The man handed the heat but not yet the light

23rd July 2007
By Gordon MacKerron

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The world of energy policy was fundamentally changed once the government accepted the Royal Commission on Environmental Pollution argument in 2000 that the UK would need to reduce its carbon emissions by 60 per cent by 2050. This was the minimum needed if the UK was to play its part in helping the world avoid unmanageably large changes in the global climate.

Why did this acceptance require such thorough change in energy policy? Carbon dioxide is overwhelmingly the most important greenhouse gas emitted in the UK, and almost all carbon dioxide comes from fossil fuel combustion: the result is that changes in the energy system are the only delivery vehicle for climate change mitigation.

So, logically enough, the 2003 energy white paper put carbon emission reductions at the ‘heart’ of energy policy, while aiming to meet objectives of security of energy supply, efficiency and universal access to energy services.

The 2003 white paper was short on specific policies but provided a convincing architecture for the new and very demanding task of achieving radical cuts in emissions. It was also the result of a good deal of public and stakeholder participation involving some effective deliberation, and it attracted a broad if not universal consensus.

This was thrown into substantial jeopardy by the surprising decision of our last prime minister to re-open energy policy at a quite basic level in late 2005. In consequence a hurried and unconvincing energy review was published in mid-2006, the consultation for which has subsequently been declared invalid after a judicial review challenge by Greenpeace.

This in turn delayed the publication of the energy white paper, finally appearing in May 2007, and required a further consultation on nuclear power which will not be complete until October. The process descended towards farce when Mr Blair announced that while there would be further consultation on nuclear, policy would not change. The credibility of the energy policy process has, as a consequence of these developments, taken a serious blow.

So where does the new energy policy white paper leave us? It certainly gives us a great deal more paper. In May, government simultaneously published some 1,900 pages of material on energy policy: 340 in the white paper, 205 on the nuclear consultation amid over 1,300 pages in 16 related documents, including over 250 pages each on both renewables and gas.

It would be surprising if anyone had yet fully digested this enormous outpouring of material. But certain things are clear:

• There was a virtually overwhelming case for combining the energy supply responsibility of the (now transmuted) DTI with the climate change and energy efficiency roles of Defra. That this opportunity has been missed and the principal department responsible for energy is now badged as Business, Enterprise and Regulatory Reform is a poor sign.

• Security of energy supply has now risen much higher up the political agenda. This comes in two guises: as fear of dependence on Russian gas, and of shortage of future electricity generation capacity. Both fears, especially about the Russian bear, are exaggerated, and both superficially play into arguments in favour of nuclear power (but see below).

•Nuclear power is marooned in a curious no-mans-land. Government is scrupulously avoiding the idea of subsidy for nuclear but is aware that much needs to change before nuclear investment could become sufficiently low-risk. It will be several years before any private consortium is likely to put forward real investment proposals for nuclear, unless government really does intervene more decisively to favour nuclear investment.

• Government has not yet been willing to face the electorate with the implications of recent, and more depressing, climate science. This new evidence suggests that we will need carbon cuts closer to 80 per cent than 60 per cent, and that there is a real issue of urgency: cuts that mostly take place towards 2050 will mean much higher cumulative emissions than earlier cuts — and it is the cumulative, absolute emissions that matter, not the abstract idea of percentage reductions from an arbitrary baseline.

• Government is ever more tightly reliant on the EU Emissions Trading Scheme (EU ETS) to deliver a large proportion of the emission cuts needed over the next few years. The ETS is a substantial achievement as an operating structure but is nowhere near providing a consistently high enough carbon price to induce much low carbon investment.

The UK government has at best marginal influence over the scheme as a whole, including its post-2012 shape and stringency. It is dangerous to pin so many hopes on an instrument the effectiveness of which is essentially outside government’s control

In other policy areas, government continues to try and squeeze the maximum possible emission reductions by intensifying existing, broadly incremental policies (e.g. for building standards, and the ‘Energy Efficiency’ commitment).

There is nothing wrong with this in itself, except that if we are to make credible progress towards a 60 per cent to 80 per cent cut in emissions, we shall need sooner (rather than later) to adopt more radical policies.

This is not to underestimate the problems of being more radical, which, less paradoxically than it may first sound, needs both more centrally-driven regulatory intervention and more effective bottom-up citizen and community-based initiative. There is a basic ‘hearts and minds’ issue here which the recent conduct of energy policy has served to weaken rather than enhance.

Some of the required intervention may be perceived as restrictive, though it is revealing that a recent CBI survey suggests that firms may accept more decisive regulatory intervention as long as they perceive that it will be transparent and stable.

Markets will remain important as delivery mechanisms for much of policy (as in the EU ETS) — it is just that markets, while competitive wherever possible, cannot be ‘free’: they need to be the servants rather than masters of policy.

Two issues deserve more attention: the security argument and the need for urgency in policy. The ‘embrace of the Russian bear’ argument is much over-played. We currently get none of our gas from Russia and are some distance from signing the first Russian gas import contract. In any case, the import ‘problem’ is unavoidable and needs to be managed (via diversity and other measures) rather than being used as an argument to stampede us into unwise and expensive domestic investments.

The urgency issue has been touched on above: early action is much more valuable than delayed action. But there is a particular and highly concrete dimension to the urgency argument and it concerns the need for electricity generation investment.

Retirements of coal and nuclear generating plant over the next decade and a half will require — irrespective of energy efficiency improvements — a minimum of 20,000 MW of new capacity, nearly a third of the current system. Unless government can act in such a way as to ensure that a high proportion of this investment is low carbon (i.e. not predominantly gas) we shall lock ourselves in to relatively high electricity sector emissions till mid-century, making the 60 per cent-80 per cent target cuts virtually unachievable.

Notice that while nuclear power is a genuinely low carbon technology, it can make only a very minor contribution to this immediate problem because of its slow gestation; at best, very little new nuclear power could be on the system until around 2020 at the earliest.

But while voluminous, the documentation around the white paper should not blind us to other important and in many ways more encouraging recent developments. The Stern report from late 2006 is a powerful endorsement of the arguments for effective climate change policy from a mainstream economics position, though its effects may be more important internationally than at home.

The most potentially important other development is the draft Climate Change Bill, on which a consultation has recently ended. While, like the 2003 white paper, it is mostly architecture rather than substantive policy, it is, in its own way, as potentially promising as that earlier document.

Its central idea of setting 15-year-ahead carbon budgets is a good one and could give much enhanced confidence for business investment. And while the notion of making these budgets legally ‘binding’ will almost certainly not work in terms of constitutional law, it nevertheless could give an important signal of political commitment.

The new white paper on energy may be a disappointment in some ways, but there are therefore other elements of government policy that offer more hope for effective emission reductions — though the road ahead remains long and hard.

Professor Gordon MacKerron is Professional Fellow at the Sussex Energy Group, SPRU, University of Sussex.

Filed Under: Energy, Climate Change,
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