Anti-manufacturing energy policy

The Government's energy policy white paper is now being consulted on and an important speech by Lord Lawson below we felt was a useful contribution to the debate on wind turbines versus other forms of energy creation.

“. . . .the most anti-manufacturing energy policy of any Government in British history.” - a quote from Nigel Lawson's speech

Hansard – House of Lords   22nd December 2010

Lord Lawson of Blaby: My Lords, let me first declare an interest as chairman of the Global Warming Policy Foundation, of which I gave fuller details in this House on 2 November. I must say that I am not the slightest bit surprised that this Bill has the support of the party opposite. It is the most dirigiste legislation the present Government have so far produced.

What I propose to do today is to look at the philosophy and policy that lie behind the Bill, to which the Minister alluded in his opening remarks. It is an area in which I have form, as it were. As the Secretary of State for Energy and Climate Change, my right honourable friend Mr Huhne, wrote in the Daily Telegraph on 16 December:

“So today the Coalition begins a consultation on a reform that would reshape this market more fundamentally than at any time since the 1980s, when the Lawson reforms were the pioneer of Europe's deregulation”.

Nor were those reforms simply a matter of energy privatisation, although that was an important part of them. They went much further than that. As Oxford’s Professor Dieter Helm has written in his definitive work, Energy, the State , and the Market: British Energy Policy since 1979,

“the principles of energy policy were rewritten, notably after Nigel Lawson moved to the Department of Energy. His restatement of energy policy in his speech on 'The Market for Energy' in 1982 can be seen, in retrospect, as a defining moment. A new philosophy was set out, motivating much of what followed. His rejection of planning and many of the activities then going on within the Department of Energy was revolutionary at the time”.

That new approach produced well over a quarter of a century of reliable energy supplies at the lowest practicable cost. It should not be torn up, as it is now being torn up, without very good reason.

So what is the reason? According to Mr Huhne, in his Statement on so-called “Electricity Market Reform” last week:

“The current energy market has served us well, but it cannot deliver long-term investment on the scale that we need, nor can it give customers the best deal. Left untouched, it would lock carbon emissions into the system for decades to come."

So there we have it. Pace Mr Huhne the market can certainly deliver adequate investment, provided it is free from arbitrary government impositions and from major uncertainties about future government energy policy. It can undoubtedly give customers the best deal, as it has for more than a quarter of a century. But it is true that it may well lock carbon emissions into the system, to use Mr Huhne’s phrase, for decades to come. That is precisely because it is carbon-based energy that now, and for the foreseeable future, gives energy customers, both corporate and individual, the best deal. Indeed, Mr Huhne freely admitted as much when later in his Statement he said:

“At the moment, there is a bias towards low-cost, low-risk fossil fuel generation”.

Indeed there is, and quite right too—except that it is not a bias. It is the market providing UK energy customers with the best available deal.

The purpose of this Bill, or, rather, the policy behind it, is to bring that to an end in an obsession to eliminate United Kingdom carbon emissions. Again I will quote from the Statement for what I promise to be the last time. Mr Huhne said that,

“we face growing demand, shrinking supply and ambitious emissions reductions targets”.—[Official Report, Commons, 16/12/10; col. 1064.]

We do indeed face growing demand, although the massive economic burden imposed by the energy policy that lies behind this Bill will certainly damage the economy sufficiently to reduce the growth in demand. We are undoubtedly lumbered with self-imposed unilateral emissions reductions targets. The reference to “shrinking supply” is complete nonsense. It is the very reverse of the truth. Indeed, Mr Huhne admitted as much when he explained to the CBI:

“Left untouched, the electricity market would allow a new dash for gas”.

Indeed, so it would and so it should.

The most dramatic technological breakthrough in the world of energy since my time as Secretary of State almost 30 years ago is the very recent development of horizontal drilling and hydraulic fracturing, which together have made the production of gas from shale economic and highly competitive. As a result, the official US Energy Information Administration, for example, announced only last week that America’s technically and commercially recoverable shale gas reserves are twice as abundant as they previously thought them to be. Indeed, the United States is already set to overtake Russia—if it has not already done so—as the world’s largest gas producer, and this is just the start.

Although America has been first in the field—a result of a technological breakthrough by the private sector, incidentally, which owes nothing to any government support or technology stimulus—the world is awash with shale, in Canada, Europe, Asia and Australia. We now know that we live in a world in which there will be an abundance of gas far into the foreseeable future and beyond. Because it is spread throughout the world, we no longer need to fear the strategic insecurity of being overdependent on either Russia or the Middle East.

Indeed, in so far as there is an energy security problem in this country, it stems entirely from the Government’s obsession of ensuring by means of massive subsidies, combined with growing penalties and restrictions on the use of gas, that we become heavily dependent on wind power. That government-imposed insecurity has three dimensions. First, there is the inherently unreliable nature of wind, which sometimes blows and sometimes does not. Secondly, there is the question of whether it is practically possible to build and install wind turbines on the scale required to meet our energy needs, leaving aside the huge economic and environmental costs of doing so. Thirdly, there is the fact that an indispensable component of wind turbines is neodymium, a rare mineral, which is mined and refined—in a highly polluting way, incidentally—only in China, so we are dependent completely on China.

What are the consequences of the new energy policy which lies behind this Bill, whose essential purpose is substantially to raise the cost of UK energy by turning our back on abundant low-cost gas and relying on higher cost nuclear power and, to an even greater degree, on very much higher cost wind power? There are three consequences, two of them certain and the third quite likely.

The first is that by substantially raising the cost of energy, the policy will do great damage to the economy in general and to manufacturing in particular, at a time when it is clear that our principal competitors overseas have not the slightest intention of following suit. It is indeed curious, to say the least, that a Government that came to power saying they wished to rebalance our economy so as to reduce our relative dependence on financial services, which implies having a stronger manufacturing sector, should be determined to impose the most anti-manufacturing energy policy of any Government in British history.

The second consequence is that, despite the provisions in the Bill before us today, the massive rise in energy costs, which is the clear purpose of this policy, will lead to a huge increase in fuel poverty at a time when conditions are tough enough as it is for those on low incomes. Those two consequences of this policy are certain.

The third, which is not certain but quite likely, is that the dysfunctional energy policy to which the Government are committed will prove unable to provide sufficient reliable electricity to meet the nation’s demand, and the lights will go out. The noble Lord, Lord McFall, warned of that in his intervention earlier in the debate. And all this in the cause of eliminating UK carbon emissions.

Moreover, there is a further irony. Per kilowatt of electricity generated, gas produces only half the carbon emissions of coal, so it is quite possible that by switching from coal to gas, the UK might be able to meet or at least get very close to the 2020 target for emissions reductions enshrined in the Climate Change Act. It would not, of course, make it possible to meet the near total decarbonisation enshrined in the 2050 target, but by 2020, or more likely well before that, it will have become abundantly clear that global decarbonisation is simply not going to happen, and that for this country to persist with a policy of unilateral national decarbonisation will be manifestly absurd and indefensible. Indeed, as we suffer the coldest winter since records began 100 years ago, well before 2020 it might just begin to dawn even on green-obsessed government Ministers that there may not be any case for doing so.

At present, the coalition Government are having to tackle with determination and vigour an unenviable fiscal inheritance in a tough economic climate. I wish them well. But to make that task substantially harder by embracing, for no good reason whatever, the massive self-imposed economic burden embodied in the policy which lies behind this Bill is madness.

(emphasis by ed.)