Greenpeace responds to new Policy Exchange energy report

11 June, 2012

A Policy Exchange report out tomorrow - “Fuelling Transition,” is flawed, riddled with false assumptions and should be disregarded, says Greenpeace.

Reacting to the publication of the report, Greenpeace campaigner Joss Garman said:

“The report offers a bleak outlook for UK’s efforts to tackle climate change and grow its economy. Instead of creating jobs and industries at home, Policy Exchange wants to send bill payers’ money overseas to buy expensive, imported and polluting gas. They’re lobbying for Ministers to abandon any leadership role on climate change, leaving consumers gambling on the price of gas from Qatar, and all on the basis of a flawed argument riddled with false assumptions.”

In particular, Policy Exchange’s report:

Fails to model the cost of building renewable energy after gas plants are forced to close – allowing it to dramatically under-estimate the long term cost of a new ‘dash for gas’ on consumers.

The report fails to model the eventual cost of building low-carbon generation after gas plants have closed, but assumes this cost will have fallen sufficiently to have justified both the capital and variable costs associated with gas in the meantime. It further assumes these costs will fall despite a lack of investment in technologies likely to be appropriate to the UK, such as Round 3 offshore wind.

Fails to accurately model, or take into account, likely increases in the cost of gas over the medium term.

The report uses misleading data on likely gas price rises projecting forward to 2030 and ignores almost universal projections of sharp increases in the cost of gas over the medium term – precisely the transition period they identify.

Fails to understand the workings of the EU Emissions Trading Scheme (ETS) and assumes political developments in Europe which it admits are unlikely.

The fundamental assumption running through the report is that the UK’s climate change targets can be met through a reliance on an extension and toughening up of the EU’s cap and trade scheme. This is either wildly optimistic or simply disingenuous.

  • The Department of Energy and Climate change admits that "For the UK, the EU ETS will cover about 48% of national CO2 emissions from Phase III. It is expected that the ETS will deliver two-thirds of the first three UK carbon budgets under the Climate Change Act 2008."

    The report argues that achieving climate change reductions in the UK within the ETS will have no overall impact by reducing the cost of credits elsewhere. However, as the report also argues, retiring credits is a relatively cheap way of avoiding this.

Fails to model the lifecycle emissions of gas from imported LNG or shale, which can be comparable to burning coal.

The report failed to take into account the impact of the UK’s reliance on gas imports which drives up lifecycle gas emissions. If these emissions are included in the carbon cost this would significantly increase the cost of burning gas. 

  • Less than 50% of UK gas demand is now met indigenously, with imports forecast to rise to between 75% and 80% of UK demand by 2020.
  • A recent research note by Scottish Widows Investment Partnership found imported gas – especially from shale – may be more polluting than coal. Their research concluded, “If you combine the additional 15-20% CO2 emissions from the LNG process with the warming impact of the fugitive methane emissions… the climate benefits of gas are further eroded.”
  • A study at Carniege Mellon University found that the lifecycle emissions of burning a gas mix containing just 20% LNG were 21% higher than the emissions at the plant, for which generators purchase carbon credits. It also found this brought total lifecycle emissions close to coal, reducing the benefits of burning gas for the climate. 

Uses partial, outdated and one-sided evidence on the costs of gas versus offshore wind to substantiate its case that building gas does not cause ‘technology lock in’.

The report’s cost assumptions for offshore wind versus gas are inaccurate, outdated and based on a highly selective interpretation of the evidence.

  • The report notes – but then ignores - the ambition to reduce the cost of offshore wind to £100/MWh by 2020.
  • Its assessment of the levalised cost of offshore wind at 2017 start is £173. The cost given in Arup/EY’s study for DECC (and ignored in the report) is £122 (annex D), almost identical to Policy Exchange’s assessment of the cost of gas assuming early closure.
  • The report assumes carbon costs for gas as projected by Mott Macdonald in 2010. However these costs are based on the EU choosing NOT to extend the ETS cap to 2035. By the report’s own logic doing so would immediately increase carbon costs and so the cost of gas generation.

Fails to model the impact on jobs or the wider economy of abandoning our 2020 renewables targets.

Policy exchange’s bleak ‘gas transition’ scenario would involve an abandonment of the UK’s position as a leader in renewable energy, choosing instead to export wealth to gas providers like Qatar.

  • A recent report for DECC by Oxford Economics found “high and volatile energy prices have a negative effect on the economy of a fossil-fuel importing country such as the UK: they dampen economic activity and they lead to an increase in the price level and potentially an increase in the inflation rate. Since fossil fuels are an input into many goods, both consumers and producers bear losses.”
  • The UK is now reliant for its gas supplies on increasingly unstable sources, including Qatar, Algeria and Yemen.

The UK’s top five sources of gas imports by value (£) (source HMRC 2011)
Qatar                                           4,251,336,852
Norway                                       2,662,157,566
Nigeria                                        250,808,662
Yemen                                       145,513,816
Trinidad and Tobago                  116,083,417

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