Jumpers, petitions and the only way to tackle rising energy bills

Only energy efficiency and the long haul towards decarbonisation can tackle rising energy bills, everything else is a sideshow

18 Oct 2013, 15:35

I'm not sure precisely when the 'debate' on energy bills and 'green levies' hit its latest low point. Perhaps it was the launch of The Sun's petition calling for an end to "hated green levies"; perhaps it was the flurry of Tory blog posts arguing for the scrapping of green taxes while failing to even acknowledge climate change as an issue; or perhaps it was the sight of Jeremy Paxman asking the Energy and Climate Change Secretary whether he wears a woolly jumper, firing the starting pistol on a fatuous media frenzy that resulted in a hapless Downing Street spokesman eventually having to clarify whether the Prime Minister thinks people should or should not wear jumpers. No doubt, you'll each have your favourite.

What is clear is that even as encouraging reports emerge suggesting the 'quad' at the top of the government has rightly concluded that while 'green levies' need to be constantly monitored there is no quick fix to rising energy bills, the campaign to axe 'green levies', and by extension the UK's wider decarbonisation agenda, is gathering momentum.

The strategy is as transparent as energy bills are opaque, but it is none the less effective for that. Right wing outriders demand an end to all 'green levies' in the interests of those 'hardworking families', and in doing so they create the political space that makes the government look reasonable when it cuts just one or two green schemes or argues next year that 'yes, decarbonisation is important and will continue, but we have to consider cost implications so we are going to scale back the fourth carbon budget'.

There are many problems with this campaign, but the most glaring is that it doesn't even attempt to explore what would happen if it were to prove successful and result in 'green levies' being axed or, more realistically, cut. Suffice to say, the repercussions would not be pretty.

The most immediately obvious impact of a moratorium on 'green levies' would be that energy bills should be cut by around £100 as energy companies wake up to find their dreams have been realised and the funding they have to provide to energy efficiency and clean energy schemes is no longer required. Further savings might be on the cards as some of the network costs required to connect clean energy projects to the grid may no longer be required, but the reality is the impact on bills would be to cut them by around 10 to 15 per cent, effectively taking them back to the level they were at just 18 months ago.

Of course, such a saving is not to be sniffed at, every little helps. But even after this theoretical £2 a week saving, tens of thousands of people would remain in fuel poverty, while the schemes designed to help them reduce bills through energy efficiency measures would no longer exist.

More important still, and this cannot be stressed often enough, the majority of the increase in bills experienced in the past three years has been driven by the upward trend in global wholesale gas prices. Analysts are divided on whether this trend will continue, but with China and India driving ever-higher levels of demand there is a real risk that even as shale gas production expands prices could continue to climb. Add in the perennial risk of geopolitical tension with Iran or Russia leading to supply disruption and it is easy to envisage a scenario where the £100 saving is quickly wiped out by market developments. We could very quickly be back where we started, only this time there would be no green windmills for The Sun to tilt at.

But a short-term saving that does nothing to resolve the underlying problems caused by high and volatile energy bills would represent the upside of the utterly misguided campaign to scrap 'green levies'. The fallout would also result in the immediate end to funded domestic energy efficiency schemes and grants for the most vulnerable households; a collapse in clean energy investment; tens of thousands of lost jobs; missed EU renewable energy and efficiency targets and the fines that come with them; the shelving of popular community energy projects; a breach of legally binding emissions targets; the unwinding of the government's entire electricity market reform programme; the failure of negotiations for new nuclear power plants; the loss of billions of pounds in new energy investment; a new dash for gas that would undermine the UK's climate change strategy and take several years to orchestrate, leading to an increased risk of blackouts; condemnation from international bodies such as the IMF and OECD, which have urged the UK to stick to its decarbonisation agenda; higher levels of energy demand than anticipated resulting in higher prices and, again, an increased risk of blackouts; increased reliance on those self-same gas imports that have been the primary driver of rising energy bills in the first place; and the end to any hope that the UK can get off the fossil fuel hook and benefit from the transition towards clean energy technologies that are becoming more cost effective all the time.

Both sides of the coalition know this scenario is completely untenable – the Lib Dems and green Tories get it because they understand the merits and the necessity of a low-carbon transition, while the Conservative leadership gets it because they know scrapping 'green levies' won't really solve the problem and will leave them open to the accusation they are leaving fuel-poor pensioners and families to shiver on without any support beyond advice to pull on a sweater.

So what can be done to help insulate people against energy price rises that are consistently outstripping increases in wages?

Labour leader Ed Miliband would argue the answer lies in a price freeze that would 'reset' the energy market. This proposal certainly has popular appeal and I am not among those who argue it would prove unworkable – there are plenty of examples of countries that have shown price controls can work (even if there are also some that have demonstrably failed to work). But while it may help – and we won't really know how effective a freeze may or may not prove until Labour provides more information on what the promised 'reset' entails – it does little to address the underlying challenge, namely that global wholesale prices and the urgent need for more investment in new energy infrastructure will continue to put upward pressure on energy bills.

The government understandably resists the temptation to point out that the UK's energy bills are among some of the lowest in Europe and instead maintains increasing competition in the market and encouraging people to switch suppliers represents the most effective means of holding down prices. But while greater competition will always be welcomed, this approach similarly fails to address the primary drivers of higher bills.

Some of the more credible commentators calling for an end to green tariffs have argued that, rather than being scrapped, schemes such as the Energy Company Obligation (ECO) efficiency scheme and renewable energy subsidies should be paid through general taxation. This approach has much to recommend it, not least the fact that it would be more progressive than the current system of imposing levies on energy bills. But there are huge risks attached to such a shift that extend well beyond the inevitable short to medium-term disruption to efficiency and clean energy projects. Funding energy efficiency and clean energy subsidies from general taxation may be an attractive idea in principle, but it exposes schemes to even higher levels of political risk, would require tax increases or spending cuts to fund and would result in the long-term vision required by the decarbonisation agenda being constantly challenged by short-term demands for taxpayers' money to be diverted to whichever issue is commanding headlines that week.

The most likely outcome of the current furore is that the government will make some cosmetic changes to one or two of the 'green levy' schemes and hope it can be spun as decisive action, even as it has negligible impact on bills and results in yet more policy uncertainty for the energy investors we desperately need to tackle looming blackout risks. Because the simple fact is that in the short to medium term increased energy prices are an unavoidable reality. It is political kryptonite to utter this fact out loud, but that does not make it any less true. Greater competition in the market may help, improvements to make energy efficiency and clean energy schemes more cost effective may help, cost controls may help, even responsibly managed fracking may help, and some of these proposals should be explored, but none will do more than shave a few quid off bills in the coming years. Meanwhile, the upward pressure on bills caused by soaring global energy demand and the urgent need to correct decades of UK infrastructure underinvestment continues to escalate, only to be complicated further by the unavoidable reality of climate change and the manner in which the decarbonisation it demands rules out a coal revival or an unrestricted dash for gas.

All of which leaves us with the one thing the government can do to help hold down energy bills: energy efficiency. You don't have to advise people to wear jumpers, but you do need to make it even easier for them to use less energy through improvements to the UK's disgracefully inefficient housing stock. Nothing can be done about energy prices, but through a combination of incentives and regulations something can be done about energy bills. The government is making some progress on this front, but more needs to be done, and fast. ECO should be expanded and improved, not cut and neutered. The Green Deal financing scheme should be urgently reviewed with every mechanism for driving adoption given serious consideration. Support for clean energy needs to be monitored constantly to ensure that it is at an appropriate level, while also recognising that households and businesses should be encouraged to generate their own power, not least because in the long term renewables will help to hold down prices by reducing reliance on volatile fossil fuels.

There is no easy fix to the energy bill crisis, only a decades-long transition towards cost-effective clean energy and energy-efficient properties. All responsible politicians need to recognise this and reject the siren voices calling for cuts to the very schemes that are trying to tackle the market dysfunction that has left the UK at the mercy of global wholesale gas prices. Because, unlike comments about the merits of wearing jumpers in the cold, tearing up the UK's energy strategy is a gaffe the country can't afford.

  
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