CCNet

Editor: Benny Peiser

Faculty of Science, Liverpool John Moores University Tel:- +44 (0)151 231 4338 b.j.peiser@ljmu.ac.uk

After the Credit Crunch comes the Energy Crunch

Opening remarks by The Rt. Hon. Lord Howell of Guildford, President of the British Institute of Energy Economists, at the BIEE Annual Conference at St. John’s College, Oxford. Wednesday 24^th September 2008 (Lord Howell was Energy Secretary 1979-81)

After the credit crunch comes the energy crunch.

Britain is now in real danger of running out of power in the period immediately ahead, thanks to incoherent national energy policy, misplaced green zealotry, dithering for years over nuclear power (for which no amount of eleventh hour enthusiasm can compensate) and a huge thirst for imported gas which can only be met, if at all, at painfully high prices.

Britain is now being once again described as the sick man of Europe, with the highest gas and electricity prices, the heaviest extra taxes and charges, the weakest gas storage facilities, a prospect of the most inadequate power generating infrastructure and the worst fuel poverty. According to the National Housing Federation 25 percent of all households will next year be paying more than ten percent of their net income on energy bills.

The whole scene is now shaping up in exactly the ways predicted in the book I wrote with Carole Nakhle, published a year ago*. In that book we forecast that energy security would become the near-term prime issue and that the so-called 'compelling' message of Al Gore and others about climate change and CO2 would simply be pushed off the screen. Unless policy-makers understood this, we said, they would end up with NO long-term CO2 reductions, huge short-term energy security problems and a lot of very angry and frightened people.

It seems that some economists, and maybe one or two politicians, have at last caught up with what we have repeatedly warned. There is now authoritative talk of serious UK power cuts (as in the Fells/Whitmill recent study). Meanwhile, some business leaders and personages are queuing up to bemoan the fact that worries about energy security and costs are taking strong priority over green obligations, just as we warned. Some other, wiser, business heads are pointing out that EU policy on climate change is blindly heaping costs on industry (one estimate is £60 billion over five years), thus chasing investment away to lower cost countries, like China and India.

Even wiser observers are pointing out that the carbon pricing schemes jacking up costs , by paying for permits to emit CO2, such as the EU’s Emissions Trading Scheme and the UN’s Clean Development Mechanism, are causing hardship and damaging growth, WITHOUT actually reducing CO2 emissions, which is supposed to be their purpose.

It is no surprise that Germany is now backing almost total exemption for its industries from CO2 payments, and from what Angela Merkel calls ‘ill-advised climate policy’.

Finally, at the global level, the attempt to foist on poorer countries these extra energy cost burdens in the name of combating global warming, are antagonising the developing world which is rightly determined to put poverty eradication before emissions restrictions .

Little wonder that scepticism about the climate change ‘crisis’ is growing, as critical immediate needs seem to be ignored or met merely with hand-wringing.

The scene is full of scares, shaky economics and scams, some of which could have helped to bring down banks like Lehman Bros , which had dreams of making millions out of green investments and the market for emissions permits. This was always a dangerous and risky area, precariously dependent on government decisions and transient bureaucratic fashions. Governments change and so do policies – often frequently.

Meanwhile windfarm subsidies come dangerously close to devices for enrichment rather than clean or reliable power. Land-based windfarms desecrate our precious landscape, while the offshore ones are untested, intermittent and probably uncommercial, when the cost of all the new links to the national grid are added in.

Biofuel subsidies have pushed up food prices and increased poorer country hardship dramatically. Again, these supports will not last.

As for carbon offset programmes, these rely on often dubious and unverifiable projects in the developing world . We also have the bizarre system by which China and Russia, still polluters on a grand scale , will be able to sell back permits into the EU.

It has been estimated that EU carbon schemes and renewables targets , if achieved, alone will add 25 percent to electricity costs in the UK, which can only mean more fleeing investments, more unemployment and more fuel poverty still. Or according to DEFRA figures £38 will be added to the average UK energy bill.

It is no wonder that the besieged UK Government is trying to water down carbon emissions restrictions within the EU by urging Brussels to somehow generate more ‘clean’ projects in the developing world .

But even these painful outcomes will be eclipsed by the misery of power shortages, slower growth and real social suffering over the next eight to ten years in the UK - unless truly rapid action is now taken to re-orientate both energy and climate policies to meet our real and immediate needs, as well as those of the poorer nations we say we want to help.

This requires:

· Recognition that there is no need to pile on energy misery now to ‘pay for’ longer term climate mitigation. The two goals are NOT in conflict, as we have argued, and the belief that long term green demands must override short-term energy needs is not only misplaced and politically inept , but guarantees that longer term environmental and CO2 goals will just not be achieved.

· Carbon crusaders are proving their own worst enemies, however much distinguished figures may plead for it to be otherwise. Green taxes should only be applied with the utmost care and ALWAYS matched by other tax cuts.

· Rather than the negative strategy of hiking up energy costs to hardship and job-destroying levels, via taxes and levies, the Government should be pushing a fast-track programme towards cheaper, cleaner, more reliable energy technologies.

· This means deciding NOW who will build the new nuclear power fleet, where it will be built, what designs will be used, who will finance it, how the waste (much lower with the new designs) will be stored. It is estimated that UK energy industries will need new investment of £100 bn over the next decade. Let’s start thinking where that is going to come from, instead of talking about higher carbon penalties.

· It also means all-out backing for the research which will make the new available technologies commercial, which most of them are not, even with sky-high oil and gas prices. This is a matter of a full menu, not a one course choice. Economic carbon capture and storage (CCS) from coal is clearly a super-priority. We cannot wait up 25 years (as the FT was mentioning yesterday). We should now be authorising MORE clean coal stations.

· The primary focus should be on reducing our economy’s dependence on unreliable and high cost oil and gas . We can reduce oil consumption much faster ,especially in the transport sector, not by stinging motorists or punishing air travellers but by maximum incentives to build fuel economy cars and phasing in more energy-efficient aircraft.

· We must accelerate gas storage construction.

· We can extend the life of the North Sea, for both oil production and gas, by adopting better fiscal policies which encourage smaller projects and enhanced recovery.

· We must stop adding to already high industrial energy costs , which are destroying competitiveness and force industry overseas. And we should halt costly and ineffective carbon schemes which raise prices ,both to industry and the poor consumer, but do little to cut carbon.

The clumsy handling of both energy and climate problems, and the confused and contradictory presentation of policies which muddle up timescales and simultaneously call for higher energy prices and lower energy burdens , are now producing their inevitable backlash. As a result all our desirable goals could be forfeited – energy security, affordable energy, cleaner energy, lower emissions – the lot.

People will not lightly forgive the economists, the policy-makers and the politicians who failed to see, or prepare to meet, the dangers, obstacles, road-blocks and pitfalls ahead, or who focussed on the wrong priorities with suspect arguments.

So it is time to see some candid and clear leadership from analysts and decision-makers alike. I hope this gathering will help in that direction.

Ends

(* Out of the Energy Labyrinth, by David Howell and Carole Nakhle. Published June 2007 by I.B.Tauris. )