In the immediate aftermath of a debilitating recession it is not surprising that the political mantra being espoused by all governments is change. There is an acceptance that the current economic model has failed and changes are required both to prevent further economic problems and to make the transition to a new low carbon future. And this month’s UK general election has provided the government and opposition parties with the opportunity to put their case for change to the electorate.
Not surprisingly, economic renewal and growth, and how this will be best achieved, is at the heart of the general election manifestos of all the three main parties, Labour, Conservatives and Liberal Democrats, and key to this will be the development of a low carbon economy. All three parties have pledged green reforms and innovation in an attempt to tap into the perceived climate conscience of the electorate, yet none of the parties has offered any new or radical thinking, with the manifestos largely repackaging previous commitments. The obvious exception is the Liberal Democrats, with the party desperately seeking to ‘out-green’ Labour and the Conservatives, yet its utopian vision for a green UK economy is based more on fantasy than reality and exposes both its political and energy market naïvety.
Unlike the two main parties the Liberal Democrats have failed to adequately address energy market reforms, simply packaging energy within its environmental policy. This is a fundamental flaw and raises serious issues on energy security that would be revealed if the party were to be elected or be part of a coalition government. The Liberal Democrats reaffirm their commitment to banning coal and nuclear plant but have no credible policy on how this will not impact on energy supply security. According to its manifesto, all Britain’s energy should come from renewable sources within 40 years with a pledge that offshore wind farms will generate 75% of electricity.
This type of fantasy policy has undoubtedly resonated well with the environmental lobby yet it has no economic credibility. Even if the new breed of offshore wind farms has an average load factor of 50%, which is highly unlikely, a much more likely figure being around 25-30%, this will still require 50% of the installed wind capacity to come from other non-intermittent generation sources. Yet if coal and nuclear are removed, as per its policy, the country will have to rely on gas-fired generation that will increasingly become prey to gas import insecurity.
Like the other two parties the Liberal Democrats have adopted the green investment bank policy, yet unlike its political rivals it views taxation as the primary route to a green utopia with new taxes on aviation, road transport, financial transactions and emissions. Environmental taxation is a sensitive issue, particularly with the country only just exiting from a debilitating recession, and this heavy-handed approach to taxation risks backfiring. Take the aviation industry; with load factors down and financial losses increasing the industry would suffer from increased taxation with load factors falling further and losses deepening. What aviation and other sectors need are positive environmental incentives, not punitive carbon penalties.
The address of the environment and climate change is less pronounced in the Labour and Conservative manifestos but environmental commentators are misguided in concluding that these issues have been ignored. Unlike the Liberal Democrats, which seemingly dovetails all its policies from its central theme of environmental fairness, the other two parties seek to present a bigger picture with energy and climate issues integrated within their respective policy visions.
Unlike the Liberal Democrats, both the Labour and Conservative manifestos address energy market reform, although neither has advanced its thinking beyond their respective pre-election policy papers. Similarly, both are guilty of making populist policy commitments without any substantive supporting explanation. Labour proclaims it will “deliver the fairest deal for consumers… [and] will ensure greater competition in the energy supply market,” while the Conservatives promise that “instead of holding businesses back by imposing unfair retrospective stealth taxes, we will unleash the power of green enterprise and promote resource efficiency to generate thousands of jobs.”
With both Labour and the Conservatives broadly in agreement on the macro energy infrastructure picture, ie support nuclear, limit coal generation to plant fitted with carbon capture and storage, and rapidly expand renewable generation, the key differential is how these will be achieved, and essentially this differential is state versus society. Labour believes the role of government is to micro-manage the green evolution, with an inference that society and business cannot be fully trusted, while the Conservatives believe in a ‘big society’ with more control divested to society and assisted by the creation of new incentives and market signals to reward society for doing the right thing environmentally. As part of this incentive-driven policy approach the Conservatives plan to phase out the Renewable Obligation and replace it with an expanded fed-in-tariff scheme to cover all renewable energy projects.
Without exception, all three manifestos take the populist approach on energy and climate policy. They may be packaged differently but underneath each party is giving the electorate what it thinks it wants, not what it thinks it needs. No party has taken the hard decisions on medium term energy security, naively believing that wind will be Britain’s medium-term energy saviour, with all three broadly promoting sustainability policies over supply security in the seemingly misguided belief that supply security evolves from sustainability.
The next UK government will likely be in power until 2015, which is the point at which analysts warn that supply security could become a major issue. Yet unfortunately, if the proposed policies contained within the manifestos are enacted, the prospects for medium-term supply security look less than promising.
Although the UK’s standing in the European and global energy markets may have been eroded in the 13 years since Labour came to power the policies that are endorsed by the British electorate will still likely resonate throughout other developed economies. Twenty years ago last month the UK deregulated its electricity market and led the world toward a new era of electricity competition and each of the main political parties sees a new opportunity to renew Britain’s energy market leadership. While this is somewhat wishful thinking, how the UK proceeds with its change mantra could still influence thinking in other economies.
