Aurelia Butler

The typical household energy bill in Britain is forecast to soar to £4,420 next April, more than three times the level it was at the start of 2022, stoking calls for increased state support for families facing energy poverty.But why has Britain’s energy price cap, which dictates a maximum that suppliers can charge the vast majority of the country’s households, climbed so high and how does it compare with what families pay in other countries in Europe?The options facing the incoming prime minister — due to be chosen by members of the ruling Conservative party in early September — are already becoming an issue in the leadership campaign.Why are bills so high?Energy bills have started to rise sharply as gas prices shot higher in the past 12 months, driven primarily by Russia’s squeeze on supplies to Europe.Wholesale gas prices have now reached about 10 times the level they averaged last decade after Russia’s supply curbs intensified following the invasion of Ukraine, with Moscow and the west engaging in economic warfare. While Britain imported only a small percentage of its gas from Russia prior to the war, it is connected by pipeline to the wider European market, which relied on Russia for as much as 40 per cent of its supplies. This means prices paid by British suppliers still track those in the rest of Europe relatively closely. British bill payers, however, are more exposed than their continental peers because the vast majority of homes are heated with gas, and about 40 per cent of electricity is generated by gas-fired power stations — a higher proportion than most European countries.The collapse of dozens of small retail energy suppliers as the gas price rose has also added about £100 to bills. Analysts have pointed out that the tweak by regulator Ofgem to its methodology for calculating the energy price cap has inflated bills further by allowing suppliers to claw back more of the cost of hedging the price of the gas they have to buy in advance and at a faster rate.How do bills compare with the rest of Europe?The situation varies quite dramatically and depends a lot on the degree of state intervention. Some governments on the rest of the continent have gone further than the British government in taking steps to shield consumers. Direct comparisons are difficult but the typical Italian household is forecast to spend around £2,300 annually at present, compared to a current British price cap of £1,971. A July estimate for households in Germany put the average bill at £2,759.France is something of an outlier with president Emmanuel Macron moving to shield consumers almost entirely from soaring prices. After raising gas and electricity bills marginally last year, they have since been largely capped, beyond a 4 per cent rise in household electricity costs. The French state, which owns 84 per cent of energy provider EDF, will nationalise the utility fully as it absorbs the costs.The UK has so far announced a £15bn package that will shave £400 off most household bills, with more going to poorer and more vulnerable families. But this was based on expectations of the price cap reaching £2,800 in October, far below the latest projections for the autumn of £3,582.

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Why have a price cap that doesn’t cap prices?Despite its name, the price cap was not designed to prevent bills rising when it was introduced in 2019; it was meant to prevent suppliers from earning excessive profit margins on consumers less willing or less able to shop around when old fixed-price deals expired.But as wholesale costs have soared, suppliers have largely withdrawn fixed-term deals. About 86 per cent of Britain’s 27.8mn households have now defaulted on to tariffs governed by the price cap. Ofgem, the regulator, announced last week it would review the cap once every three months rather than six months. While that would mean bills falling more quickly if wholesale prices dropped, it also means customers being hit by higher energy costs more rapidly for the foreseeable future unless Russia opens the gas taps soon.Cornwall Insight, the consultancy that put out the latest £4,420 forecast for next spring, has suggested doing away with the cap altogether, adding: “If it is not controlling consumer prices, and is damaging suppliers’ business models, we must wonder if it is fit for purpose.” What are the options for lowering bills?Pressure is mounting on ministers from a range of different interest groups to provide additional help. Poverty campaigners are concerned the poorest households face a choice between “eating and heating” this winter when energy usage peaks. And economists worry that middle-income households will severely cut back their discretionary spending, thereby pitching the UK into a deeper recession than forecast.Liz Truss, who is favourite to become the next prime minister, has maintained she would rather cut taxes than provide more “‘handouts”, even as her allies cautioned that additional support has not been ruled out. She has previously said she would suspend “green” levies on energy bills — meant to help fund investment in low-carbon generation and upgrade housing stock.Rishi Sunak, the other leadership candidate and former chancellor, has previously said he would cut VAT on energy bills. This week he promised to expand the £15bn package of support on the cost of power he announced in May, but has so far not given any details.

The candidates’ costed promises — to suspend “green” levies or cut VAT on bills — would save less than £200 per household.Sir Ed Davey, leader of the Liberal Democrats and a former energy minister, has proposed freezing the price cap at its current level, with the government absorbing the £36bn he estimates that would cost.Davey has suggested expanding a windfall tax on energy companies and using higher VAT receipts to help pay for it. But his estimate of a £36bn cost to the taxpayer could end up being too low, with forward gas prices stubbornly high into 2023.Over the longer term, business secretary Kwasi Kwarteng has proposed breaking the link between gas and electricity prices as more renewables such as wind and solar are added to the grid, a move that Ofgem has backed. More

Grim news about the UK economy keeps mounting. Last week, the Bank of England forecast a 15-month recession, with inflation peaking at more than 13 per cent. The energy price cap, which limits how much households can be charged, is now forecast to soar 80 per cent in October from today’s record levels, pushing many into a dire choice between heating and eating over the winter. Mortgage and rental costs are also rising. Yet with the government paralysed as it awaits the outcome of a Conservative leadership contest that is still ignoring the scale of the problem, there is still no clear and realistic near-term cost of living strategy — just when the most vulnerable need it the most.The UK faces its worst bout of stagflation — low growth and high inflation — since the 1970s. A reliance on natural gas imports and a sluggish post-pandemic recovery in its workforce means UK inflation is a toxic mix of the energy-driven type facing continental Europe and the wage pressures at play in the US. Underlying the BoE’s stark forecast was the equally bleak calculation that in order to bring inflation down it needed to lift interest rates enough to cool the jobs market and investment, engineering a downturn in the process.With the central bank now alive to the danger of persistently high inflation, fiscal policy will have to tread carefully as it offsets the cost of living crisis when resources are tight. Weaker growth will shrink any fiscal headroom the Treasury might have had, while the government has already pledged a hefty £37bn across various cost of living packages. Moreover, efforts to support households — whether by tax cuts or direct payments — will add further fuel to inflation, which will in turn be met by tighter monetary policy.So, like the BoE, the government must do its own grim calculus — on how to share out the pain from sky-high inflation. While the Tory leadership candidates have declined to confront this reality, whoever wins will have to do so. With prices moving higher, post-tax household incomes are expected to fall by the most in real terms in more than 60 years. Soaring energy and food prices will continue to hit the vulnerable the hardest, so targeted support to them must be the priority, even if it is inflationary at the margin. Getting money out of the door quickly and efficiently will be crucial. Energy bills could now hit £4,300 a year by January, after the decision to pass on rises in wholesale prices faster. Liz Truss has eschewed “handouts’’ to households, preferring to reverse rises in national insurance and scrap green levies. As well as cutting VAT on energy, Rishi Sunak has hinted at extending the direct payments he provided as chancellor.Cuts to levies and energy VAT will put more money in pockets, but will only tinker at the edges of the problem. Reversing the national insurance increase will do more for higher earners. Building on Sunak’s package of support in May — which included payments to those on means tested benefits, alongside the disabled and pensioners — may be the most viable immediate solution. It would need to be scaled up (it was based roughly on a £2,800 energy price cap) and better targeted; further payments to richer households too would be hard to justify.Any package would need to come alongside efforts to conserve energy and curb demand over the winter. With bills set to remain high into next year, the whole structure of the price cap and support for poorer households also needs to be reviewed. It is time both candidates for prime minister started to engage with the reality of the crisis and set out plans for action. For whoever takes over in September, it will be the most pressing item in their in-tray. More

(Reuters) -Taiwan’s Foxconn, the world’s largest contract electronics maker, on Tuesday said it will build driverless electric tractors for California-based Monarch Tractor at its Lordstown, Ohio, facility starting in early 2023.The announcement comes as heavy machinery manufacturers, including Deere (NYSE:DE) & Co and Georgia-based AGCO, set their sights on the electric vehicle market as the U.S. agriculture industry shifts to smart farming.The agreement with Monarch Tractor is the first manufacturing contract Foxconn, best known for assembling Apple Inc (NASDAQ:AAPL)’s iPhone, has entered since purchasing the Ohio facility that was formerly a General Motors (NYSE:GM) Assembly plant last year.Production for Monarch’s battery powered MK-V series tractor is scheduled to begin in the first quarter of 2023, said Foxconn, formally known as Hon Hai Technology Group.Monarch, which is based in Silicon Valley, debuted its first pilot series, autonomous electric tractor to a select group of farmers last year. The company has since entered into a multi-year licensing agreement with Italian-American vehicle manufacturer CNH Industrial (NYSE:CNHI). CNH Industrial has a minority stake in Monarch Tractor.With competition brewing among farm equipment manufacturers to expand product lines in precision agriculture technology and autonomous machinery, Monarch’s chief executive, Praveen Penmetsa, told Reuters that the company’s business model to target smaller farmers gives them unique opportunity to increase the marketshare while being on the same playing field with bigger manufacturers.”Their technology is focused on the large farm operations and commodity crops. Fruits and vegetable farmers use much smaller tractors so we are focused on smaller farmers – that differentiates us a lot,” Penmetsa said. The company did not disclose the cost of the tractor but said the autonomous software will be sold separately and that farmers will have to pay a monthly fee to access the services. More

The writer is co-founder of Centerview PartnersThe US economy is slowing down. The main dispute among economists is whether we are in for a soft landing or a hard one, and the pessimistic perspective has dominated headlines.But while it is clear that we are in for a difficult period ahead, there is also reason to believe that the American economy is primed for a renewed period of expansion in the years that follow. Most observers tend to view today’s economic challenges through the prism of past downturns. But the US economy operates differently today than it did 40, or even 14, years ago.For a start, the private sector has become more innovative, nimble and proactive in managing through change and uncertainty. Think back to March 2020, when the pandemic caused a near-complete shutdown of global commerce. Thanks to the data, tools and strategies business leaders now have at their disposal, instead of economic Armageddon we embarked on a period of robust growth. (Government policy, of course, played an essential role here.) Executives were quick to overhaul business practices to continue operations. Balance sheets were fortified, remote work was enabled, new technologies were adopted. At the most agile companies, capital investment increased in order to boost competitive positioning. The US labour market is also in better shape today than at the onset of past downturns. June’s strong employment numbers underscore this. While hiring freezes and lay-offs are likely to result in economic pain for many, workers can today more easily and quickly find new employment opportunities thanks to flexible work-from-home options. According to a study by real estate group CBRE published last year, nearly 90 per cent of America’s largest employers plan to continue offering hybrid work policies into the future. Today’s economy is also more dynamic and entrepreneurial. Yes, technology valuations have come down as they have been analysed more rationally. But in the five years ending in 2021, new business formation was a third higher than the preceding five-year period. And we’ve learnt in the decade or so since the recession that followed the financial crisis that economic models do not capture intangibles such as the willingness of a company to continue strategic capital investments through an economic slowdown. As companies reported second-quarter earnings this year, many chief executives adopted proactive belt-tightening on operating expenses but continued high levels of capital investment. Doing otherwise, they know, undermines longer-term growth. Finally, the economy’s prospects are buoyed by government policy. The bipartisan infrastructure plan will provide more than $100bn of infrastructure investment in each of the next five years. The landmark Inflation Reduction Act, narrowly passed last weekend, will help ease inflationary pressure. The US banking system is stable and sound. In the wake of continuing supply shocks, manufacturers are proceeding to onshore production and build duplication into supply chains. And though interest rates are rising, they are starting from a historically low level — 0.25 per cent, which is 95 per cent lower than the average starting rate of the previous four cycles of rate increases by the US Federal Reserve. To be sure, there are risks, from geopolitical instability to rising polarisation, that could impede government effectiveness and, in turn, hurt business confidence. But the US is better positioned for growth than the current economic debate concedes. Look beyond the immediate economic clouds on the horizon — and consider the agile private sector, evolved and improved labour markets and culture of innovation and entrepreneurship — and the long-term forecast may even look sunny.  More

WASHINGTON (Reuters) – A sweeping bill passed by the U.S. Senate on Sunday and intended to fight climate change, lower drug prices and raise some corporate taxes, will bring down inflation over the medium to long term and cut the deficit, rating agencies Moody’s (NYSE:MCO) Investors service and Fitch Ratings told Reuters on Monday.The legislation, known as the Inflation Reduction Act, however, will not bring down inflation “this coming year or next year,” said Madhavi Bokil, senior vice president at Moody’s Investors Service. Charles Seville, senior director of sovereign group economics at Fitch, said that the legislation was disinflationary “but for all the rebranding of the legislation, the impacts on inflation are relatively small and will only really start to compound over the medium and long term as these provisions take effect.” “We do think that this act will have an impact (of cutting inflation) as it increases productivity,” Bokil said, adding her horizon was two to three years.The Senate on Sunday passed the $430 billion bill, a major victory for President Joe Biden, sending the measure to the House of Representatives for a vote, likely Friday. They are expected to pass it and send it to the White House for Biden’s signature.Republicans, arguing that the bill will not address inflation, have denounced it as a job-killing, left-wing spending wish list that could undermine growth when the economy is in danger of falling into recession.Bokil said in the immediate short-term future, inflation was going to be tackled by the Federal Reserve as it raises rates.Inflation expectations are a key dynamic being closely watched by Fed policymakers as they aggressively raise interest rates to contain price pressures running at four-decade highs.While the short-term impact of the legislation on inflation will be modest, the bill still has the potential to bring down inflation expectations, Wendy Edelberg, a senior fellow in economic studies at Washington think tank the Brookings Institution, told Reuters in an email on Monday.Senate Democrats also said the act will cause a deficit reduction of $300 billion over the next decade while the U.S. Congressional Budget Office said the bill would decrease the federal deficit by a net $101.5 billion over that period. The CBO estimated in May that the 2022 federal budget deficit would be $1.036 trillion. Asked about how the legislation would impact the budget deficit, Bokil said: “The savings from the Medicare side as well as the tax changes will more than offset the extra cost.”Seville also said that the bill will reduce deficits and help contain rising healthcare costs.The legislation aims to reduce prescription drug costs by allowing Medicare, the government-run healthcare plan for the elderly and disabled, to negotiate prices on a limited number of drugs.Edelberg also said the bill will lead to “greater corporate tax revenue than we otherwise would see”, which will offset the cost and control the deficit.Moody’s said that the spending bill was complementary to another bill recently passed by Congress, which aimed to subsidize the U.S. semiconductor industry and boost efforts to make the United States more competitive with China.”They move in the same direction, so the Chips Act will also help with alleviating some of the supply chain issues,” Bokil added. (This story adds additional information to title in paragraph 3) More

LONDON (Reuters) – U.S. manufacturing production probably peaked during the second quarter, though the data are noisy and conflicting, and a turning point may not become obvious until September or October.U.S. manufacturing output in June was down by 0.4% compared with March though it was still up by 3.6% compared with the same month a year earlier, estimates prepared by the Federal Reserve Board found.Three-month output growth was the weakest since early 2021, and confirms slackening momentum evident in other data on output, orders and jobs (“Industrial production and capacity utilisation”, Federal Reserve, July 15).U.S. manufacturing employment increased by 30,000 in July and by 476,000 compared with the same month a year earlier, according to separate estimates prepared by the U.S. Bureau of Labor Statistics.But the three-month rate of job creation has halved since April, another sign momentum is fading (“Current employment survey”, BLS, Aug. 5).Manufacturers are almost evenly divided on whether business activity is expanding or contracting, based on survey data from the Institute for Supply Management (“Manufacturing report on business”, ISM, Aug. 1).The ISM’s composite activity index slipped to 52.8 in July (50th percentile for all months since 1980) down from 57.1 in March (72nd percentile).But the new orders component was just 48.0 in July (15th percentile) down from 53.8 in March (37th percentile) and 61.7 in February (84th percentile), implying that the sector will slow further in the next few months.The employment component has fallen even more abruptly to just 49.9 in July (30th percentile) down from 56.3 in March (85th percentile).More manufacturers have reported employment reductions than employment increases in each of the last three months (https://tmsnrt.rs/3QdQJCe).TURNING POINT?The reduction in manufacturing jobs implied by the ISM survey is consistent with peaking industrial output but inconsistent with the continued growth reported by the Bureau of Labor Statistics.Over time, changes in the ISM employment index and BLS manufacturing payrolls data have tended to track each other closely, with the ISM measure leading by 3-4 months.If this relationship holds, the weakness evident in the ISM employment index from April and especially May should start to show up in the BLS measure for August or September, each published a month later.The Federal Reserve Bank of Chicago’s National Activity Index (CFNAI) tracks all these indicators and dozens more to estimate whether the economy is growing above or below its long-term trend rate.The CFNAI showed the economy growing below trend in the three months from April to June for the first time since the first wave of the pandemic in 2020.The peaking of manufacturing activity is also tentatively evident in the movement of raw materials, semi-processed items and finished merchandise over the transportation system.Domestic freight movements by road, rail, air, barge and pipeline appeared to have peaked in the first quarter, based on data from Bureau of Transportation Statistics.Freight volumes were down almost 0.5% in May compared with March although still up 2.6% compared with the same month a year earlier (“Freight transportation services index”, BTS, July 15).Consumption of distillate fuel oil, the main liquid fuel used in both manufacturing and freight transport, has been weak since the end of the first quarter.The sluggish state of distillate consumption is partly in response to exceptionally high prices but is also consistent with a peak and then softening of manufacturing and freight demand.Overall, the data are consistent with manufacturing activity peaking in the second quarter of 2022, with declines likely in the third and fourth quarters.The remaining question is whether the slackening of manufacturing activity will be very mild, a mid-cycle “soft patch”, or significant enough to qualify as a cycle-ending recession.Futures prices for both crude oil and middle distillates are already anticipating a significant slowdown that will depress fuel consumption and enable the rebuilding of depleted inventories.Related columns:- U.S. diesel shortage shows economy hitting capacity limit (Reuters, Aug. 4)- U.S. power producers are consuming near-record volumes of gas (Reuters, Aug. 2)- Low U.S. oil inventories imply deeper economic slowdown will be needed (Reuters, July 28)- Oil and interest rate futures point to cyclical downturn before end of 2022 (Reuters, July 22)John Kemp is a Reuters market analyst. The views expressed are his own More

The US played an instrumental role in encouraging 136 countries to sign up to a global tax deal tabled by the OECD last October and hailed as the most important tax reform in more than a century. But over recent days it has become clear that how Washington intends to apply one of two parts of the proposals — a minimum corporate tax floor of 15 per cent — is at odds with how the agreement is likely to work elsewhere. The stripped-back version of president Joe Biden’s tax plans that featured in the Inflation Reduction Act, the White House’s flagship economics legislation that last week narrowly passed the Senate and is expected to pass in the House of Representatives this week, misses out key elements of the deal inked in Paris. That has raised concerns that multinationals will face a web of complexity that will leave them struggling to comply with a set of rules aimed at ensuring they pay a fairer amount of tax. “Companies all want this alignment that they have been working to, but now it’s not what they thought it would be,” said Kate Barton, global vice-chair of tax at accounting firm EY. “Will all countries now just go and do their own thing?” Where does the Inflation Reduction Act fall short? The rules for the global minimum tax, as set out by the OECD, require multinational companies with annual revenues of more than €750mn to pay a top-up tax to an effective rate of 15 per cent in every country in which they operate. This part of the deal, known in tax circles as “Pillar Two”, is designed to “stop what’s been a decades-long race to the bottom on corporate taxation”, as US Treasury secretary Janet Yellen put it when the deal was signed. To bring the US in line with Pillar Two, the Biden administration originally proposed reforms to the US’s global intangible low-taxed income — or Gilti — regime. Under Gilti, a top-up tax of about 10.5 per cent is applied to the profits of subsidiaries of US companies located in low-tax jurisdictions. Gilti was introduced in the US in 2017 to stop US companies shifting profits overseas and Biden’s original proposal was to increase the Gilti rate to 15 per cent to bring the US into line with the OECD deal. These proposals failed to gain approval in the Senate, however, with Joe Manchin, the West Virginian Democrat who was crucial to the Act’s passing, asking for their removal. Instead a corporate tax minimum of 15 per cent will only apply to the “book income” — the amount reported in financial accounts — of companies with revenue of over $1bn. It will also only apply at a group level, rather than on a country-by-country basis — falling short of the deal’s goal of eliminating the practice of setting up subsidiaries in tax havens. It’s “doubtful” that what’s in the act will be deemed compliant with the global minimum tax, said Ross Robertson, international tax partner at accountancy firm BDO.“Ultimately, there could be increased complexity for international businesses in application of the rules once in force — or worse, it could increase the risk of double tax arising,” Robertson added. How are other signatories likely to respond? Peter Barnes, a tax specialist at the Washington law firm Caplin & Drysdale, called Congress’s alteration of the Biden tax proposals “disappointing” but “certainly not fatal” to the deal. One reason why is that, if the US implements the 15 per cent minimum rate in the form detailed in the act and not the deal, then other tax authorities could potentially scoop up more revenue from US companies for themselves. That is because the deal features a complex mechanism that allows other countries to effectively impose a tax of up to 15 per cent on the income of a subsidiary located there if — as is the case of the US — the home country of the parent corporation does not impose a top-up tax. “The [4.5 percentage point] difference between the Gilti 10.5 per cent rate and 15 per cent will be captured by other jurisdictions,” explains Reuven Avi-Yonah, professor of law at the University of Michigan. Pascal Saint-Amans, director of tax administration at the OECD, said: “When you think seriously about [the design of] Pillar Two you realise that it is going to happen anyway.”Barnes agrees and thinks US multinationals may eventually push Congress to apply Pillar Two in a form closer to that agreed at the OECD. However, progress for implementing the global minimum tax has been delayed across the board, with all countries yet to pass legislation for it, despite initially agreeing to do so by the end of 2022. What’s causing the delays elsewhere? The EU issued a draft directive to implement Pillar Two in December, but political divisions have failed to achieve unanimous approval from member states. Hungary, a member state often at odds with Brussels, is blocking progress. The remaining 26 European countries may be able to implement Pillar Two without Hungary, however, by enshrining it in their own domestic legislation. “There remains significant political will in Europe to press forward,” Robertson said, adding that he expected most of Europe to apply Pillar Two from January 2024. Once the EU moves ahead, other countries will probably follow suit to prevent losing out on the top-up taxes.

The other part of the deal, Pillar One, which aims to make the world’s largest multinationals pay more tax in the countries in which they make sales, is even further behind schedule. While the delays and setbacks have proven frustrating for those who are desperate to see companies pay their fair share, practitioners emphasise just how fundamental a reform the deal is. “We’re effectively needing to design an entirely new global tax base,” said Heydon Wardell-Burrus, a researcher at the Oxford Centre for Business Taxation. More

Vladimir Putin must think the leaders of Europe were born yesterday. The Russian president has made it perfectly clear that he will use tight restrictions of natural gas supplies as an economic weapon in the coming winter, but European politicians and central bankers still talk of a Russian embargo as a mere possibility. There is virtually no way to escape a Europe-wide recession, but it need be neither deep nor prolonged. It is also Russia’s last economic card. So long as Europe ensures that its economies survive the cold season, Russia’s blackmail will have failed. It will not claim victory in Kyiv on the backs of shivering households in Vienna, Prague and Berlin. For sure, the European economy is vulnerable. With the Nord Stream 1 pipeline operating at 20 per cent of capacity and other pipelines to eastern Europe under threat, some countries face physical gas shortages this winter. Even with European storage of gas higher than last year, according to the IMF, a full Russian gas embargo would leave Germany, Italy and Austria 15 per cent short of desired levels of consumption. The Czech Republic, Slovakia and Hungary would see shortages of up to 40 per cent of normal consumption. All European countries would face soaring prices. Already, European wholesale gas prices are close to €200 a megawatt hour, compared with pre-crisis prices of about €25, eight times lower.When prices of an imported necessity soar, real incomes and households’ ability to spend money on non-essentials inevitably fall. Recessions are all but impossible to avoid. This was the conclusion of last week’s gloomy but realistic Bank of England prognosis. It will soon be replicated by official forecasters in the eurozone. Even France, with its extensive use of nuclear power, will not find an escape route, because its power sector has its own reliability problems and it is deeply integrated into the wider European economy. The nightmare that Europe must avoid is energy nationalism when Putin turns the screw. If cross-border trade is curtailed and industry is provided no lifelines, Putin will pit the unemployed in one country against the freezing in others. This would reinforce his self-image as the continent’s powerbroker, able to raise or lower the pressure on Europe and Ukraine by pressing a few buttons in gas pipeline pumping stations. But such a bleak outcome is not inevitable. The most important defence is substitution. Already, Germany has replaced much of its gas imported from Russia with liquid natural gas supplies, delivered on ships to the Netherlands or Britain and pumped to German storage facilities. By December, it will be operating the first of four LNG floating storage and regasification units its government has leased.

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Despite protesting otherwise, European industry is rapidly altering production processes to substitute electricity and other fuels for gas where possible, or importing semi-manufactured goods from outside the EU where access to gas is plentiful. Gas-hungry ammonia for the fertiliser industry need not be produced in Europe, for example. Real-world evidence of industries acting to reduce consumption is growing across the continent. In electricity production, coal is sensibly being temporarily reprieved, despite the environmental consequences, and Germany is finally considering slowing its premature closure of the nuclear industry. Renewable electricity generating capacity in Europe is expected to increase 15 per cent this year, further reducing reliance on Russian gas. After substitution comes solidarity within Europe. IMF modelling showed that more cross-border sharing of gas could reduce losses in the worst affected countries significantly, almost halving the hits to the economies of central and eastern Europe at low cost to those allowing gas to flow. As cross-border infrastructure improves, the ability to pump gas eastward from western Europe, which has much better access to LNG, will in future almost eliminate the economic effects of a gas embargo.Finally, households have to play their part. Conservation this winter will be everything. Publicity drives have worked in Japan and Alaska to limit energy consumption in the face of shortages. This would be helped by large increases in the cost of energy to give a significant price signal, offset by lump-sum payments for poorer families. Industry alone should not bear the brunt of Putin’s energy warfare. Such policies could reduce the worst effects this winter from GDP losses of roughly 6 per cent in central Europe to a third of that, with the EU economy taking a hit of only 1.8 per cent, far less than that of the financial crisis, according to the IMF’s modelling. Most important, any fall in economic output would be temporary. Once endured, it would not persist. Every winter, substitution will improve substantially. Advanced western economies will once again show their resilience and flexibility — this time in the face of a deliberate attempt to create chaos. Russia’s economy, on the other hand, would be dealt another severe blow. Already significantly undermined by sanctions and unable to import goods necessary for production, it will soon lose its main export sector, fossil fuels to Europe. As Europe recovers from this winter’s recession, that would leave Russia’s economy high and dry — hoist by its own [email protected] More