. Alas, the classic way to decrease consumption of a good is to increase its price. Electricity is no exception. Perhaps consumers associations might consider reviewing the fundamentals of economics before launching contradictory, demagogical slogans.



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