Politicians have spent years talking about the need to create ‘green jobs’. In many ways they have succeeded: there are now nearly 700,000 people employed in green jobs in the UK.
But while the likes of Ed Miliband may think this is a victory, the reality is that many of these jobs are a product of government subsidy, paid for by the taxpayer. These subsidies distort the energy market and have resulted in a massive misallocation of human talent, not to mention money. We now have, without doubt, a green industrial complex in Britain.
Last year environmental levies, including costs for renewable obligations and contracts for difference, or CfDs, (in which the government agrees to pay renewable energy companies the difference between a pre-agreed price and the actual market rate if it is lower) cost British taxpayers over £10 billion.
This money is passed on to energy bills rather than taxation, allowing the government to keep the cost off its balance sheet. It is hardly a surprise they are keen to artificially suppress the costs of the climate transition, given that recently the OBR told us net zero by 2050 will cost £30 billion a year.
To incentivise investment in green energy, successive governments have discarded market wisdom and tilted the scales heavily in renewables’ favour. This is especially true with CfDs. The latest CfD allocation round (currently ongoing) is offering offshore wind developers the highest ever price for British electricity, guaranteed for 20 years, inflation linked. Even if the energy market was flooded with a cheaper form of electricity, consumers would not benefit, as we would still be forced to pay the agreed price for renewables. Decline and deindustrialisation would continue.
This green industrial complex makes us less secure in multiple ways. We depend on imported Chinese steel to build green infrastructure and we are at the mercy of the wind to keep much of it going. Our energy costs are sky high, more than double that of the USA, which generates two-thirds of its energy from fossil fuels, compared to just one third here.
The high cost of energy affects our whole economy. The energy-intensive production of industrial necessities such as basic metals and cement are at their lowest levels since records began and small businesses across the country are being driven into the ground. This means fewer jobs, slower growth, and more dependence on imports.
When a household pays an electricity bill, less than a third of it is for the actual electricity. The rest goes to covering the cost of subsidies to renewable companies (via levies included in the bill), carbon taxes, and the supplier and network costs often driven ever higher by the intermittent nature of renewable supply.
In the last year roughly 40 per cent of Britain’s electricity came from renewables. Ofgem last week admitted that the need for yet another hike in the cost of electricity is the result of these very renewables. Labour has pledged to increase the figure of low-carbon generation to 95 per cent by 2030. If things are bad now, they are only going to get worse.
All of this is a political choice and one which must be reversed at the earliest opportunity. But how?
First, there is a legal question. We are told that subsidies and CfDs are ironclad in law. But the only thing that is ironclad is that the British parliament has, in the words of Dicey, ‘the right to make or unmake any law whatever.’ The commitments underpinning the green industrial complex can be undone by Parliament.
This may require retrospective legislation to fix – something many find uncomfortable. But it has been done before. In 1965 the War Damage Act removed all liability for the British state to pay damages after the Burmah oil company sought compensation from Britain for destroying oil fields during the second world war. The British courts found in favour of the oil company. Foreseeing huge financial harm, Parliament exercised its absolute right and legislated the problem away.
The financial peril we are now in is just as great. The government is demonstrably making people’s lives worse and driving up energy bills, all to the benefit of a few rent-seeking companies that would not exist without subsidy. In these circumstances abolishing the subsidies is not just an option but an obligation.
Once the subsidies are withdrawn, and the market assumes its rightful place, we will no longer have to worry about new wind and solar developments. For the foreseeable future manywill simply not be profitable, and so the investment case will be diminished. Existing farms might gradually close as the costs of maintenance and upgrades outweigh their ability to be profitable in the free market. They will decommission and we will be freed from their blight on the landscape.
All of this must be paired with a sprint to build more gas-fired power stations. The investment case will speak for itself, and taxpayer subsidy will not be required.
This will be especially true if fracking is permitted, to be used in new gas power stations, reducing the need for expensive imports of LNG, driving down the cost of gas and electricity generation.
The withdrawal of subsidies will reduce bills significantly. New gas-fired power stations have efficiencies that are more than 10 percentage points higher than the current fleet which was largely constructed in the 90s.
If at some point in the future renewables can pay for themselves, they will be welcome to compete in an open market. However, the recent valuation plunge and subsequent bailout of Ørsted, Britain’s largest wind energy provider, was a reminder that this is still a long way off. Rather than propping up such unviable businesses, the 700,000 people currently employed within the green industries should be released to create value elsewhere. They are highly skilled and will be needed to reverse our current deindustrialisation.
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