It might seem like yesterday’s story to talk of a looming energy crisis in Britain. Gas and electricity prices tumbled in 2015 and are continuing to do so in 2016. In contrast back in 2014 there was a large public outcry at how the cost of energy had sky-rocketed. Gas and electricity prices increased by over eight times the rate of earnings between 2010 and 2014. Despite prices falling since then, by the end of 2015 nearly 4.5 million people or 17% of British households were still living in fuel poverty; when over 10% of household income is spent on heating costs. Many people enduring stagnant wages are unable therefore to meet their costs of living. It is clear that energy costs are too high for many people and their utility bills are being artificially inflated.
I say artificially inflated for good reason. These high prices for gas and electricity are completely unnecessary. The problem stems from the government’s commitment laid down in the Climate Change Act of 2008, an extreme act of folly and hubris, to cut Britain’s carbon dioxide emissions by 80% of their 1990 levels by 2050. While any rational policy would be to supply energy to meet demand as cheaply as possible, the policy instead is to supply non-carbon sourced energy with an almost total disregard for cost or reliability. Cheap methods of generating electricity are being discarded in favour of expensive and inefficient energy. This is absolute madness and it is unnecessarily pushing people into fuel poverty and making British businesses less competitive.
We have been provided a rather rude awakening to this problem recently as we witness the death of the British steel industry. British steel makers pay approximately £90 per megawatt hour; approximately £34 per megawatt hour is owing to so-called green taxes. In contrast French steel makers pay approximately £45 per megawatt hour. Electricity accounts for 6-8% of steel production costs and in an industry where profit margins are very small indeed a few single percentage points can be the difference between profit and loss, thereby making an industry viable or not. It was Sanjeev Gupta, the businessman widely touted as the potential saviour of the industry, who said he would only enter into a deal to return the Port Talbot Steelworks to profitability if he was assured of relief from high energy prices. It seems clear why the British steel industry is on its deathbed; high electricity prices caused by climate change policies.
This mad zero carbon agenda is multifaceted but it has permeated the government’s formulation of our energy policy causing a crisis to emerge. Among the most egregious contributors to the crisis was the European Union’s Large Combustion Plant Directive which mandated the closure of Britain’s large and cost-effective coal burning power stations. In November 2015 the British government announced all coal power stations will close by 2025 with seemingly little consideration as to what sources will make up the shortfall. The likely outcome is another ‘Dash for Gas’, only this time, in contrast to the previous dash in the 1990s, Britain is likely to be reliant on precarious foreign gas supplies because of the government’s timidity in the face of opposition to hydraulic fracturing (or fracking) leaving Britain’s own shale gas fields unexploited.
The European Union’s Emissions Trading Scheme (ETS) hit Britain badly too. Around half of our energy mix was from coal-fired power stations when the scheme was initiated in 2005. Burning coal releases greater quantities of carbon dioxide than other fossil fuels so the amount of carbon dioxide our installations emitted often exceeded their respective emission permit allowance. The result under the ‘cap and trade’ scheme is that the high emitting installation must purchase credits from a low emitting installation. Therefore the costs of burning coal as a high emitter of carbon increased because the scheme required the supplier to purchase these carbon credits. This cost was of course then passed on to the consumer. The British Treasury’s very own Carbon Price Floor, which came into effect in April 2013, compounds the problems of this insane system even further. If the price of ETS carbon credits falls thereby decreasing the cost of emitting carbon dioxide the energy supplier must still pay a minimum amount for their emissions. So if the price of emitting carbon dioxide falls below the floor, which is currently set at £18 per tonne, the supplier must pay the difference to the Treasury. The consumer ultimately bears this cost and therefore is offered no respite by the government from rising electricity bills.
The Climate Change Levy, though not applied to domestic energy users, causes great harm to British industry adding to the already considerable burden of their running costs. The levy varies on the amount applied to electricity, gas and other commodities. Originally and perhaps most bizarrely the levy was also applied to electricity generated from nuclear power stations even though they emit no carbon dioxide into the atmosphere whatsoever. However, even electricity generated from renewable sources is no longer exempt from the levy; the exemptions were removed in the July 2015 budget. It seems that it is simply a convenient device to raise revenue for HM Treasury. The most direct casualty of the levy is the British steel industry but by artificially raising the price of energy it is adding to other businesses costs and undoubtedly making them less competitive in the global marketplace.
Despite the pillorying of fossil fuel use the so-called renewable sources still require government subsidies to make them viable for an investor. These subsidies are paid for by the consumer’s energy bills through a number of schemes such as the Renewable Obligation scheme and the Feed-in Tariff scheme. The Renewable Obligation scheme places an obligation on electricity suppliers to generate an increasing proportion of their electricity from renewable sources. Thus cheaper methods of generating electricity must be cast aside such as natural gas in favour of solar which can cost up to three times as much to generate the equivalent unit of electricity. The cost of the Feed-in Tariff scheme, which pays micro-generators of electricity (from renewable sources; solar, wind and so on) for surplus energy exported to the grid, is borne by consumers who see an increase in their annual electricity bill. Who benefits from all this? It is hard not to conclude that these schemes are simply a racket to benefit the renewable energy companies and their offshoots at the expense of the consumer which includes an unnecessarily high proportion of households living in fuel poverty.
One notable and unintended consequence of this deranged policy to discard carbon sourced energy is that our spare energy capacity is running dangerously low. Both solar and wind are intermittent while energy storage technology is as of yet inadequate to keep supply in line with demand. If the government continues on course to phase out fossil fuels Britain runs a major risk of blackouts in the near future. In a desperate attempt to find a carbon free source of electricity generation to keep the lights on the government comes ups with appalling deals such Hinkley Point C. Owing to the estimated £18 billion construction cost the government has guaranteed the French state-owned EDF it will pay £92.50 per megawatt hour for electricity from Hinkley Point C, more than double the current wholesale electricity price.
The solution to our energy problem is really very simple: repeal the Climate Change Act of 2008, abolish the Climate Change Levy, leave the European Union so we are no longer bound by the Large Combustion Plant Directive and the Emissions Trading Scheme, axe the Carbon Price Floor and end the subsidies for renewable energy sources via the Renewable Obligation and Feed-in Tariff schemes. Furthermore, we should support the development of Britain’s considerable shale gas reserves allowing cheaper energy to flow onto the market like in America. All of these measures will make energy in Britain affordable and reliable once again.
Usually the question about climate change comes up. Surely we must attempt to stop the degradation of the planet? However, even if the climate scientists are correct there is little we can do about it when China and India are rapidly industrialising and continue to emit carbon dioxide into the atmosphere with a complete disregard for international environmental protocols. Trying to halt and reverse climate change by erecting thousands of wind turbines in the British countryside is really a fool’s errand.
Article by Robert Stephenson, Deputy Chairman of UKIP London
Image courtesy of Stuart McMahon and Getty Images