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Nick Butler: Britain’s Broken Energy Policy Needs Fixing

Nick Butler, Financial Times

Every strategy reaches the point where renewal is necessary. Time erodes what once seemed logical. Technology transforms the range of possibilities. Assumptions turn out to have been false flags. That is the situation now for the UK’s energy policy as spelt out in a report published last week by the economics committee of the UK House of Lords*.

The existing strategy flows from the 2008 Climate Change Act, which gave priority to the reduction of carbon emissions. A target of an 80 per cent reduction by 2050 was entrenched in law and, although it has never been clear how it would be enforced, the existence of a legally binding target has shaped decision-making in Whitehall. The goal, to be reached in five-year steps, overrides every other consideration — including cost and security of supply.

Several assumptions underpinned that legislation:

  • Nations were about to adopt a common approach to climate change at the Copenhagen conference so there could be no worries about the costs of action damaging UK competitiveness or of emissions simply being produced elsewhere
  • The prices of oil and gas would inexorably rise because of a combination of growing demand and scarcity of supply
  • As hydrocarbon prices rose, even heavily subsidised supplies from offshore wind or new nuclear would look cheap
  • In the process, the UK would build a great new industrial sector providing hundreds of thousands of low-carbon jobs.

The risk of designing a policy around wishful thinking could hardly be better illustrated.

The problems caused by these false assumptions have been compounded by mistakes in implementation. Rather than allowing the target to be met by open competition to find the least expensive answer, ministers promoted specific technologies irrespective of cost. Commitments to intermittent sources such as wind were taken without regard for their impact on the economics of other businesses, such as gas-fired power generation — which is low cost and relatively low carbon.

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