“Government has got into the business of ‘picking winners’. Unfortunately, losers are good at picking governments.”
Subsidies to renewable electricity in the UK cost £5 billion a year at present and will rise to more than £8 billion a year by 2020, all drawn from the bills of domestic and business consumers. One third of this hits households directly through their electricity bills — about 20 per cent of the bill in fact — while the other two thirds, paid in the first instance by businesses, is passed on to households in the general cost of living.
Government has obfuscated these facts, and since 2014 has published no price impacts. When costs could not be hidden, the government has claimed that climate policy made them unavoidable. Now, in an authoritative and excoriating report commissioned by the government, Dieter Helm, professor of energy policy at Oxford University, has torn away the fig leaves covering the government’s nakedness. Policy interventions, he tells us, are so numerous and badly designed that they have resulted in costs well in excess of what is needed to meet emissions targets. These subsidies will cost a hair-raising £100 billion by 2030. “Much more decarbonisation could have been achieved for less,” Professor Helm drily observes.
Sadly, as the study emphasises, much of this wasteful policy cannot be cancelled, due to “contractual and other legal commitments”. In other words, government has given the rent-seekers firm entitlements that the courts must defend. Did the civil servants explain these liabilities to the responsible ministers, and if so why was the consumer interest neglected, and why were such bad deals struck, again and again and again?
Because, as Professor Helm does not hesitate to tell us: “Government has got into the business of ‘picking winners’. Unfortunately, losers are good at picking governments, and inevitably — as in most such picking-winners strategies — the results end up being vulnerable to lobbying, to the general detriment of household and industrial customers.”
Professor Helm’s diagnoses and remedies are sweeping and brilliant. The present policies are counterproductive and erode public support for measures to address climate change. They must be replaced by firm capacity auctions, so renewables pay for their own intermittency, and by a single carbon price to find the cheapest technologies. The “legacy” burden of the failed policies should be bundled into a “bad bank”, with the costs charged to domestic consumers directly (rather than hidden in the cost of living), and stated separately on the bill as a lingering souvenir of 20 years of negligence and folly in energy policy. Who says economists have no sense of fun?
John Constable is energy editor of the Global Warming Policy Forum