Rudd’s 'magic money tree' risks undermining investments in a low carbon economy

Dr Bridget Woodman, Exeter University, assesses the very disturbing developments in UK energy policy over the past few months.

ResponsibleSci blog, 13 October 2015

Amber Rudd’s speech to the Conservative Party Conference was enlightening in many ways. Apart from anything else, it was the first time since her appointment as Secretary of State for Energy and Climate Change, that I’d heard her really articulate her position on energy policy.

The key message was that energy needs to be as cheap as possible. Hardly a surprising statement from a DECC minister, especially given the fact that energy companies and the prices they charge are due to come under increased scrutiny as the Competition and Markets Authority’s investigation grinds on. But the framing of the message, and the emphasis given to energy prices, highlights some profoundly disturbing issues.

Yes, the costs of energy are important, both to business and to individual consumers, as is energy security.  But these need to be delivered in the context of addressing carbon emissions, and implementing a strategic approach to moving towards low carbon energy systems. Keeping costs down in the short term could prevent the development of new technologies that would contribute to emissions reductions in the longer term.

Since the election the government has been chipping away at the frameworks for renewables support. Subsidies for onshore wind will be removed, while those for solar will either be removed or cut, depending on the project size. Support for some biomass projects will also go. The only technology that has escaped the changes in the subsidies regime so far is offshore wind – relatively expensive but in political terms relatively uncontroversial compared with its onshore sibling.

The Climate Change Levy, a tax to reflect the carbon content of fossil fuels, will be extended to include renewables, so removing a measure that once rewarded the ‘greenness’ of renewable energy. The result, according to lobby group RenewableUK as reported in the Guardian, will be an additional cost to green energy producers of around £450m in the current financial year, and up to £1bn by 2020-2021.

Other measures designed to promote energy efficiency have also disappeared, notably measures intended to deliver Zero Carbon new homes for 2016, and the Green Deal. The latter was almost comically ineffective – according to the Association for the Conservation of Energy there was a 60% drop in home energy efficiency measures installed in the year after its launch – but scrapping it without having a clear set of measures to replace it with for promoting energy efficiency in the home points to a department without a vision on managing energy demand. Such a vision, surely, should be the cornerstone of action to tackle climate change, fuel poverty and energy security.

The changes have attracted some high profile critics, notably the CBI, which highlighted the ‘mixed messages’ all the policy changes would be sending to businesses, with the result that they would be unlikely to view renewable or other green measures as a good investment. The message was reinforced by the publication of Ernst and Young’s quarterly Renewables Attractiveness Indicators, which showed that the UK had fallen from 8th to 11th most attractive place to invest in renewables, and will probably continue to fall further as the changes come into effect. They also show a Secretary of State unwilling to take on board lessons from other countries such as Germany and Denmark about how to promote a thriving low carbon sector.

At the time of writing this article, business fallout had already become evident, with the announcement that two solar PV and energy efficiency firms had gone into administration with the loss of nearly 1000 jobs, their owners citing the government's policy shifts as a significant factor.

Rudd says that there is no “magic money tree” for renewables. That’s absolutely right – no technology should be granted open ended subsidies and support. Unless, according to the government, it’s nuclear power, which is still cheerfully raking in the subsidies after 60 plus years of support. The latest, proudly trumpeted in Rudd’s speech – with no apparent sense of irony – is the underwriting of loans to investors in Hinkley Point C, so reducing the financial and construction risks of the project for French and Chinese state-backed energy companies.

This gets us to the heart of the problem. The government is propping up conventional technologies while at the same time undermining the nascent confidence in new ones to deliver low carbon energy. By putting so much support from the magic money tree into nuclear power, it is showing extraordinary faith in the industry to deliver, despite all the evidence to the contrary. What happens if, as in other countries, Hinkley Point is late and hopelessly over budget? What happens if investment in renewables becomes so unattractive that the industry stalls? Is there a plan B? On the basis of Rudd’s speech, it doesn’t look that way.

The UK has claimed international leadership on climate change many times. But even a cursory glance at what’s going on in energy policy shows that irrespective of the words, the concrete actions to reduce emissions are lacking. The UK is at real risk of failing to deliver a low carbon economy because it is failing to support the technologies and measures that can do that. That failure would in turn mean it will fail to deliver on its long-standing commitments to address climate change.

Dr Bridget Woodman is a Lecturer in the Energy Policy Group at the University of Exeter, focusing on energy policy and regulation. She previously worked at Warwick Business School and has a PhD in Science and Technology Policy from the University of Sussex.

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