Keeping the post-Brexit lights on
The repatriation of powers from Brussels offers a once-in-a-generation opportunity for wholesale policy reform. It should start with energy.
Following the passage of the Article 50 Bill this week, the media focus will no doubt turn from Parliament to the upcoming Brexit negotiations. But just as important as a future bilateral trade agreement are the domestic policy implications. The repatriation of powers from Brussels offers a once-in-a-generation opportunity for wholesale policy reform. It should start with energy.
Although we have Ed Miliband to thank for the Climate Change Act, the thrust of climate and energy policy in the UK is determined by the EU. The Emissions Trading Scheme regulates the 'carbon footprint' of heavy industry. The Renewable Energy Directive drives the transition away from fossil-fuel energy generation. Household appliances must conform to EU minimum efficiency standards. Underlying the EU's entire energy policy is the commitment to cut greenhouse gas emissions by at least 80 per cent by 2050.
Advocates of this legislative agenda claim it is a win-win for both consumers and the planet. Yesterday's report by the independent Committee on Climate Change, for example, argues that low-carbon policies haven't pushed up household energy bills. Increased consumer costs from restrictions on energy generation – renewable subsidies, the ETS, the carbon floor price – are offset by the mandated improvements in energy efficiency.
But there's a question of perspective here. To put the report's findings another way: the added costs from the rules on fossil fuel generation have mitigated energy efficiency savings. Were it not anti-fossil-fuel measures, household bills would be lower. There is a real trade-off.
Indeed, conflating energy efficiency standards with rules on energy generation may be misleading. Rather than cut greenhouse gas emissions, increased energy efficiency can actually raise them. As appliances become cheaper to run, usage tends to increase – in part because more consumers can afford to buy them. It's a phenomenon known as the 'rebound effect'.
Critics of climate-change-based energy policy tend to focus on the scientific basis for anthropogenic global warming; yet that often seems to overshadow what might be a more constructive debate about how effective the policy is even at achieving its own aims.
Greenhouse gas emissions in the EU have declined precipitately since 2007, but that partly reflects the collapse in demand post-financial-crisis, rather than the effect of legislation. In fact, activists criticised Phase II of the Emissions Trading Scheme for allocating too many carbon permits to industry during the recession.
The EU may also have outsourced some emissions abroad. It's alleged that energy intensive producers are losing market share, or simply transferring production, to countries outside the EU that aren't bound by the ETS – a phenomenon known as 'carbon leakage'. The EU claims the degree of leakage is marginal, yet offers extra carbon allocations to the most energy intensive companies – seeming to defeat the entire object of the Scheme.
Energy efficiency gains, meanwhile, may be the result of demand-led innovation as much as legislation. The private sector has a pretty good track record on cutting the running costs of household appliances. In view of the EU's ban on incandescent bulbs, it's worth noting that light is 100 times cheaper today than it was a century ago. In constant prices, the price of one million lumen hours fell from £230 in 1902 to £2.38 in 2002 (down from an estimated all-time peak of £40,000 in the Middle Ages).
The idea that energy issues are best resolved by top-down government fiat isn't scientific. It's political.
Ultimately, though, it is the purpose of energy policy that most warrants review. For the past two decades, the big parties in Britain have backed the EU's fossil-fuel-focused agenda. But the politics are shifting. It's difficult to tally the Prime Minister's claim to govern for 'just-about-managing' families with an energy policy based on regressive taxation.
Freeing the energy market would cut household bills. It would also provide greater energy security – as research by the UKIP PRU argued in 2015. There is a real policy choice to be made as to whether to prioritise consumers or emissions. Once that choice is once again Parliament's alone to make, political consensus should give way to public debate.
