The new Energy Secretary should change course to tackle high bills and climate change. Carrying on as we are will probably end in tears. It won’t do anything about climate change and it will put up bills. Ed Davey has a golden opportunity to have a rethink.
Since 2000, we have had three major white papers, forests of consultation papers and ten energy secretaries. Chris Huhne, in his 18 months in office, claimed that he had the answers to Britain’s energy problems.
He believed that investing massively in renewables, especially wind farms, would usher in a new industrial revolution that would help to curb climate change and, through the Green Deal, create 250,000 jobs. Not only that, he believed that his approach would be competitive. He predicted that energy efficiency and universal smart meters would reduce demand by so much that household bills would be lower by 2020, more than absorbing the cost of subsidising renewables.
Setting aside the hype, this approach is based on two core mistakes: on climate change and on international energy prices.
On the first, the facts are clear. Global emissions have for the past two decades been going up, primarily because of the rapid growth in the coal burn to meet rising global energy demand, especially in China. Last year coal use grew by 9 per cent in China; it opens between one and two new coal-fired power stations a week, and India adds one a week.
In contrast, our ambitious windmill- building programme in the North Sea would have an insignificant effect on emissions. Likewise, Kyoto has made no discernible impact and there is little prospect of it doing so any time soon. The recent Durban climate conference decided that participants would try to agree by 2015 to the caps on emissions that might be adopted after 2020. In other words, nothing substantive would be done this decade, a decade in which China’s economy is set to double.
The Kyoto calculations make it look as if Britain is making progress. Our emissions were down more than 15 per cent between 1990 and 2005. But this is partly an illusion. We were deindustrialising: buying energy- intensive goods from abroad rather than producing them at home. So while our production of carbon fell, our consumption went up by 19 per cent. China does much of our polluting for us — and that is why no progress has been made in limiting emissions. Rather than blaming China, we should accept our responsibility. Driving up our energy prices drives energy- intensive production overseas.
Mr Huhne’s second mistake was to assume that oil and gas prices were on an ever-upward march. But the shale gas revolution has turned everything upside down. In the United States, the gas price has plummeted. America is using cheap gas to cut its coal emissions and boost its competitiveness.
The contrast with Europe could not be greater: its gas price is now four times higher than America’s. Despite that, the mantra of “peak oil”, “peak gas” and “high and volatile prices” continues to be trotted out in Britain. This partly explains why we have put most of our eggs in the wind basket — £100 billion by 2020, with much more to redesign the networks and provide the back-up to deal with wind’s intermittency.
There are good reasons for believing that renewables, including wind, have an important part to play in cracking climate change. But we need to do something quickly — and on a global scale. Coal burning is not going to go away because of wind. Gas is one transition option, a bridge to decarbonisation. If we concentrated on getting a proper carbon price in place — including on all those carbon-intensive imports –— then we would find out which way is quickest and cheapest to get emissions down.
Carrying on as we are will probably end in tears. It won’t do anything about climate change and it will put up bills. Ed Davey, the new Energy Secretary, has a golden opportunity to have a rethink. We need market reforms that emphasise price and cost, and to concentrate on getting the carbon emissions down in the cheapest way first, not the most expensive. That will mean a balanced mix of energy sources. Ministers who try to pick winners should remember that losers tend to pick government.
Energy and climate change policy is too serious to be allowed to be become a triumph of hype over substance.
Dieter Helm is Professor of Energy Policy at Oxford University and Fellow in Economics at New College, Oxford
