Winner of the New Statesman SPERI Prize in Political Economy 2016

Saturday 5 December 2015

Paris, climate change and the UK government

In a recent column, Paul Krugman bemoans the consensus view among Republican politicians that we should do nothing about climate change, and that many of the Republican nominees for president actually deny the science. He also complains about how the conventions of political journalism mean that public perceptions about the science become distorted as a result. He says that this situation - where parties on the right deny the need to take action on climate change - is unique to the US and Australia.

What about the UK? While everyone remembers Cameron promising to make his 2010 government the ‘greenest ever’, three and a half years later the Sun reported him as ordering aides to "get rid of all the green crap" from energy bills. Of course actions speak larger than words. The Conservative’s hostility to onshore wind farms is well known, and subsidies are due to be phased out soon. Subsidies for solar also face severe cuts. The government has passed legislation ‘to maximise economic recovery of UK oil’. A scheme to encourage home owners to improve energy efficiency is to end, the aim to make all new homes ‘zero carbon’ is to be scrapped, the Green Investment Bank is to largely sold off, tax breaks for buyers of ‘green cars’ ended.

Now all this might be understandable if the UK was well ahead in the amount of power produced by renewables. In fact, among EU members, only 3 have a smaller proportion. The government expects its EU target of 15% by 2020 will be missed by a wide margin.

Does all this reflect climate change denial of the kind we see in the US, with the only difference being that the Conservatives are acting duplicity in still paying lip service to the aims of the Paris summit? Duplicity may be understandable given Cameron’s 2010 ‘greenest ever’ commitment. However the UK government have just signed a deal for a Chinese state-controlled company to help build a new nuclear plant at Hinkley Point. Ministers have undertaken to guarantee for 35 years an index-linked price of £92.50 per megawatt hour. That is more than twice the current market rate, and it is also higher than for every renewable source except offshore wind. Yet unlike renewables those subsidies will be paid by consumers when the plant starts producing around 2025.

Put alongside virtually abandoning measures to encourage renewables, and this seems more like economic incompetence than ideology. In a classic piece of irony, a wind farm application near to Hinkley was turned down by the government. It is not as if the UK is currently awash with energy capacity. Last month an unexpected surge in demand led the national electricity grid to ask heavy users to reduce consumption.

So it is difficult to tell whether this is about ideology masked with duplicity, or politically driven economic incompetence. Ideology, duplicity and incompetence: have I combined those words together before?


  1. UK energy policy has been an oxymoron for the last 25 years!
    Have to hark back to UK being the original industrial polluter as now only contribute 1% of the problem so irrelevant.

  2. "Ministers have undertaken to guarantee for 35 years an index-linked price of £92.50 per megawatt hour. That is more than twice the current market rate..."
    I can't access the FT link to check, but is some of this huge difference (and seemingly huge overpayment) due to the fact that the Chinese also need to recover their costs of planning and building the nuclear power plant?
    Please tell me it is, or that there is another reason, otherwise Cameron/Osborne are as qualified to run the economy and its finances about as well as Homer Simpson is qualified to be in charge of safety at the Springfield nuclear plant - somehow bumbling through, flirting with disaster but ultimately the beneficiary of timely, extraordinary luck and circumstances which come to his rescue.

  3. I wouldn't be too bothered about UK capacity. A few very heavy energy users powering down a couple of winter afternoons a year is better than having loads of expensive spare capacity.

    But the animus against wind is shocking. House prices rubbish. And complete contradiction to localism, like the Education policy.

  4. Politics, Law, Media, Big Business: the big institutions that control any country, and all of them regard deceit as a major and useful weapon in their armoury. Science, Engineering and Medicine do not, but then they deal with Mother Nature's laws and not man-made ones.
    Yet scientists, engineers and medics are broadly regarded as slightly naive in their commitment to truth---"why tell the truth when deception gets you what you want?"

  5. "Yet unlike renewables those subsidies will be paid by consumers"

    So that wouldn't be the "green taxes and other charges" part of the bills then?
    In the real world the consumer actually pays the generator for the energy produced. So off/on-shore produced electricity HAS to be purchased by the grid at a higher price than that of, say, gas-fuelled generators. Unfortunately, while PAYING for it, the grid may be unable to actually use it. It may be cheaper to buy the energy, but not use it because it is easier, for grid balancing reasons, to just not bother. In the shortage you referred to, caused by several conventional generators going offline due to breakages, the shortage was made-up by "demand side regulation" (firms shutting down (and being paid to do so) and firms/hospitals using their own generators (and being paid to do so).
    In this real world, a country dependent upon wind generated electricity would, in lieu of adequate storage, use demand side regulation to guarantee grid stability. I have not even mentioned that the grid also relies upon Short Term Operating Reserve (AKA banks of diesel generators, LOTS of them) as a last ditch fallback:

    In fact, the situation is even more complex, since balancing which source of generation to use depends upon much more than basic cost. And, at the end of the day, it is the CONSUMER that pays the cost, not the government.

  6. This post is very disappointing because it does not challenge the assumption that mitigating climate change is economically justified.

    Indeed, the evidence points to mitigating climate change being economically nonsensical - the Stern Review was fundamentally flawed, and when those flaws are corrected it is clear that there is a large net loss from trying to mitigate climate change:

    1. Old hat. The discount rate makes no difference to the conclusion once you use today's energy prices and factor in health.

      The IPCC estimated the net cost of aggressive mitigation at 0.06% off the growth of GDP (ca. 3% p.a:) noise. That is, nothing as near as dammit. They were using LCOE costs for wind and solar of min $51/$84 per mwh @ 10% WACC. (, page 1333) Lazards now give US costs as min $32/$58 per mwh @ 9.6% WACC. ( So the net cash cost of the transition has gone negative.

      To this we must add the health savings. Air pollution from fossil fuels imposes costs in health care, lost work and death of at least $3.5trn a year (incomplete survey by OECD). An energy transition saves you almost all of this. Using a straight-line decline to 2060, you get a $25 trn health saving. It's a steal. The discount rate makes no difference to the conclusion.

      Of course, if you use a social rate of discount of 2% or 4% instead of market rates for renewables, the benefit is much bigger.

    2. Those factors were all included in Stern's estimate of the costs, which I used in my blog post. The IPCC are wrong in their estimates, and your simple comparison against energy WACC is meaningless as it fails to account for (at the very least) the knock-on effects of higher energy prices (not to say all the other costs associated with trying to mitigate climate change).

      And even using a discount rate as low as 4%, trying to mitigate climate change leads to a net loss in present value terms.

  7. There are many respected scientists that deny the human action in the climate change. But how economists knows so much about everything I don't know.

    1. Actually, there aren't - if by "scientists" you mean people working in relevant disciplines.

  8. Perhaps one of the reasons the Right are concerned about too many people believing that climate change is dangerous is that too many people will also believe that taxes need to be raised to do something about it. Climate change, flood defences, agriculture in flood plains/hot climates will all need funds for research. Yet, to put it mildly, the Right and their donors are not keen to raise taxes.
    On present trends we have 25 years until global temperatures increase by 2 degrees Celsius above pre-industrial levels, resulting in dangerous climate change. Our world, with its familiar coastlines, its housing on flood-plains and its corn-growing prairies, will start to change.

  9. "To this we must add the health savings. Air pollution from fossil fuels imposes costs in health care, lost work and death of at least $3.5trn a year (incomplete survey by OECD). An energy transition saves you almost all of this. Using a straight-line decline to 2060, you get a $25 trn health saving. It's a steal. The discount rate makes no difference to the conclusion"

    Look on the bright side: Many of those deaths will be elderly/infirm/chronically-ill. So factor-in the healthcare savings on not having to provide them with healthcare, benefits etc!
    And a wander around the pollution measuring sites, and a look at how it is all calculated, shows a lot of "estimated causes 9500 deaths annually"
    PM2.5 pollution; mainly from other-than-transport polluters, or from abroad.
    NO2 pollution, 50% from transport (you would have thought that it would have dropped a bit from all the various drastic vehicle emissions controls, EURO 4 etc...but no)
    Ozone...well, that's mainly around roads...personally, as a person with both asthma and bronchiectasis, I find London to be worse, from a respiratory viewpoint, than 20 years ago (but then, I'm 20 years older!) (Birmingham is a whole new world of [respiratory] pain for me....than London)
    And PM 2.5's would be more of a problem through sensitisation to the pollutant...and since particulate pollution from aircraft engines is in the PM 2.5 range one would expect higher levels near airports and their flight approaches/takeoffs, which is what you find....., about Heathrow/Gatwick/Stansted

  10. The government might argue, in muted terms, that it will be spending around a billion pounds over the years 2007 to 2020 as its share in the building cost of ITER at Cadarache in southern France. This research fusion reactor---ten times the size of the Joint European Torus at Culham near Abingdon---is the next step up the ladder to a viable reactor to generate no-carbon electricity with low radioactive waste. ITER is not a crash programme like the Apollo Project but it does represent long-term government commitment to the mass generation of electricity without using fossil fuels.
    Why should the government be muted about this policy? Well, as you can tell from the date at which the project started, it's a Labour initiative. It's multi-national, with around a dozen big countries involved. But probably the biggest reason is because the "T" in ITER stands for "thermonuclear" which is not an easy word to sell to a tabloid-reading public.
    This is important research.
    The mean global consumption of power is 2.2 kilowatts (kW) per capita. In other words every one of the 7 billion people on the Earth requires, on average, 2200 joules every second---largely from oil, coal and gas---just to live. As you might expect this power rating varies wildly around the world: Americans, for example, require 11.4 kW which is over five times the world's mean.
    The Earth's population should plateau at 11 billion in 2100 (Hans Rosling) and a lot of these people will aspire to something rather greater than 2.2 kW. 10 kW perhaps?
    That means the world will need seven times our present generating capacity to cope. Ask any physicist what the answer is and s/he will say "fusion power because all other methods are incapable of meeting the need".
    The IPCC says there is a 95% probability that the Earth will warm 2 degrees Celsius above pre-industrial levels by 2040---enough to cause dangerous climate change---because by then we will have burned a trillion tonnes of fossil fuel since pre-industrial times. There's a lot more of it still in the ground, and it needs to stay there.

    1. Ironically, because the giant-reactor fusion research is getting all the money, mini-reactor fusion plant research is going quite well.
      Small fusion plant look like being much easier to control then the multi-gigawatt plant like ITER...largely because containment issues are much easier to control.
      We may well see 200MW fusion plant arriving [much] sooner than the 2000MW plant currently being "sorted"


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