This week, MPs will finally complete the third reading of the Energy Bill before it heads to the Lords, in what has been one of the most protracted parliamentary bill processes in recent memory.
One of the key issues outstanding is the inclusion of an amendment to decarbonise the power sector by 2030.
As Conservative grandee Tim Yeo’s amendment, requiring a clean power target is put in place in 2014, is finally put to the vote, we take a look at the debate around its inclusion.
Does it help the economy?
The key economic argument for a target rests around the need to provide certainty to investors.
The amount of money to be spent on clean energy between now and 2020 is already set – as part of the ‘Levy Control Framework’ and may be enough to meet our 2020 EU targets.
We also know that the government is committed to cutting its emissions by 80% through to 2050 as part of its carbon budgets. But there is a gap somewhere in between. And investors aren’t mad keen on gaps.
The UK’s green economy has continued to grow even whilst broader economic activity remains sloth-like. Indeed the CBI has said that over a third of the UK’s economic growth last year has come from green businesses - though only some of these are in the energy sector.
Firms including Siemens, Dong, Cisco, Ernst and Young and Microsoft, have argued that a target would help investment in clean energy by providing some certainty to the people who have to put up the cash.
As a report by UK Energy Research Centre (UKERC) found: “The absence of a 2030 decarbonisation target in the bill may not persuade investors of the need for new manufacturing assets in the UK, as there is a risk that these could be stranded after 2020 once the current targets have been met”.
In short, if you are refusing to specify at target, why should I rush to build a wind turbine factory to manufacture in your country?
A report by Cambridge Econometrics found that decarbonising the power sector under Poyry’s high renewables scenario could boost GDP by around 0.8% and provide around 75,000 jobs.
There is a snag though. Because a target is not technology specific and because nobody knows if the government will favour wind or nuclear beyond 2020, it doesn’t provide cast-iron certainty.
A target may also work to reduce the UK’s ability to take advantage of any slump in European gas prices by ‘locking us in’ to low-carbon power which doesn’t get cheaper with cheap gas. Low energy prices can also boost jobs and growth.
And there is a problem with the notion of large firms demanding a secure order book in an economic environment in which most don’t know if their job is safe. It may be a way of generating jobs, but it isn’t exactly calibrated to engineer public sympathy.
Does it put up bills?
The main thing driving bills up until now has been gas – in the last three years gas has put up bills by £150. The total current cost of renewable support is around £35.
And gas prices remain volatile. In March, gas prices rose by 50% in one day due to problems with pipelines into the UK and the unexpectedly cold weather.
Between now and 2020, a transfer onto an electricity system which includes more renewables will add around £100 according to the CCC (it's worth comparing that with the £150 over three years mentioned above).
Meanwhile, between now and 2030 the IPPR think-tank has calculated going for a ‘clean’ electricity system, based largely on renewables, will cost marginally less than one heavily dependent on gas.
The government’s independent advisors, the Committee on Climate Change (CCC) argues that over the coming decades (up until 2070) we could save £23-45bn in today’s money (between £900 and £1600 per household) by investing in renewables and nuclear early. The higher figure assumes we don’t decarbonise now, but instead do it later.
But isn’t that all based on assumptions?
Well, yes.
To begin with there is the cost of the technologies you use. The Committee on Climate Change believes the cost of nuclear power will fall sharply after the first developments - underlining it’s view that low-carbon options are cheaper. The IPPR, in its work, tends to rely more heavily on renewables, arguing that their costs have fallen fast - but again the future is unknown.
The second assumption is that the gas price will rise as forecast by the Department of Energy and Climate change (DECC). If the US shale gas boom has an unexpectedly large impact on the European market gas prices may lower.
In this kind of scenario, both the IPPR and CCC estimate the high cost of carbon will still make clean energy cheaper over the medium term. Likewise renewable or nuclear costs could be higher than forecast - especially initially.
So that is the third - and most crucial - assumption. If the UK pulls out of Europe and leaves its Emissions Trading Scheme (ETS), and then goes on to abolish its own carbon floor price, then gas may well turn out to be cheaper. But the main beneficiary of that ‘carbon tax’ revenue is the treasury, which isn’t exactly flush with cash. In short, bills may be lower, but taxes may be higher elsewhere.
What about bill volatility?
Supporters of decarbonising the power sector tend to argue that by cutting our reliance on gas and decarbonising the power sector, bills will stabalise. The Committee on Climate Change compare it to taking out insurance.
Indeed the issue of reducing volatility for households was examined by the think-tank IPPR. They concluded that if we stick with a relatively gas-heavy system, bills could vary by over £200 between now and 2030, depending on the gas price. With a decarbonised system that would be £50. In short, we’d see an end to the annual panic over energy prices.
But if bills can’t go up, they can’t go down.
The costs of clean energy - especially offshore wind and nuclear - are mostly ‘up-front’. You pay to put up the turbine but after that the power it generates is mostly free. That means that bills don’t change but it also means that if the gas price crashes we can’t take advantage of it - at least for our electricity.
And what about emissions - that is the point right?
Decarbonisation of electricity is seen as a crucial element of the UK being able to meet its legally binding carbon reduction targets for 2050 (as per the Climate Change Act).
The Committee on Climate change, and many others, argue that not only is it cheapest to decarbonise the power sector first, it is also necessary for most of the other sectors. Electrifying transport, for example, doesn’t make much sense if you are running on coal power.
Without a 2030 decarb target, it becomes less believable that the 2050 target remains obtainable in a cost effective manner. What is less clear is whether there is political support for the UK’s efforts to tackle climate change.
Conservative MEPs recently rebelled against strengthening EU emissions trading and George Osborne has suggested he wants to review the 4th Carbon Budget. His coalition partners though remain publicly committed to ensuring the UK leads Europe on climate. The outcome of this disagreement will give a pretty clear indication of the balance of power.
