The EU has long been committed to “the fight against global warming”. In this context it has created a series of measures, most of which increase energy costs for industry and for households. The result has been to force millions of UK households into fuel poverty, and to drive energy-intensive industries off-shore. Industries which have borne the brunt of these policies have included steel, aluminium, chemicals and fertilisers, petroleum refining, cement, glass and ceramics.
Plant closures are only part of the problem: we should also bear in mind potential new investment, which is driven offshore by these measures. We are in fact exporting industries and jobs, while worsening our balance of payments as we import materials previously made in Europe. And the real irony is that the production often goes to jurisdictions with lower environmental standards, so the result is an increase in global emissions.
Measures have included aggressive targets for renewable energy, and for emissions. These are overlapping and conflicting provisions. In particular, nuclear energy contributes to emissions targets but not to renewable targets, so policy, which ideally should be technology-neutral, is biased in favour of wind and solar and against nuclear. All these technologies have attracted subsidies. They have also created the need for additional levels of subsidy, since intermittent renewables require back-up. The back-up, typically gas, has to be run intermittently to complement intermittent renewables. But there is no economic or investment case to build gas-fired plants to run intermittently, so they require “capacity payments”: a whole new level of subsidy.
Then we have the Large Combustion Plant Directive, which has resulted in the closure of perfectly good coal plants across the UK, threatening both price and availability of electricity. But perhaps the greatest folly is the Emissions Trading Scheme. It has been sold as a “market mechanism” designed to allocate emissions permits where they will be most efficient and to incentivise investment in low-carbon and energy-saving technologies. It has largely failed over ten years and more. The price of a ton of CO2 emitted has generally been below €10, which the level generally accepted as necessary to send signals to the market would be €30 plus. The Commission and parliament come back to the issue every few years with a sticking-plaster solution – which never delivers. Moreover a “market mechanism” which requires constant regulatory intervention is not really a market mechanism at all: it is a very complicated tax.
The additional problem is “carbon leakage” – an EU euphemism for driving energy-intensive businesses offshore. The plan is to establish a level of “free allocation” of carbon permits to industries at risk – but to reduce the total allocation each year in order to drive down emissions. But the level is not sufficient to start with. And some industries are based on chemical processes that emit CO2 as part of their fundamental chemistry which no amount of efficiency savings can eliminate. The policy amounts to a slow suffocation of heavy industry. Indeed former Industry Commissioner Antonio Tajani has said “EU Energy Policy is creating an industrial massacre in Europe”. UKIP agrees.
Regulatory uncertainty: We have created such a complex cat’s-cradle (or dog’s breakfast) of regulation, taxation and subsidy, subject to constant change at the whim of politicians and bureaucrats, that it has become almost impossible for the market to make rational investment decisions on multi-billion pound projects with time scales in decades. This is why incentives designed to promote gas-fired power stations have had the perverse effect of promoting diesel generators instead, and why the government had to accept an eye-watering guaranteed price to EDF for Hinckley C.
Not just an EU problem
It would be nice to promise that this energy policy chaos could be unwound immediately after Brexit. But if the problem with Brussels is bad enough, Westminster has made it worse. The Climate Change Act (2008), one of the most expensive pieces of peace-time legislation, was passed almost unanimously in Westminster, by MPs who had little or no idea of the consequences of their actions. It even includes statutory emissions targets for 2050 – something no other country in the world has. So after the Brexit battle, we have another battle here at home to deliver a rational UK energy policy.
What the UK should do post-Brexit
- On repeal of the European Communities Act (1972) HM Government should repeal the Climate Change Act as a priority number one for Energy Policy. It should also announce our withdrawal from the Paris Climate Treaty.
- Repeal the Emissions Trading Scheme (ETS) from UK law.
- Repeal the Large Combustion Plant Directive (though given that most coal plants are closed, or are running down ahead of closure, most will be beyond rescue).
- Withdraw all subsidies from new wind, solar and anaerobic digestion projects. Make operators of wind and solar responsible for the additional costs of intermittency. UKIP recognises that future increases in efficiency, plus the development of viable and efficient large-scale energy storage, may make wind and solar viable sometime in the next decade or two. Subject to planning and environmental considerations, we would not oppose new investment in renewables, but we would not subsidise it.
- Dismantle constraints on the industry: remove emissions and renewables targets (while maintaining controls on genuine pollutants, like SOx NOx & particulates). Scrap George Osborne’s Carbon Floor Price.
- Ensure security of supply: given that we are close to a crisis situation in electricity supply, HM Government should discuss with the industry how we could incentivise major energy infrastructure investment. We would renegotiate the use of Interconnectors with continental countries, on an arm’s-length, independent nation basis.
UKIP energy policy will be expanded in detail in our next Manifesto, and this will include our positions on Shale Gas, and Nuclear Power.