Are recovery and renewables incompatible? The economics of recovery could make new green energy unworkable. US politicians seem to think so as electioneering heats up. On this side of the Atlantic, Whitehall departments are accused of giving mixed messages. Could costs damage a coherent UK energy policy? Jon Herbert reports.

There are increasing fears that slow economic recovery and the hint of a new dash for gas in the 2030s could seriously threaten the green energy revolution and jeopardise legally binding carbon reduction targets.

With presidential elections looming in November, many US politicians are hurriedly recanting their earlier climate change commitment principles to win the popular vote. Other developed countries are also starting to count the cost of renewable energy.

Even in Whitehall, earnest inter-departmental discussions are blurring the edges of what was meant to be a clear-cut sustainable energy policy. No split, says the Deputy Prime Minister. Differing viewpoints are all about “balance and sequencing” policy moves.

However, the question increasingly being asked as recession bites deeper is: are economic and environmental priorities compatible? And if not, which will have to be sacrificed? Who will the gain and who will lose?

DECC versus The Treasury?

Doves or hawks? Saints or sinners? Renewables or cost savings to kick-start economic growth?

The Government is arguing passionately for green energy. But it is also equally keen to move on from pure green energy alone and bet on low-priced gas decades ahead. Confused? You are probably not alone. Important decisions rest on the outcome.

Householders, businesses and investors are all trying to understand the curious world of what appears to be strategic policy double-think.

The public will eventually have to pay for more expensive environmentally-friendly energy at a time of rising living costs. Meanwhile, it is important to coax global investors into funding the £200 billion infrastructure needed to generate and distribute modern renewable energy.

Neither bill payers nor investors are finding the clarity, confidence and reassurance they might expect from senior policy makers. For ministers, it comes down to the art of the possible.

The Department of Energy and Climate Change (DECC) is worried about the environment. The Treasury is worried about finances. The uncomfortable truth is that it is perhaps no longer possible “to have it all”. And there is growing concern that what is left may not amount to a coherent energy policy?

Different takes on sustainability

DECC takes the liberal view that renewables are vital for a low-carbon, cooler world. Led by Energy Secretary Ed Davey, who took over from very pro-green energy Chris Huhne, the Department also notes that renewables are essential if the UK is to meet legally-binding carbon reduction targets within the EU.

With equal conviction, The Treasury is said to be taking the more cautious traditional approach that you can only ultimately have what you can pay for.

The Chancellor’s well-reported view is that renewables are expensive. Earlier in the year he said that the UK should do enough to meet its international carbon reduction commitments but no more for fear of stifling recovery. In a July letter to Mr Davey he goes further, stating, “We need to set out an approach which puts costs to consumers at the heart.”

Each Department of State seems worried that the other’s policy could make sustainable growth vulnerable.

Divided we stand

In a move to end uncertainty, Deputy Prime Minister Nick Clegg has made adamant comments that the UK will not be “left behind” in the global energy revolution. All ministers are “unreservedly committed” to achieving a low-carbon economy, he says, adding that the UK is “leading from the front” in the low-carbon technology race.

Mr Clegg explains that inter-departmental discussions are about the logic of “balance and sequencing” activities. No minister, he told an energy conference coinciding with the Olympics, wants to depart from UK carbon-cutting goals — “no ifs, no buts”.

With the UK the world’s sixth largest low-carbon products and environmental services market, the Government is “working within the parameters of the carbon budget, which sets the pace for decarbonising our economy, and there is no one in government who wishes to depart from that,” he added.

Underlining the fact, the Government has just announced £100 million funding for two specialist fund managers who will help to stimulate UK and foreign investment in non-domestic energy efficiency projects.

Business versus environment

Environmental versus growth issues are being played out against a much wider world canvas. Here, the grail of the last two decades — restricting world temperature rises to no more than 2OC — is seen as a nice idea but one that could break up international consensus. A slower, less radical proposal is beginning to emerge that pleases some but terrifies others.

In 2011, US chief climate negotiator Todd Stern denied that his country was prevaricating on climate change action. Now he warns that pressing for a world agreement on the 2OC target could lead to international political deadlock where nobody wins.

Mr Stern is well aware of the environmental imperative. However, he believes that climate change has become a “partisan issue for conservative candidates hoping to win office in this US election year”.

He explains that, for political expediency, formerly firm climate change advocates are now “publicly recanting the apostasy of having acknowledged that global warming is real,” adding, “you know you’ve entered wonderland”.

Rather than insisting on a collective emissions cap to guarantee lower temperatures, a more pragmatic way forward is needed, he says.

“It is more important to start now with a regime that can get us going in the right direction and that is built in a way maximally conducive to raising ambition, spurring innovation and building political will,” he suggests.

How this would join up to reach a level which the UN feels adequate to stem climate change is not clear. Critics suspect dangerous dilution.

EU climate spokesman Isaac Valero-Ladron said the US should live up to previous promises. The Alliance of Small Island States (Aosis) is also concerned. “Suddenly abandoning our agreement to keep global warming below 2OC is to give up the fight against climate change before it even begins,” added Tony de Brum, Minister in Assistance for the Marshall Islands.

“Flexibility” would mean runaway climate change, he said. Many countries vulnerable to sea level rises argue that even a 2OC rise is too high.

Subsidy cuts

One victim of Whitehall deliberations is subsidies designed to nurture new forms of renewables until they can stand on their own financial feet.

DECC has announced 10% subsidy reductions for new onshore wind-farm developments. The Treasury is said to have wanted a 25% cut, allegedly after pressure from MPs with rural constituencies opposed to the visual impact and noise of turbines. Faced with the truer costs of green power and more money in their pockets, the argument is that people will have greater choice.

But critics say it is the job of governments to give a strong lead. Despite innumerable research studies, White Papers and inquiries, they point out that decision making is still being left to individual interpretation of scientific evidence.

Yet the figures do add up, says DECC, with “hundreds of thousands” of jobs to be created. Investments worth £25 billion will be brought into the energy sector between 2013 and 2017, it estimates, cutting household bills by £5 to £6 annually. Without this subsidy, average households would have to contribute £44 each year in the same period, rising to £50 in 2016 to 2017.

Gassing up

Crucial to The Treasury’s viewpoint is the potential for a fall in world gas prices it hopes will benefit UK charge payers. There are two reasons. One is the prospect of huge natural gas reserves released by hydraulic pressure, known as fracking. The other is projections that worldwide supply conditions in the 2030s will outstrip demand.

Again, critics say that without a fall-back position this analysis is a gamble, which would increase CO2 emissions. Historically, gas prices can be extremely volatile and hard to predict.

Meanwhile, the Government has announced £500 million tax breaks to help bring on shallow-water UK gas fields that have relatively low profit margins.

CCC and ECCC

Two of the Government’s sternest critics are the Committee on Climate Change (CCC), which advises the Government on energy policy, and the Energy and Climate Change Committee (ECCC), which monitors the effectiveness of its policy.

The CCC wants the Government to quadruple clean energy investment to avoid breaking the law on CO2. This could raise household bills by £100 to £200 annually. It also believes that fracking will not prove to be a “game changer”.

“We have to move from good intentions and we need to do it very quickly,” said CEO David Kennedy. The CCC believes that a new nuclear industry is essential. “It’s much harder to decarbonise the power sector if we don’t get nuclear,” he adds.

The CCC also wants the Government to abandon any reliance on falling gas prices, noting the International Energy Agency (IEA) forecast that gas prices up to 2020 will remain at around 80p per therm. Coupled with a rising carbon price, this will make them unaffordable.

The ECCC wants the Government to end fossil fuel subsidies and save money by raising energy efficiency. It also thinks the Government must try harder to persuade the public that investing their money in radical low-carbon technologies is a sound idea.

However, the ECCC has been scathing of the Government’s efforts to make the new energy bill workable. Tim Yeo, Chairman of the ECCC, is reported as saying, “The Treasury has clearly intervened in the Draft Bill in a way that will put up bills to consumers and put off investors by increasing their risks. This is exactly the opposite of what the Treasury says it wants.”

Last reviewed 26 September 2012