The Department of Business Innovation and Skills is part of the government machine. Unlike DECC (the amusingly-named Department of Energy and Climate Change), it does not have an immediate responsibility for UK energy policy, but it is nonetheless concerned about the impact of energy prices on UK competitiveness. And heaven knows it needs to be. Based on its July 11th report “An International Comparison of the cost of Climate and Energy Policies in Selected Countries” we’re headed to hell in a hand-cart by 2020.
It’s a very long report (200+ pages), and it seems to be very thorough indeed. Not many will read the whole of it, so let me share some highlights.
The UK already has the third highest energy prices for a major economy (after Italy & Japan), and the highest “green” cost component (Fig 1-1a, p9). We’re more than double the energy cost in the USA (which of course is benefiting from the shale gas revolution). The USA and Russia have the lowest energy costs, and the lowest green component. France does well under the EU’s Emissions Trading Scheme, with 70%+ of its electricity from nuclear (and there’s a lesson there).
But don’t assume that the USA has a low green component because they’re doing nothing about emissions — far from it. In fact currently US emissions are falling while EU emissions are rising. No. It’s just that the USA is more reliant on carrots than sticks. It offers incentives and tax-breaks for energy efficiency, rather than building wind farms and piling the costs on industry regardless.
But while our energy cost position was bad enough in 2011, it’s projected to be dire by 2020. Fig 1-2a, p11, shows the increases in green costs in 2015 and 2020. The 2020 green-policy-increase in UK energy prices, even from today’s elevated levels, is around £33 per MWH — getting on for double the EU average. Meantime China weighs in at £10; Japan and Turkey < £5; and USA, India and Russia close to zero. In 2020, energy in the EU will be much more expensive than the rest of the world, and the UK will be much more expensive than the rest of the EU.
If we were to put up a sign over Britain saying “Closed for Business”, and if we sent personal invitations to energy intensive industries (EIIs) to investigate moving to the USA, India and China, we could hardly do better.
It is of course the EIIs which take the biggest hit. And while Cameron and Osborne talk about “rebalancing the British economy”, and a renewed emphasis on making things, we have Ed Davey at DECC pushing an anti-industry policy, and the Tories so terrified of their Lib-Dem allies that they dare not challenge it. The BIS report notes that even those EU countries with high energy and incremental green costs offer attractive cost limits and reimbursements to EIIs, citing Germany, Denmark and Italy, at a level the UK has so far not matched.
The industries identified as EIIs by BIS include aluminium; steel; cement; chlor-alkali; fertiliser; and industrial gases — and we could add paper and wood-pulp. When we drive these industries off-shore with their jobs and investment, how will we replace them?
Heaven knows what the incremental cost of green initiatives will be by 2050, based on our policy of a preposterous 80% reduction in emissions. But if we pursue that policy, the UK will have ceased to exist as an industrial economy way before 2050.