In a whole series of bizarre policy U-turns creating huge uncertainty for the UK energy industry, George Osborne and the Treasury have succeeded over the past year in significantly reducing the UK's prospects for growth (and its ability to meet legislated targets). The energy industry is rightly dismayed about what's going on.

“Fears of political interference and a complex set of ill-defined market reforms are starting to scare investors from the UK,” said the FT in June. The so-called ‘Electricity Market Reform’ proposals were “a half-finished plan... with a dismaying lack of detail that was complex to the extent of being unworkable” according to the Select Committee on Energy and Climate Change, in August. A spokeman for RWE said “The proposals for the contract for difference have become increasingly complex and far removed from what we, the wider industry and the investor community, expected.” 

The strange thing is that there is no apparent rationale for this - they have been unable or unwilling to produce any evidence or coherent argument. They say they want to reduce consumer energy bills but what they are doing is likely instead to push bills up.

Tim Yeo Chairman of the Select Committee, said the certain consequence of the plans were that “electricity companies will be forced to pay more to borrow.. electricity customers will end up paying the price.. all because of arcane theology about what constitutes government debt.” He also said “the levy cap the Treasury proposes to impose ... will achieve either less investment and capacity or increased costs for consumers”.

They say they want to support economic growth but it is the green sector of the economy which has been growing in the last two years, and is now being damaged by policy uncertainty.

According to a report by Green Alliance, the green sector of the economy now represents 9.3% of GSP, has grown at 4 to 5% each year since 2008, and employs 940,000 people - nearly twice as much as the car industry! Exports of low-carbon goods and services totalled nearly £12bn in value, including nearly £800m of sales to China in 2010-11. Interestingly this is double the amount bought from China in this sector in the period! Even the CBI has laid in criticism: “the choice between 'green or growth' is a false one”, said CBI Director General John Cridland. He said that the green economy provided one-third of economic growth in 2010 and could do more if government untangled the policy 'mess'.

They seem to be in thrall to the shale gas industry, believing the industry’s claim that this will lead to cheaper energy - but almost all experts expect shale gas to have little impact in Europe.

Osborne said in a letter to the Committee on Climate Change that he wanted to make the UK a “gas hub”, and to extend the date whereby unabated gas (i.e. non-carbon-captured) would be allowed to operate in the UK. Why? The only explanation is that somehow he believes in the promise of shale gas, even while the rest of the market doesnt. EU energy commissioner Günther Oettinger says “Shale gas in the US totally changed the market. In Europe it can’t”. Sam Laidlaw, CEO of Centrica (owners of British Gas) said “It is an additional element, maybe 5-10 per cent,” and he wrote a post for the Guardian website subtitled: “Despite optimism over a shale 'glut', gas prices will remain high.” Meanwhile one broker’s best guess for European shale production in 2020 is 25bn cu m – only 5 per cent of today’s European Union gas demand.

Isn't this a perfect example of blind ideology trumping reason? In the face of the arctic summer ice reaching its lowest ever levels for at least 1500 years, and much earlier than the climate models had predicted, climate change policy is being undermined - in other words public morality is being abandoned. In the face of a recession threatening to slide into stagnation and high youth unemployment, Osborne wants to damage the opportunities for growth. Why?


The good news is that many in Parliament are fighting back. But it seems highly unlikely that we will get proper energy policy from this government.

John Gummer, now Lord Deben is now Chair of the Committee on Climate Change, and has led the committee to write an open letter to Osborne, pointing out that his proposals are likely to be in breach of the Climate Change Act and therefore illegal. (They also say that their discussions with investors have revealed that current policy uncertainty has created a "very poor" investment climate.)

In the last few days, Labour Leader Ed Milliband has pledged to deliver a decarbonised electricity grid by 2030.  Ed Davey, the Liberal Democrat Secretary of State for DECC says that the "Tory Tea Party tendency" is putting green jobs at risk. Danny Alexander the Liberal Democrat chief secretary to the Treasury has just spoken out about this also, saying "The thing that in this job and in this government I find most frustrating is what often feels like a constant war of attrition on green issues, on renewable energy and renewable investment which is so important to our economy."

But in the recent reshuffle Cameron stacked the cards against science. He appointed Owen Paterson as Environment Secretary, who is suspected to deny climate science, and to be anti-wind and pro-fracking (and is endorsed by the anti-science campaigner Lord Lawson). He also appointed John Hayes, an opponent of windfarms and "known climate sceptic", as a new energy minister, and sacked the much liked and highly knowledgeable Charles Hendry. 

Other relevant links:
good piece by Damian Carrington on the ideology and lack of openness behind the Treasury's stance. 
Excellent angry piece by James Murray at Business Green, which suggested the title for my piece here.


Leave a Reply