After losing out on Lords Reform, can the Lib Dems really afford to cave in on renewable energy subsidies?
After months of uncertainty and stalled investments, this week should finally see a decision on the level of subsidy renewable energy developers can expect to receive over the next few years through the Renewables Obligation Certificate scheme (ROC). The details are arcane, the politics are potentially explosive, and the implications are immense for the UK's green economy. It is going to be a tense few days.
The rumours swirling around Whitehall are the stuff of pure political intrigue, but what is widely understood to have happened is this: Ed Davey's Department of Energy and Climate Change (DECC) proposed a series of modest cuts to renewable energy subsidies based on evidence that the cost of a number of technologies has fallen slightly in recent years. Central to the cuts was a proposed 10 per cent reduction in the level of support available to onshore wind farms. The renewables industry questioned some of this evidence and warned that the modest cuts could still create problems for developers, but generally accepted that in the current economic and political climate the proposals represented a reasonable settlement. So far, so simple.
Then, according to various sources, someone at Number 10 got hold of a report on renewable energy that suggested the cost of wind energy had fallen by more than 10 per cent and promptly called in DECC officials to explain why deeper cuts to subsidies were not possible. It was politely explained that the report looks at global costs and there is no such evidence that costs in the UK have fallen as significantly (in large part because of successive government's repeated failure to streamline the planning system and nurture a domestic wind turbine manufacturing industry), hence their decision to propose cuts of 10 per cent.
Everything looked to be resolved, but then the Treasury (emboldened by the 100 backbench Tory MPs calling for a virtual end to onshore wind farm development) stuck its nose in and reportedly demanded 25 per cent cuts to ROC support. All of this resulted in yet another row between the Treasury and DECC, not to mention the unedifying sight of treasury minister Chloe Smith point-blank refusing to be grilled by the Energy and Climate Change Select Committee over her views on onshore wind farms and ROC subsidies.
Finally, a decision is now imminent and we should find out the result of the row in the next few days, potentially as early as tomorrow.
Second guessing the coalition has become a mug's game, but the evidence, the business context, and the political backdrop suggests this is an argument DECC really should have won.
DECC's proposals for a 10 per cent cut was evidence-based in the way the demands for deeper cuts simply have not been. If the government is to impose deeper cuts it will have to present some genuinely compelling evidence that these cuts are justified and that the coalition's long-standing and repeatedly stated plans for a balanced low-carbon energy mix based on renewables, nuclear, and cleaner fossil fuels can still be realised. Get this wrong and the UK will put both its legally-binding carbon targets and its legally-binding renewable energy targets at serious risk.
This evidence also informs the business community, where there is widespread support for DECC's original proposals. Obviously, the fast-expanding renewables industry wants to see the level of subsidy retained at a level that allows projects to proceed and enables its long-term pursuit of further cost reductions. But the CBI and other business leaders also want to see the 10 per cent cuts rubber-stamped so that developers can get on with the next wave of job-creating green infrastructure projects.
And then, perhaps most importantly, there is the political context. Much of the political reporting surrounding the row over onshore wind farms has focused on the vocal band of backbench Tory MPs who fiercely oppose wind farms and the position of the chancellor, who is apparently lukewarm at best towards the green agenda. This is entirely understandable given the in-built right wing bias in the UK's press, but it ignores an important reality: the Conservatives did not win the last election, the government is a coalition.
With its high-profile plans for Lords reform hanging by a thread, it is almost impossible to countenance the Lib Dems caving in and allowing the Treasury to effectively cripple the renewable energy industry. Lib Dem ministers simply have to have some victories to show the electorate, and if they cannot demonstrate that they worked with green-minded Conservatives to nurture the low-carbon economy, then even their core voters will start to question what purpose they are serving in the coalition.
If this analysis proves incorrect and the Treasury does steamroller through deeper cuts to renewable energy subsidies than the evidence suggests is viable, then certain Lib Dem ministers will have to take a long, hard look at themselves - and perhaps even consider their positions.
Despite all the sound and fury from the backbench, the likeliest result this week is a broadly positive settlement for the renewables industry that will allow the government to continue to pursue plans to reduce the carbon intensity of our energy infrastructure. Although, there are also nervous whispers suggesting the Treasury will seek some concessions from DECC in return for its munificence - demands the Lib Dems really should give short shrift to given Cameron and Osborne's failure to deliver their party's support for Lords reform.
Modest cuts to renewable energy subsidies would represent a significant victory for the green economy and the green wing of the coalition. But regardless of what happens this week, it is worth once again asking why a relatively simple decision has proven so contentious. And, given the current reshuffle rumour mill, perhaps we should also ask whether the Treasury would prove quite as resistant to the low-carbon agenda if it was headed up by a competent advocate of the green economy, such as William Hague.
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