It is time for Nigeria to pay attention to the very important conversations around orthodox economic lessons, it seems.
Back home, confronted by the same facts, our governments would have banned everything that moves. Cap prices. Tax windfall profits. Subsidise household spending globally. And when this policy farrago fails, declare every instance of non-compliance “an act of economic sabotage”.
A cap on prices will not, in other words, solve the problem. And because it is far likelier to boost consumption, it may contribute to a warmer world instead. Would a cap on a basic amount of electricity fix this problem? Properly designed, it could reduce the cost to consumers without hurting the incentive which rising prices provide for disciplining consumption.
Since the marginal costs of renewable energy providers is as close to zero as possible, pricing energy at the cost of an additional unit of gas has meant that solar and wind power generators have earned large profits since this crisis began. On this basis, a case is being made for redesigning Europe’s electricity marketsby changing how additional units of electricity is costed.
But such handouts do several other things. Of most import is the upward push they lend to governments’ deficits and borrowing. This matters more at a time when monetary conditions are tightening across these economies.
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