The Intergovernmental Panel on Climate Change (IPCC) has yesterday reported that no one will be untouched by the damaging effects of global warming in the coming decades. Climate change is often seen as synonymous with global warming but the IPCC report outlines that man-made climate change is more than merely higher temperatures. More extreme weather is what we will actually be experiencing: more rainfall, droughts, heat waves and extreme storms. While there may be sceptics, the scientific consensus is that is happening and that we urgently need to do something about it. Even if you did want to side with the sceptics, the risks of not doing something are simply too big.
So what do we do? Well, that’s a more difficult decision than you’d think. We know that we need to reduce our reliance on fossil fuels but in practice there is still a lack of alternatives available today or tomorrow to banish fossil fuels from our cars, homes and businesses. Take, for example, electricity generation that the Energy and Climate Change Secretary, Ed Davey was quizzed on by BBC Sunday Politics presenter Andrew Neil. Over the last few years, the UK has reduced its coal-fired plant significantly. This has helped reduce our emissions from the most polluting of the fossil fuels. It also means that, as Neil pointed out to Davey, the spare capacity in the grid to meet a surge in demand has gone down and is expected to be only 2% in 2016.
Davey argued that thanks to the Electricity Market Reform (EMR), the Coalition Government has seen a big increase in expected investment in renewable technologies and thanks the Capacity Market, there is spare capacity on stand-by to meet surges in demand. That sounds optimistic but from the work of The Whitehouse Consultancy in the renewable sector we know there is significant uncertainty in the industry over EMR. To make renewables compete with cheap fossil fuels, the Coalition has created a subsidy mechanism under EMR to support them, the so-called Contract for Difference (CfD). A generator will receive a top-up payment through a CfD between the wholesale market price and a Government-set maximum guaranteed “strike price”.
As a result of European state aid rules, this additional support will be allocated through auctions. That worries investors: they want to invest in projects that they know will give them a return on their investment. Aside from the constant changes to EMR in the last few months, fundamentally renewables projects will not have guaranteed support through a CfD once they are completed. Even if the investment needed to fully green our energy supply was ready to go today, it takes time to plan, build and bring into operation these new technologies. In fact, technologies like tidal energy are still being researched, and are far from ready for widespread deployment.
At the same time, this subsidy for renewables has to be paid by us, as taxpayers and bill payers. The rising cost of household and small business bills is putting pressure on the Government to do something. Of course, the best solution would be to reduce energy use by insulating homes and business better but that’s not something many people in the UK seem to opt for. Instead, there are calls for price freezes, with Labour committing to one should they be elected. That’s the best way to undermine investment to address the spare capacity issue outlined above. It also does nothing to solve the underlying problem: our leaky, draughty and generally ageing housing and business premises stock. However, it does win votes so it’s good politics to back it.
The IPCC was unequivocal in its calls this morning for us to act to head off the effects of man-made climate change. Actually doing this, under pressure from people worried about the cost of living, under pressure from energy-intensive industry who do not want to be outcompeted by competitors from countries not worried about climate change and under pressure from the higher cost of developing renewable technologies compared to fossil fuel technologies, is a lot more difficult than it sounds.
Henk van Klaveren