This week we will find out how government intends to end any UK reliance on Russian energy and tackle rising household bills. While the war in Ukraine has brought the problems with our energy policy into sharp relief, it has highlighted issues that have been decades in the making.
The government’s long-awaited ‘energy independence plan’ has been delayed, not just by wrangling between No. 10 and the Treasury over how it will be funded, but because the Conservative party is fundamentally split on the best way forward.
Business Secretary Kwasi Kwarteng is a sworn enthusiast for green energy sources, yet Brexit Opportunities Minister Jacob Rees-Mogg has urged Boris Johnson to press ahead with fracking. The Prime Minister has become a vocal proponent for expanding domestic nuclear production, while Rishi Sunak reportedly pushed for North Sea oil and gas fields to be fired up back in February.
Reconciling these positions has not been made easier by the myths propagated by politicians or commentators. Here is an attempt to bust some of them.
The energy market is unregulated
This is arguably the most absurd claim made by those convinced the current mess is the result of insufficient state regulation. If you have quite a lot of spare time you could try, like economist Dieter Helm recently did, to list all the current interventions and bodies regulating the energy sector down on paper. Targets, regulations and strategies like the Energy White Paper, the Net Zero Strategy, the Net Zero Review, Green Finance Initiatives, battery plant subsidies, and heat pump subsidies – overseen by BEIS, the Treasury, No 10, the Climate Change Committee, Ofgem, the Nuclear Decommissioning Authority, the Commission for Shale Gas – go on and on.
As Helm points out, ‘no one could name all, or indeed even most, of the main items on the list… no energy policy with this degree of complexity could work if no one understands it all’.
Oil and gas firms already pay an elevated rate of corporation tax at 30 per cent
We have plenty of regulation: the real question is how effective it is, and how many unintended consequences these layers of bureaucracy are creating.
The UK can be net-zero, and have secure and affordable energy
Regrettably, we cannot have all three with the current technology and capacity. The greenest forms of energy do not yet supply enough on a regular basis to be considered secure, while the more reliable forms of energy don’t get us to net-zero. The transition is going to be expensive. The failure to grasp this explains why successive governments have intervened in our energy market to such a degree that it scarcely resembles a market at all.
The Tories broke a manifesto promise by raising the price cap
No, they didn’t. The energy price cap may be a useless policy, which cannot change underlying costs nor guarantee lower bills for consumers. But it is a mechanism, not a number. The level is updated every six months, which can be up or down, depending on economic and market conditions. It was lowered twice in 2020, for example, as wholesale costs temporarily fell.
We need a windfall tax on oil and gas companies
Oil and gas firms already pay an elevated rate of corporation tax at 30 per cent on their upstream profits, plus a ‘supplementary charge’ of ten per cent. Further meddling will disincentivise new players from entering the field and risk a decline in investment – meaning more crises in future.
Fracking will take too long
This depends on what is meant by ‘too long’. Will it provide cheap and abundant energy in the next three months? No. But industry spokespeople believe they can get the wells that are already in the ground open and producing gas within a year. If planning regulations were sufficiently relaxed, we could expect to see widespread investment in new wells across the country – and similar growth in the sector to that experienced by the US.
Time to make big new bets on nuclear
If some Conservative MPs are ruling out fracking on the grounds that it wouldn’t solve the immediate crisis, then nuclear would not pass muster. The government’s own impact assessment says new nuclear power stations will take 13 to 17 years to build and will cost between £24 to £63 billion each at today’s prices. This isn’t to suggest that nuclear cannot be part of our low-carbon future, but a reality check over its cost and potential in the short-term – given it currently only provides 16 per cent of our electricity – is needed.
More nuclear could balance out intermittent energy sources
Almost certainly not. Nuclear cannot act as a backup to renewables because it cannot be turned on and off with the flick of a switch. The process takes time, and waste must be dealt with.
We should’ve invested in renewables sooner
Had we done so, we’d have been investing in less-advanced technology at inflated prices. A decade ago, offshore wind was referenced at £140-£180 per megawatt hour (2013 prices): adjusted for inflation the latest bids are a quarter to a third of that.
UK power supplies should be rationed
Shadow business secretary Jonathan Reynolds suggested this week that the government should plan for limited distribution, before swiftly U-turning and claiming it would be a disaster for households. But the reality – regardless of Reynolds’ comments or the International Energy Agency’s new top-down, ten-point plan – is that the price mechanism is already rationing power.
And finally… from footballer and TV personality Gary Lineker: ‘And hardly anyone seems to want to do anything about it.’
The last five years have seen inordinate amounts of time dedicated to discussing energy policy and the environment. Over that time, we have seen dozens of different pieces of legislation and regulations, dozens of parliamentary reports and hours upon hours of discussion and debate both in the media and in Parliament. The idea this is an ignored issue is farcical – but it is one where there is significant disagreement on the path forward. The difference in opinion is not over whether ‘something must be done’. It’s what those actions will be.
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