Energy Costs: The Elephant in the Room

Tuesday’s GDP figures indicate an anaemic 0.2% growth in the second quarter.  The Daily Telegraph headlines No. 10’s concerns that George Osborne and the Treasury, while doing OK on deficit reduction, are failing to deliver a credible growth strategy.  Both No. 10 and No. 11 hasten to deny any rift, while assuring us that the Chancellor is working on a package of stimulus measures.  So far, we’ve heard little more about a growth strategy than that hoary old chestnut of “cutting red tape”, which we talk about often but rarely achieve.

Meantime Ed Balls has a field day.  His basic proposal is “Borrow more, spend more, let’s lift ourselves up by our bootstraps”.  But he manages to package it in rhetoric that may sound attractive to the uninitiated.

So what options are there?  We hear talk of making the UK more attractive for investment (although Cameron insists that there’s no scope for a fiscal boost).  We hear, especially, about “rebalancing the economy”, with less dependence on financial markets that are deemed to have let us down, and more emphasis on manufacturing.  This plays well on the doorstep, especially with disgruntled Conservatives who complain that “We don’t make anything any more” (though of course we do).

Anything that George can offer us will be welcome.  I’m sure he’ll find some tax adjustments at the margin that will look good, and will help a bit.  He may drop Labour’s 50% tax rate — an easy win, since it is unlikely to cost the Treasury anything at all.

But he ignores the elephant in the room — the price of energy.  Of course much of the recent rises are the result of market price increases in the basic energy commodities, especially oil.  We can live with these increases, because they are global and therefore should not undermine our competitiveness.  But in the EU, and especially in the UK, we have the deliberate and perverse implementation of contentious climate policies which may not be useful at all.  But they dramatically increase energy costs, and undermine our competitiveness.  And even if you believe we should reduce CO2 emissions, we are choosing the most expensive, complicated, distorted and bureaucratic way of doing so.  As I have remarked elsewhere, if Chris Huhne were setting out to drive jobs, and industry, and investment, out of the UK, he could hardly do more than he has.

There are credible estimates that UK electricity prices are set to double by 2020, which would sweep away any tax concessions that Osborne may offer.  The UK looks set to have the most expensive electricity in the EU, and therefore in the world.  What major multinational manufacturer would choose to invest in the UK against this backdrop?  Meantime key industries are seriously looking at moving out.  We have chlorine in Runcorn.  Aluminium in Lynemouth in the North East.  The Indian firm Tata have closed their Corus steel works, also in the North East.  (And how many politicians realise that when a multinational closes an energy intensive plant in the EU, it gets a huge windfall in terms of emissions permits, which it can sell for cash on the market?  We offer these companies incentives to close British factories).  And I wonder whether Tata will choose to locate the proposed new Jaguar engine plant in the UK when energy is so much cheaper in India.

Chris Huhne and Tim Yeo tell us about all the green jobs that their policies will stimulate.  But as with most manufactures, China has cornered the market in much of the “green” industries.  So if we succeed in creating green jobs at all, they’ll probably be in China, not Cheltenham or Chesterfield.

So what should we be doing?  Several things.  First, we should tell Brussels that we just can’t afford their Large Combustion Plant Directive, which threatens the closure of half a dozen major British coal plants in a few years.  Second, build gas plants like mad.  They’re fairly quick to build, and they’re about the only way we’ll keep the lights on at the end of this decade.  And of course the world is suddenly awash with unconventional gas, and there are reserves to last decades, or possibly centuries.  “Peak Gas”, if it ever comes, will not be here for generations.

But critically, we should stop wasting investment on hopelessly inefficient wind farms, and put the money instead into nuclear plants, to come on-line early in the next decade, and see us through till 2080 at least.  Of course nuclear implies high initial capital investment.  But so does wind.  And it makes more sense to invest in nuclear, which over the lifetime of the plant will deliver safe, consistent, reliable, cheap and sustainable electricity, rather than blowing our investment on wind turbines which can never be sustainable or competitive.

If we go on as we are, we shall achieve (in Tim Montgomerie’s memorable phrase) “the deindustrialisation of Britain”.  That’ll be something for Chris Huhne to tell his grandchildren about.

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6 Responses to Energy Costs: The Elephant in the Room

  1. A good post mr Helmer. Why are you not the energy minister?

  2. tonyegghead says:

    “That’ll be something for Chris Huhne to tell his grandchildren about.”

    I guess given his higher than usual number of families, this will be quite a large number of grandchildren?

  3. Peter Hulme Cross says:

    Isn’t it time Mr Cameron realised the seriousness of the situation you have described and got rid of Mr Huhne instead of supporting him?? As you have said, we need a completely different Energy Policy because the current one will be disastrous.

    It’s not for lack of evidence. Texas relies on wind power for a lot of its electricity but during the cold weather of January and February of this year, Texas had snow, the wind didn’t blow, and Texas had blackouts. In fact, Texas had to go cap in hand to Mexico for its electricity.

    Whatever happens, Mr Huhne will not be in his current position in future when the ‘chickens come home to roost’ and will never be held to account for the appalling effects of his eco-lunacy.

  4. Hugh Davis says:

    Tim Yeo is Chairman of TMO Renewables and non-executive chairman of Eco City Vehicles plc and AFC Energy plc. so he’s not likely to be interested in sensible energy policies.

  5. Pingback: Green Jobs? Ask 900 Tata steel workers | Roger Helmer MEP

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