Fossil fuels sparked the industrial revolution and took society from laborious poverty to unprecedented wealth: An illustration from the Morgan Bible, c.1240, left, and an illustration of the Imperial Gasworks, King’s Cross, London, 1824
There is an unexpected parallel between our energy policy and the self-deception and wishful thinking exhibited by the mishandling of intelligence in the run-up to the invasion of Iraq in 2003. The Blair government ignored warnings about the reliability of sources, some of whom were fantasists, and "sexed up" whatever evidence it thought it did have. In an alarmingly similar fashion, successive British governments since the White Paper of the same year have been basing energy and climate change policy on questionable evidence, much from visionary green NGOs, dubious assumptions about future oil and gas prices and flawed reasoning about the beneficial effects of current renewable generation technologies.
The thrust of this policy — unfortunately supported by all three main parties — is to offer heavy subsidies, mostly for wind power, by means of levies on energy bills: a regressive wealth transfer from consumers to investors in renewables and to large utilities. The scale of these burdens, already significant at about £2.2 billion a year, is set to grow dramatically as we struggle to reach the 2020 targets set by the European Union's Renewables Directive.
This makes UK energy policy the world's biggest position in gas, since it is a bet that prices of fossil fuels will very quickly rise to high levels and stay there for the foreseeable future. If that fails to occur then renewables policies are going to look extremely foolish. Moreover, if government really believes in its own wager on renewables versus gas, why it is necessary to offer very generous 20-year subsidy contracts to developers of technologies that will be competitive within a decade?
In order to meet those EU 2020 targets for renewable energy Britain must derive at least 30 per cent of electricity consumed from renewable sources, in addition to 12 per cent of heat and 10 per cent of transport fuels. The cost of the heat subsidies is to be met from general tax revenue (about £450 million a year in 2020), while renewable transport fuels will cost motorists upwards of £1 billion a year in 2020, on top of the £33 billion of tax already levied on petrol and diesel — with economic consequences that are too little considered.
These are hardly negligible figures, but the main concern relates to renewable electricity, which has to provide about half the target quantity. We can estimate the costs from the current subsidy mechanism, the Renewables Obligation (RO), which is scheduled to run until 2017; generators registered before that date will continue to qualify for subsidies. The government hopes that the replacement mechanism, the awkwardly named Feed-in Tariffs with Contracts for Difference (FiTs-CfDs), will offer some savings; but there is every reason to doubt this because the underlying costs of the technologies have not changed much.
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