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02 Feb 2022

Economy

Cuddle your pets, eat some oatmeal, and do some star-jumps. The advice from energy supplier OVO to customers struggling to meet their bills met a frosty reception. Spiralling global gas prices means sky-high electricity bills that are fuelling a ‘cost of living crisis’. The crisis will only worse come April when the price cap for 22 million households will £693 a year, a jump of 54%. Rishi Sunak’s targeted support scheme will only blunt the worst effects of this precipitous price jump. While the energy crisis is affecting the whole world, Britain has been hit particularly hard. Average day-ahead electricity prices have almost universally run ahead of those in EU countries. And the acuteness of Britain’s energy crisis is in part driven by the mishandling of its ambitious green agenda.

Many are keen to deny this. Simply discussing the costs of the green transition is often seen as tantamount to climate change denial. Indeed, some Tory backbenchers now keenest on highlighting the costs of the green transition have previously questioned humans’ role in driving climate change. However, if we are to have a serious discussion about decarbonisation we must discuss its costs.

The basic problem is one of ‘dispatchable power’: sources of energy allowing supply to be ramped up or down to meet demand. In older electricity systems this was simple – mainly a question of burning more hydrocarbons when necessary. Renewable energy complicates the equation. Wind and solar energy – which in 2020 made up 29% of the UK’s energy supply – are intermittent as they depend on the weather.

To balance out shortfall when the wind doesn’t blow or the sun doesn’t shine you need to retain some dispatchable power, and that usually means being able to switch to some other source at short notice. Britain’s failure is that – with coal almost entirely phased out – its only option here is gas, which is currently wildly expensive.

Geography doesn’t help. The best option for dispatchable power that is also low-carbon is hydroelectricity, and the UK is sadly blessed with few mighty torrents and majestic fjords. Batteries, green hydrogen, and carbon-capture are not yet developed enough to be deployed on a scale large enough to cover days or weeks of shortfall.

Still, pumped hydropower –storing water in a reservoir and letting it cascade down into another, driving turbines along the way – would have been a viable option to take the edge off. Past Conservative governments have also failed to push green energy suppliers to invest in energy storage by making them cover the costs of intermittency. (This also lies behind misleading claims about wind and solar energy’s low costs.) It is discouraging that we only seem to be thinking about this now – with a government consultation on energy storage launched mid-2021.

And the problem is going to get worse before it gets better. Six of Britain’s seven ageing nuclear reactors are going to shut. Even with the opening of Hinkley C Britain is going to lose a big source of reliable power. Meanwhile, total electricity consumption is going to creep up as millions of electric vehicles hit the roads and heat pumps replace boilers.

The issue seems less one of short-termism – after all not decarbonising would be more short-sighted than doing so rapidly – than what Professor Dieter Helm refers to as ‘cakeism’. There is tendency to talk about the need for a green transition without talking about the costs and trade-offs, let alone make hard decisions. Politicians in Britain much prefer to dwell on jobs, growth, and (currently dubious) claims of cheaper power.

No politician likes to bear bad news, especially when trying to sell a vital policy. But this reluctance to talk costs has worrying implications. Popular support for green policies may be liable to evaporate if an unwarned public starts to feel those costs. YouGov polls in November found that while 76% of the public believed in man-made climate change only 40% were willing to countenance any tax rises to help combat it. Conservative voters were particularly opposed. It is telling that fuel duties have not risen in Britain since 2009, despite theoretically being supposed to increase every year. Visions of a British Gilets Jaunes movement, sparked by a proposed increase in the petrol tax, haunt the political class.

For the Conservatives there also is a question of party management. Their libertarian backbenches are already suspicious of large elements of the green agenda that the leadership has accepted. Multi-year plans and targets for the government to push the economy in a certain direction runs up against their basic instincts. Talking about costs could simply give them ammunition.

Still, honesty is the best policy. As the current crisis shows, people tend to notice when things turn up on their household budgets – regardless of whether political leaders are keen to discuss it or not. If leaders want to convince people going green is worth the cost, they need to spend political capital like they did with social care. Furthermore, discussing costs openly is also vital for properly designing policy. Messing up the green transition only pushes up its price, and the higher its costs go, the more likely a backlash becomes.

By Joe Rachman, UK in a Changing Europe.

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