An unholy alliance?

October 30, 2008

An unholy alliance?

October 30 2008

by Niki Leahy

Niki Leahy on the challenges facing the new Department of Energy and Climate Change.

Energy economists, green groups and political pundits all welcomed the recent creation of a new UK Department of Energy and Climate Change, (DECC), led by Ed Miliband. DECC’s primary purpose will be to drive policy in two competing priority areas, (energy and climate change) thus uniting the separate objectives and goals of the Climate Change Bill and the 2007 Energy White Paper.

So what are the key issues that the newly combined department must address?

Let’s look at energy first. Ed Miliband inherits a policy mess. The UK is in its third round of energy consultation in just 11 years. Recent UK energy policy has been to drive market deregulation and free competition, neither of which encouraged investment for increased supply, nor increased capacity storage which we now need. The UK, like many other EU countries, is faced with fast depleting resources of oil and gas, and locked into European climate change policies which restrict the use of expensive and carbon intensive coal. This leaves us energy vulnerable, relying on gas imports from Russia, a country increasingly using its energy availability to drive its geo-political ambitions.

Current UK energy policy, as outlined in the 2007 Energy White Paper, has few real solutions for addressing energy security – calling instead for “international energy strategies”, and the provision of transparent and fully competitive energy markets, over which UK policy makers have little influence.

Both the UK and EU have signed up for some stringent climate change targets under the EU Action Plan. These include commitments to reduce output of CO2 by 20% on 1990 levels by 2020, to achieve 20% improvements in energy efficiency by 2020, and to increase to 20% the share of renewable energies in overall energy consumption by 2020. None of these targets are incorporated into explicit policies within the Energy White paper, and all are arguably unrealistically ambitious. Current UK Government claims that we achieved a 15% reduction in CO2 emissions on 1990 levels are hotly disputed, (with other eminent reports showing that our output of carbon emissions has actually increased by 19%). Meeting a 15% output target for renewable energy will require increases of 40% in capacity in wind energy alone in the next11 years. Added to this, under the Climate Change Bill, the UK Parliament agreed this week to introduce the world’s first legally binding national emissions reduction target of 80% reduction in UK GHG emissions by 2050.

This means that EU and UK climate change targets bear no relation to proposed energy policies. The UK has fast depleting oil and gas reserves, and it cannot increase its output of coal without huge additional cost burdens imposed under the EU Combustion Plant Directive. Carbon sequestration and storage may offer viable solutions for reducing CO2 emissions output, but these won’t come on stream for at least another 20 years.

So there you have it – an Energy White paper that is short on detail, which doesn’t seriously address how either the Government or the private energy sector will finance the massive infrastructural investment required for increasing output and energy storage facilities. Added to this, we also have highly ambitious national and intra-national climate change targets which are at best ineffective, expensive and are likely to reduce our industrial competitiveness.

Mr Miliband inherits well rehearsed energy and climate change political visions, what he lacks are the ideas and concrete proposals needed to deliver the vision and make the necessary changes to the existing UK energy infrastructure to enable microgeneration, vital for achieving renewable energy’s contribution. He also has no political agreement as to the role that nuclear energy will play, no commitment to carbon taxation or a single carbon pricing structure and no coherent framework for subsidies for alternative energy sources, needed to drive technological investment to where it can be most effectively exploited.

DECC will have to address how we price energy according to its relative environmental impact if it is to begin to reconcile two competing policy agendas. In addition, while DECC may signal a commitment towards marrying energy and climate change policy, the UK Government must also address how environmental and energy policies can be aligned to our wider economic objectives, so that we decouple economic growth from emissions growth.