The Government fiddle with their disastrous energy policy while nearly a fifth of households are in fuel poverty

July 14, 2011 12:48 PM

My new book Let them eat carbon looks at the incredible cost and dubious record of climate change policy here and around the world.  This week we have had a graphic reminder of what that means, particularly for poor and elderly people who are hardest hit.  Statistics out today show that four million English households were in fuel poverty in 2009.  That is nearly a fifth of the roughly twenty two million households in England.

Even back in the summer of 2007 when we were still enjoying the fruits of a long economic boom 65 per cent of people responded to a TaxPayers' Alliance/YouGov poll that the cost of utility bills was a major financial worry.  Now, with prices rising and other pressures on living standards from high inflation and lacklustre wage growth, many more people must be a lot more worried by their hefty energy bills.  The challenge right now is the simultaneous pressure of paying for huge investment in the energy sector to meet environmental targets with the fiscal adjustment and the associated spending cuts and tax hikes.  When we most recently totalled all that up, for our briefing on Budget 2011, it came to a combined fiscal crunch of well over £700 billion over the next decade.

Unfortunately the Government this week seemed content to fiddle around the edges, increasing costs instead of reforming energy policy to get families a better deal.  We responded to the Electricity Market Reform White Paper earlier this week by pointing out that in the short term it will increase the cost of the EU Emissions Trading System which puts a price on carbon and thereby makes conventional energy more expensive, doubling the cost if the price reaches the Government's target.

That will make things harder for consumers and hit manufacturers competing with rivals abroad not bearing the same burden.  In the longer term it can't reduce the cost by encouraging more renewables, they require other extremely expensive subsidies which add to our bills, but only if we get more nuclear.  Unfortunately there are huge construction risks in building the power plants so with these measures alone any nuclear renaissance is likely to be pretty limited.  The likely result of this bill is simply to hand energy companies a hefty windfall profit at our expense, Credit Suisse expect it will net the utilities a £7 billion profit.

The other thing they're doing is locking in high prices with "contracts for difference" which mean that if conditions change, for example if the Middle East stabilises a bit and huge shale gas reserves become available, we'll still have to pay high prices.  Risk is being transferred from energy companies to the rest of us.

In the end, the high price of these policies isn't going to be fixed with minor adjustments.  Citigroup have set out how environmental targets require us to invest more than Germany, France and Italy (or Spain) put together.  Paying for that investment will mean higher electricity bills.  They expect bills will rise by over 50 per cent in real terms.  To change that we need to rethink the mad rush for renewable energy that just isn't competitive right now and emissions cuts by 2020 to meet an EU timetable before the right alternatives to fossil fuels are in place.  Until the Government does that we will keep getting ripped off.My new book Let them eat carbon looks at the incredible cost and dubious record of climate change policy here and around the world.  This week we have had a graphic reminder of what that means, particularly for poor and elderly people who are hardest hit.  Statistics out today show that four million English households were in fuel poverty in 2009.  That is nearly a fifth of the roughly twenty two million households in England.

Even back in the summer of 2007 when we were still enjoying the fruits of a long economic boom 65 per cent of people responded to a TaxPayers' Alliance/YouGov poll that the cost of utility bills was a major financial worry.  Now, with prices rising and other pressures on living standards from high inflation and lacklustre wage growth, many more people must be a lot more worried by their hefty energy bills.  The challenge right now is the simultaneous pressure of paying for huge investment in the energy sector to meet environmental targets with the fiscal adjustment and the associated spending cuts and tax hikes.  When we most recently totalled all that up, for our briefing on Budget 2011, it came to a combined fiscal crunch of well over £700 billion over the next decade.

Unfortunately the Government this week seemed content to fiddle around the edges, increasing costs instead of reforming energy policy to get families a better deal.  We responded to the Electricity Market Reform White Paper earlier this week by pointing out that in the short term it will increase the cost of the EU Emissions Trading System which puts a price on carbon and thereby makes conventional energy more expensive, doubling the cost if the price reaches the Government's target.

That will make things harder for consumers and hit manufacturers competing with rivals abroad not bearing the same burden.  In the longer term it can't reduce the cost by encouraging more renewables, they require other extremely expensive subsidies which add to our bills, but only if we get more nuclear.  Unfortunately there are huge construction risks in building the power plants so with these measures alone any nuclear renaissance is likely to be pretty limited.  The likely result of this bill is simply to hand energy companies a hefty windfall profit at our expense, Credit Suisse expect it will net the utilities a £7 billion profit.

The other thing they're doing is locking in high prices with "contracts for difference" which mean that if conditions change, for example if the Middle East stabilises a bit and huge shale gas reserves become available, we'll still have to pay high prices.  Risk is being transferred from energy companies to the rest of us.

In the end, the high price of these policies isn't going to be fixed with minor adjustments.  Citigroup have set out how environmental targets require us to invest more than Germany, France and Italy (or Spain) put together.  Paying for that investment will mean higher electricity bills.  They expect bills will rise by over 50 per cent in real terms.  To change that we need to rethink the mad rush for renewable energy that just isn't competitive right now and emissions cuts by 2020 to meet an EU timetable before the right alternatives to fossil fuels are in place.  Until the Government does that we will keep getting ripped off.

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