Ditch Ed Miliband’s Crazy Energy Legacy

The costly and impractical Climate Change Act was nodded through by a lazy Commons and has been rendered obsolete by the oil price collapse

Energy Features UK Politics
Sheringham Shoal offshore wind farm: The Climate Change Act subsidises offshore wind power at three times the market price of electricity (photo: Statkraft, via Flickr)

The new British government should not just rethink the Human Rights Act: it should also repeal the Climate Change Act (CCA) 2008, the brainchild of Ed Miliband and possibly his most baleful legacy. The CCA commits the UK to legally-binding carbon dioxide reduction targets which are expensive and increasingly detached from global economic reality. Its implementation is predicated on extravagant assumptions about energy (especially oil) prices and is vested in unaccountable institutions designed to give preordained advice and analysis. Above all, the CCA sets in political concrete an anti-free-market philosophy that places a particular view of the environment ahead of the needs of people.

The Act established a wonderfully British quango called the Committee on Climate Change (CCC). Its statutory task is to advise the government on matters related to the CO2 reduction target, and, in particular, whether the targets should be amended, and why. In fact it does much more than this, policing the energy policy discussion in government and academia.

None of the CCC’s seven members comes from the energy industry or has worked in business of any sort. They are either academics — distinguished ones, admittedly — or superior policy wonks. The chairman Lord Deben, the former Tory minister John Selwyn Gummer, told me last year he wished that the energy industry had spoken up when the CCA and subsequently the Energy Act (2013) were being formulated: “We didn’t always understand the effect of the measures we proposed.”

The CCA was the product of intensive lobbying of a receptive Labour government by environmental groups like Friends of the Earth, with the support of the renewables industry. The public had been primed by relentless global warming propaganda, exemplified by Al Gore’s meretricious film, An Inconvenient Truth. The Conservatives were in on it too. In 2005, Bryony Worthington, the environmental activist who basically wrote the CCA, had spoken to the new Tory leader, David Cameron, who wanted to rebrand his party blue-green. When David Miliband, then at Defra, heard this, he moved swiftly to steal the Tories’ clothes. The bandwagon began to roll. The younger Miliband, Ed, grabbed the reins.

Parliamentary scrutiny of the Bill was negligible. The only MP who actually read the economic impact statement was the former Tory minister Peter Lilley. He pointed out that the government’s basic impact forecasts showed a net effect on the economy ranging anywhere between a positive £52 billion and a negative £95 billion. These estimates did not include transition costs — that is, the costs of infrastructure and other capital adjustments implied by the shift to low-carbon technology — which by 2015 have already run into tens of billions of pounds. Nor did they address trade and competitiveness impacts, which should have been of concern when the UK was taking unilateral action to raise its industrial costs in a global marketplace. Three Tories — Lilley, Andrew Tyrie and Anne Widdecombe — were the only MPs who voted no. The entire Tory shadow cabinet supported the Bill, and Commons debates were notable for mutual congratulation between MPs of all parties. Climate change was — and to an extent still is — a topic which politicians of all stripes feel confident will make them sound disinterested, high-minded and caring: they certainly do not want to sound like greedy despoilers of the earth.

Which is a pity, because the UK’s dogged efforts to implement the CCA are already going some way to despoil the economy, with the heaviest burden borne by the poorest in society.

The CCA’s main mechanism for reducing CO2 emissions is a comprehensive subsidy regime for renewable power generation. When the Act was passed in 2008, all forms of renewable power were more expensive than conventional generation from coal or natural gas. This was reflected in the scale of subsidy, which varied from twice the market price of electricity for onshore wind and solar to three times for offshore wind, and seven or eight times for more exotic technologies such as wave and tidal power.

Supporting the subsidy regime was the presumption that oil, gas and coal prices would continue to rise in a more or less linear fashion, and that, as they rose, the cost of renewable generation would decline.

As anyone who has tried to make a living from commodity markets knows, predicting future prices is folly. That is why commodity markets trade futures contracts, which allow them to hedge. Predicting a particular price, or a particular price growth curve, is worse than folly — it is insane. Yet this is what British energy ministers, from Miliband through to the hapless Ed Davey, have based their policies on. It is true that for a few years the oil price cracked through $100 a barrel, but markets do not reward high prices with yet higher prices for very long. The phenomenal growth of US shale oil and gas increased global output, and Saudi Arabia’s decision to stop acting as the world’s swing producer — i.e., the oil industry’s balancing mechanism — cut prices by more than half during 2014.

Oil prices are unlikely to recover any time soon. Saudi Arabia is sticking to a steady level of production, and Opec is a toothless cartel lacking the means to regulate production. Output growth of shale oil in the US will be tempered but not reduced. Supply will continue to grow elsewhere, including Iraq and post-embargo Iran, while demand, outside China is slowing. With a greater emphasis on efficiency the historic link between economic growth and oil demand has been broken, which means that the global economy can be expected to recover without this translating into higher oil consumption.

This cluster of fundamental changes in the world oil market, and by extension the wider energy market, has taken place over the past three years. Markets are dynamic, and yesterday’s sensible posture is today’s suicidal folly. Even if the CCA had embodied a sensible approach seven years ago — which it clearly did not — its effects are now ridiculous.

It is not yet clear which direction Amber Rudd, the new Secretary of State for Energy and Climate Change, will steer. After the post has been in Liberal Democrat hands for five years, one might expect that a Tory minister would adopt a more hard-headed set of policies. She has already signalled support for fracking, with all the appropriate safeguards, though one suspects this welcome departure was forced on her by the Treasury. The government says it will discourage the further expansion of onshore wind, while continuing to subsidise much more expensive offshore wind. And she has just announced government support for the insanely expensive Swansea tidal power lagoon. But then Ms Rudd is very much part of the blue-green consensus. DECC itself says the priorities in the Queen’s Speech are: “Keeping the lights on and powering the economy; keeping bills low for families and businesses; and getting a climate deal in Paris this year.”

These priorities are incompatible, though our leaders have proved themselves adept at fudging the issues. You cannot continue to subsidise nuclear and renewables, plus the back-up conventional capacity needed to support them, while keeping prices low — especially when conventional energy prices are low and going lower. As for getting a deal in Paris at the next UN climate change conference in November: it is unlikely that the really large carbon producers, China and India, will commit themselves to restrictions that would level the playing field for our already-hamstrung industries.

If Parliament repealed the Climate Change Act, followed, one hopes, by the Energy Act, the British economy would be freed from a straitjacket that dooms it to paying ever-higher prices. Cured — cold turkey — from their addiction to subsidy, power generators would be free to make rational commercial decisions — which in a competitive market would mean a tendency to drive prices down. Renewable power technologies would be forced to compete properly. The hyper-expensive ones would have to go back to the drawing board, but the cheaper technologies would have an incentive to get their costs down to realistic levels. This is already happening with solar, due mainly to the huge Chinese investment in producing photovoltaic panels. It could happen with wind, though not for a few years. The point is that the progression to a lower-carbon future would not be at the cost of our economy, and it would happen organically and not on the artificial timetable dictated by the CCA and its high priests at the CCC.

This, of course, is unlikely to happen quickly, or even at all. It would take a political reaction as powerful as the terrific green concert party that led us to the CCA 2008 and the world into the interminable global climate negotiations. At present the British public is split, though it is fair to say that the majority accept the reality of man-made global warming and the need to do something about it. However, the minority is a substantial one, and numbers are growing. Their position is similar to that of the Eurosceptics a few years ago: numerous, disgruntled and ignored by the political establishment.

In Britain, the worm may just turn with the launch of shale fracking later this year. Applications by the specialist exploration company Cuadrilla to drill in Lancashire are expected to be approved soon, and the first results should be in by December. The Bowland shale is twice the thickness of the largest American shale reserves. Success would change the terms of the game. A new and abundant source of cheap natural gas — not to mention oil — would force the nation to reassess its priorities.