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Peter Glover: UK’s Energy Policy ‘Schizophrenia’ Spreads To Europe

Who’d have thought it? The medievalists at Greenpeace have finally made a useful contribution to the energy debate by insisting Britain has two energy policies. They’re right. As the ideological fault-line in the UK coalition government is increasingly laid bare by the in-fighting between (Conservative) Chancellor George Osborne’s Treasury Department and (Lib Dem) Ed Davey’s Department of Energy and Climate Change (DECC), the signs are that a new economic energy realism is also biting in Europe.

In late July Davey’s DECC won a pyrrhic victory against the UK Chancellor’s Treasury Department keeping a proposed cut of 25 percent to wind subsidies to a mere 10 percent. But the price for Davey was green-lighting a UK government push in support of natural gas; a move that will, ultimately, prove devastating to the anti-fossil fuel ambitions of Davey and his Lib Dem colleagues policies – although not for the free market and the UK economy.

UK onshore wind farms still depend on the lifeline of 100 percent taxpayer subsidy, with offshore running at around 200 percent. In 2012, UK wind farm subsidies will hit £1 billion for the first time. With end consumers footing the tab for this exercise in ideological economic plunder, power companies and wind farm developers alike are clearly greatly ‘incentivized’ to maximise their windfall ‘dividend’. According to Renewable Energy Foundation (REF) figures, current renewable energy targets are on course to provide the power companies with a windfall of £100 billion from the subsidy regime by 2030. The top ten wind farm developing companies are set to net a mere £800 million between them in the next year alone. The Danish company Dong is the chief beneficiary of this government largesse, expecting to rake in over £156 million. And that’s before the additional guaranteed profit from its power sales to the National Grid via the market-skewing Renewables Obligation scheme, which guarantees ‘green’ electricity producers a fixed price.

Chancellor Osborne knows that UK industry has been hit hard by energy costs, especially the steel and chemical industries. Osborne knows he has little control over international energy prices. But he knows he can do something about the network of green levies augmenting those prices. Of late he has promised to help local communities block onshore wind farm developments against revised planning regulations which have effectively disenfranchised local communities. Osborne has called for an end to the UK’s unilateral climate and renewable targets and ditch entirely the post-2020 EU-imposed decarbonization strategy. Coupled with the Treasury’s austerity programme that is imposing much-needed cuts to the UK’s bloated public sector, the call for Osborne’s political head is, not surprisingly, on the increase, aided by a strong leftwing media.

Business Green’s James Murray is typical; recent commentaries being replete with the kind of anti-intellectual bunk that only a Guardian network publication could muster. If Osborne is successful, Murray has it, “the history of UK climate change policy” will ultimately be written “probably from a bunker in Northern Scandinavia”; Osborne having “finally shattered” the political climate consensus. For Murray, the Climate Change Act that currently enshrines the UK’s ludicrously over-ambitious, economy-sapping, decarbonisation targets is an inviolable bulwark against the “Tea-party-fication of British politics” and Osborne’s “fossilised vision for Gas-land UK”.

But the fact is, George Osborne’s Treasury is acting in the interest of the country. Osborne and the Treasury are proceeding on solid market advice that gas-fired electricity will remain far cheaper than renewables. This is clearly borne out by the revolutionising of manufacturing industry and reduction in energy costs in America – the direct result of the U.S. shale gas revolution. Osborne is also well aware that Britain is sitting on at least 20 trillion cubic feet of shale gas of its own, enough on its own to meet the country’s gas needs for two years without factoring in North Sea or other imported gas supplies. Meanwhile, North Sea energy is – due to ever-developing technology – the national gift that just refuses to quit. The recent acquisition of 8 percent of North Sea resources by China’s SINOPEC bearing out the fact.

But while George Osborne’s vision is certainly aimed at derailing the Green Deal Decarbonization Gravy Train, the accusation of climate ‘vandalism’ must be levelled far wider than just at him. The U.S. economy is in severe danger of being revived by what is happening in its shale gas and oil sectors. Just for good measure, the switch to gas has had a surprising ‘green’ benefit; a significant reduction in carbon emissions; a decarbonising ‘success’ story that appears not to have been missed at EU HQ.

A similar tension to that causing rift among UK government departments has emerged at the EU. In late July, the European Energy Commissioner Günter Oettinger spoke warmly of how the US is aiming to “re-industrialise the country first by oil” and “by accepting some risks with offshore drilling for own resources” including “tar sands and others”. In contrast, laments Oettinger “we import oil and have high taxation”. Europe’s energy minister has also recently mooted the notion of increasing European industrialisation from 18 to 20 percent by 2020; an achievement that would have to be fossil-fuel driven.

The green lobbies, alerted to Oettinger’s “unguarded” comments, are plainly concerned that the UK’s energy policy schizophrenia has not only spread to Europe but is indicative of growing sentiment in Europe’s capitals. Europe is already undermining its own decarbonisation regime by investing heavily in coal, now the cheapest electric power fuel. Perpetuated by its own anti-fracking, anti-shale gas policies, Europe continues to remain largely dependent on Russia’s gas imports. Yet, late last year, the IHS Cambridge Energy Research Associates (IHS CERA) released a report showing that Europe’s shale gas and coal-bed methane prospects rival that of North America. However, the evidence that Europe’s biting economic crisis is driving a greater, fossil-fuelled, energy realism is mounting. Spain has not only been forced to terminate its renewable energy subsidies, it has recently committed to imposing a tax on renewable-sourced energy. Bulgaria has eased a ban that prevents exploitation of its shale energy potential. But, most significantly, for Germany, Europe’s largest economy, energy is fast-becoming a key issue in the run up to next year’s election with the country’s politicians stalling over the switch from nuclear power to reliance on renewable power. Germany’s banks have recently been banned from financing offshore windfarms. And with over 600,000 households being disconnected annually as electricity bills soar, Germans voters are well aware that up to 22 trillion cubic meters (780 Tcf) of shale gas reserves may lie right under their feet.

Ultimately, Joe Citizen is going to have to resolve the growing ‘schizophrenia’ at the ballot box as the issue of green energy taxes rises up the political agenda. And which way ‘Joe’ votes ought to be guided by one of two beliefs: one in the transformational gas-fired US experience – the other in the Greenpeace-Murray “bunker in northern Scandinavia”fantasy.

Tough call that.