Skip to content

Matt Ridley: Must We Go On Making These Mistakes?

|
Matt Ridley, House of Lords

House of Lords, 18 June: My Lords, I begin by declaring an interest in coal-mining on my family’s property, as detailed in the register, but I shall not be arguing for coal today but for its most prominent rival, gas, in which I have no interest.

I thank my noble friend the Minister for her courtesy in discussing the Bill and welcome the fact that the Government have grasped the nettle of energy policy, especially on the issue of nuclear power, after the deplorable vacuum left by the previous Government. However, I am concerned that we are being asked in the Bill to spend £200 billion, mainly on the wrong technologies, and that we will come to regret that. We are being asked to put in place a system that will guarantee far into the future rich rewards for landowners and capitalists, while eventually doubling the price of electricity and asking people to replace gas with electric space heating. That can only drive more people into fuel poverty.

We have heard a lot about the needs of energy investors and producers. We have not heard enough about consumers. If the industry gets an 8% return on the £200 billion to be spent, just two offshore wind farms or one nuclear plant would be declaring profits similar to what British Gas declares today. That will be an uncomfortable position for the Government of the day.

The Bill is a dash for wood and wind—two medieval technologies—and it is twice as big as the dash for gas of the 1990s. Between 6 and 9 gigawatts will have to be built a year for the next 16 years, compared with 2 gigawatts a year during the dash for gas. I am not sure it can be done, let alone affordably. In the case of biomass, the only way we can source enough is by felling trees overseas. As the noble Lord, Lord Berkeley, said, Drax will soon be taking more than 40 trains a day of wood pellets from North America. That is not energy security.

Under the Bill,

“‘low carbon electricity generation’ means electricity generation which in the opinion of the Secretary of State will contribute to a reduction in emissions of greenhouse gases”.

Shades of Humpty Dumpty: a word means just what I choose it to mean. We are being asked to pretend that the most carbon rich fuel of all, wood, is not a source of carbon. According to Princeton University, trees used for biomass electricity generation increase carbon dioxide emissions by 79% compared with coal over 20 years and by 49% over 40 years, even if you replant the forest. We are through the looking glass.

Offshore wind, meanwhile, is a risky technology with a track record of engineering problems, sky- high costs, disappointing lifespan and problems of decommissioning. At the moment, we generate less than 1% of total energy, or 6% of electricity, from wind, despite all the damage it has already done to our countryside and economy. We are to increase that to something like 30% in just a decade or so, may be more if nuclear is delayed. It is a huge gamble, and if it fails, the only fallback is carbon capture and storage, a technology that has repeatedly failed to meet its promises at all, let alone affordably, a point made earlier by the noble Baroness, Lady Liddell.

Even if this wood and wind dash is possible, under the contract for a different system proposed in this Bill, while better than the renewable obligations that preceded it, the subsidy to renewable energy will quadruple by 2020. That is only the start. On top of that, there are system costs for balancing the unpredictability of wind; transmission costs for getting wind from remote areas to where it is needed; VAT; the carbon floor price; not to mention the cost of subsiding renewable heat and renewable transport fuels. Hence, at a conservative estimate, the Renewable Energy Foundation thinks that we will be imposing costs of £16 billion a year on our hard-pressed economy for several decades.

Why are we doing this? We are doing this because of four assumptions that were valid in 2010 but, as my noble friend Lord Lawson pointed out, are no longer valid to the same extent. First, we assumed we would not be acting alone, so we would not damage our competitiveness. Instead, not only is there no longer a Kyoto treaty, but China is planning to build 363 coal- fired power stations; India 455. On top of that, the European trading system has collapsed to less than €5 a tonne of carbon. Our carbon floor price is more than three times that: £16 a tonne, rising to £32 a tonne in 2020 and £76 a tonne in 2030. Acting unilaterally in this way does not save carbon emissions. It merely exports them and the jobs go with them. Northumberland’s largest employer, the aluminium smelter at Lynemouth, has closed with the loss of 500 jobs, almost entirely because of carbon policies.

The second assumption behind the Bill was that the cost of gas would rise, thus making the cost of energy rise anyway. The Committee on Climate Change said recently in a report that:

“Consensus projections are that gas prices will rise in future”.

This remark has been described by the utilities team at Liberum Capital as “genuinely amazing” in the light of recent events. Now that we know that gas prices have plummeted in the United States to roughly one-quarter of ours, thanks to shale gas; now that we know that Britain probably has many decades worth of shale gas itself; now that we know that enormous reserves of offshore gas near Israel, Brazil and parts of Africa are going to come on line in years to come; now that we know that conventional gas producers such as Russia and Qatar are facing increasing competition from unconventional and offshore gas; now that we know that methane hydrates on the ocean floor are more abundant than all other fossil fuels put together and that the Japanese are planning to explore them; in short, now that we know we are nowhere near peak gas, it is surely folly to hold our economy hostage to an assumption that gas prices must rise.

We will need the gas anyway. The intermittent nature of wind means that we will require increasing back-up and we cannot get it from nuclear because it is not responsive enough to fill the lulls when the wind drops. Far from replacing fossil fuels, a dash for wood and wind means a dash for gas too, only this time we will have to subsidise it because the plants will stand idle for most of the time and pay a rising carbon floor price when they do operate. Having distorted the markets to disastrous effect with subsidies to renewables, we are now being asked, under the capacity market mechanism, to introduce compensating countersubsidies to fossil fuels.

The third assumption was that the cost of renewables would fall rapidly as we rolled them out. This has proved untrue and, indeed, as the Oxford Institute of Energy Studies has shown, the cost curve for renewables inevitably rises as the best sites are used up, not least in the North Sea. I am told by those who work in the offshore wind industry that, at the moment, the industry has every incentive to keep its costs up not down, as it sets out to strike a contract with the Government. They will not have to try very hard. Even at low estimates, offshore wind is stratospherically expensive.

The fourth assumption on which this Bill is based was that the climate would change dangerously and soon. Once again, this assumption is looking much shakier than it did five years ago. The slow rate at which the temperature has been changing over the past 50 years and the best evidence from the top-of-the-atmosphere radiation about climate sensitivity are both very clearly pointing to carbon dioxide having its full greenhouse effect but without significant net positive feedback of the kind on which all the alarm is based. The noble Baroness, Lady Worthington, and the noble Lord, Lord Stern, both mentioned Professor Myles Allen and they will be aware, therefore, of his recent paper, which found significantly reduced climate sensitivity. If that is the case, the dash to wind and biomass may well continue to do more harm to the environment as well as to the economy for many decades than climate change itself will do.

However, leaving that on one side, as my noble friend Lord Lawson said, the argument against subsidising wind and biomass does not depend on a benign view of climate change. It stands powerfully on its own merits, even if you think dangerous climate change is imminent. In 1981, my noble friend Lord Lawson, ignoring the prevailing wisdom of the day, as he sometimes does, decided against the predict-and-provide central planning philosophy and instead embraced the idea of letting the market discover the best way to provide electricity. The result was the cheapest and most flexible energy sector of any western country.

We have progressively turned our backs on that. Under this Bill, the location, the technology and the price of each power source is determined by one person—the omniscient Secretary of State. Recent occupants of that position have an unhappy history of not making wise decisions. Remember ground source heat pumps? They do not work as advertised. Remember electric vehicles? They have been a flop. Remember biofuels? They have caused rainforest destruction and hunger. Remember the Green Deal? Must we go on making these mistakes?

We have returned to a philosophy of picking winners, or rather, from the point of view of the consumer, of picking losers. Not even just picking losers, but hobbling winners, because of the obstacles we have put in the way of shale gas. America has cut its carbon emissions by far more than we have, almost entirely because of shale gas displacing coal. By pursuing a strategy that encouraged unabated gas, we could halve emissions and cut bills at the same time. Instead, I very much fear we will find we have spent a fortune to achieve neither.

House of Lords, 18 June 2013