Merryn's Blog

Green energy subsidies could do more harm than good

The political consensus is that green taxes and subsidies for renewable energy are a Good Thing. But that's by no means certain. They might well be costing us much more than they are worth.

A book suggestion: Let Them Eat Carbon by Matthew Sinclair.

You were probably shocked by the headline on the Sunday Times last week: "Wind farm is paid £1.2m not to make electricity." The story told how a Norwegian renewables company operating in the UK was asked to shut down its turbines at its Crystal Rig farm for eight hours a few Saturdays ago, on the basis that with the wind so high the electricity network was being overloaded.

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The payment resulted from a rather nutty-sounding system in place in the UK whereby companies put in bids for how much they want to be paid for stopping production. The National Grid takes the lowest first, but in this case ended up taking a bid from Crystal Rig for £999 per megawatt hour of energy not produced. Had they produced the energy they would have been paid around £100 per megawatt hour for it. Irritating isn't it?

As one energy think tank put it, these payments "show that the scale and pace of government's subsidy-driven push for wind has outstripped National Grid's ability to integrate this uncontrollable source of energy at tolerable cost. A pause for thought would seem to be wise."

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Indeed it would. We offer huge subsidies to the wind industry (to the tune of £54,000 per worker in 2009-10) and to other green industries, but we don't stop often enough to think about whether it makes sense to do so. Already, green energy policies add around 20% to the energy bills of business consumers. Ruth Lea quotes Department of Energy and Climate Change (DECC) numbers which suggest this number could rise to 70% by 2020.

There are problems here. The first is that much of the money we all pay away, says Sinclair, "goes straight into the pockets of a bewildering range of special interests". Companies across the world are making fortunes out of everything from cap and trade schemes to dodgy projects under the Clean Development Mechanism. There are huge new charitable and government organisations at every turn spending great wads of taxpayer cash on all sorts of interventions and threatened interventions.

This wouldn't necessarily matter if we could be sure or even quite certain that the climate change policies that we are all currently suffering under offered good value and were an efficient way to deal with emissions. But we can't be. Instead there is plenty of evidence that they aren't either of these things.

Sinclair starts by pointing out that if you look at the long-term charts of emissions you will see no sign of them changing when big climate change policies are introduced, and takes it on from there. There isn't even any real evidence that green policies will create much in the way of jobs. Instead the costs and the draconian nature of many climate change regulations might even mean that we end up losing jobs overall and hampering our long-term growth which already doesn't look like it is going to be all that healthy.

Indeed, as a Civitas study quoted in the book has already pointed out: "There is no doubt that high energy prices have already been a factor behind industry closures." The study then points to factory closures across the country as evidence of the destructive influence of high energy prices (Chapter 6 for those of you who want the details).

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There is a tension here between economic growth and the emissions reduction industry which might nor might not actually reduce emissions. Note that forcing a company dependent on low-ish energy costs to move from the UK to China doesn't reduce global emissions. It just shuffles them around a bit.

Sinclair's conclusion? We need to take this tension more seriously than we do. "Before we cover our waters with rusting and expensive wind turbines; before more vulnerable people are forced to scrimp and save and give up other comforts to pay unnecessarily high energy prices and before manufacturing industries in the west are rendered hopelessly uncompetitive by a rise in the price of energy" we need to take the time to challenge the political consensus that green taxes and strong anti-emissions legislation are necessarily a good thing. Because they might just cost us more than they are worth.

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