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Telegraph £300 energy bill headline makes the usual mistakes

  • 05 Sep 2011, 16:30
  • Robin Webster

What will affect the future cost of our energy? The latest move in the campaign to shape public opinion on fuel bills come today with the publication of a front-page headline by the Telegraph - "Environment policy reforms to add £300 to energy bills". This has been followed up by a wide range of media outlets including the Mail and the Guardian.

The story is based on a leaked briefing from Senior Energy Advisor to David Cameron and former BP executive Ben Moxham - printed by the Telegraph here.

The briefing starts

"Prime Minister, Your seminar on Green Deal implementation raised a number of wider questions about the impact of energy and climate change policies on energy prices, the impact of our renewables target in particular, how well the electricity market is operating, and what can be done to minimise consumer bill increases in the short and medium term."

Later on it says

"DECC's analysis finds:
Our policies would have a relatively small impact on household gas prices
Our policies would increase household electricity prices by 25% in 2015 and 30% in 2020 compared to what they would have been in the absence of policies".

and later

"DECC's mid-case gas price scenario sees policies adding 30% to consumer energy bills by 2020 compared to a world without policies."

The Telegraph use this line as the justification for their '£300' headline figure.

We have covered the use (and misuse) of these kind of analyses in the past, and here again there are two issues which can be raised with the Telegraph's interpretation of the document.

This first appears to be a mistake. The price rise Moxham quotes seems to be for electricity bills. As more of an average energy bill is spent on gas than electricity, this overinflates the headline figure - Damien Carrington notes in the Guardian:

"A source in Westminster tells me that Moxham was clearly referring to electricity alone when he suggested a 30% rise by 2020, meaning the rise would be about £135, but that the sentence was sloppily written."

£135 is (very approximately) 13.5% of current energy bills - to map the overall effect, you'd need to look at gas as well.

The second issue is a legitimate disagreement between DECC and Moxham, which isn't reflected in the Telegraph's headline.

DECC base their analysis of future energy bills on the assumption that energy efficiency measures (for example increased home insulation) will reduce household consumption of energy - so while prices go up energy bills may remain steady or even go down. While DECC predict that climate change and energy policies will cause gas prices to go up by 18% and electricity prices by 33% by 2020, they estimate (as of July 2010) that because of reductions in energy use

"compared to the counterfactual scenario in which climate change and energy policies do not have an impact on energy bills, on average, domestic energy bills will be 1% higher in 2020."

Moxham's briefing notes DECC's argument, but rejects it:

"While the rest of the analysis seems broadly plausible, we find the scale of household energy consumption savings calculated by DECC to be unconvincing. Their analysis may be based on the assumption that many energy efficiency measures will be taken up without subsidy, whereas we believe a large number of measures will need to be subsidised given, the hassle factor and other barriers to consumer uptake identified at the Green Deal implementation meeting. We are interrogating DECC's assumptions further."

This seems reasonable, and as BusinessGreen pointed out today

"even green NGOs have questioned whether the proposed Green Deal loan scheme can, in its current form, deliver the full-blown energy efficiency revolution required to help cut average energy bills."

However, it's worth noting that in rejecting DECC's figures on the basis of Moxham's query, the Telegraph's headline figure of £300 effectively assumes any energy efficiency measures or policies will have no effect whatsoever on reducing household energy bills.

DECC"s response (in the Guardian) is fairly robust:

"Reforms will not add £300 to bills. Our policies will both add and subtract from future bills because we need to build new reliable energy sources to keep the lights on, but we'll also be helping people to cut their bills through greater energy efficiency".

They pointed out to us that:

"Sustained higher prices for fossil fuels reduce the cost of some energy and climate change policies, lowering the cost passed onto consumer bills. For example, at an oil price of around $150 per barrel in 2020 and gas price of around 120 pence per therm, climate change and energy policies would have the effect of reducing bills in 2020 by around 5% compared to a bill excluding these policies."

In other words, fossil fuel price increases and volatility will increase energy bills, and measures which reduce consumption and shift production away from fossil fuel sources are a way of hedging against this.

Finally, it's worth noting that this latest leak appears in the context of a wider campaign to associate energy bill increases with 'green taxes' - a campaign started by the Daily Mail and initially based on figures sourced to Nigel Lawson's GWPF (and as we have pointed out previously, some of the figures relied upon by the Mail are of dubious provenance and tend to collapse on closer examination.)

As BusinessGreen puts it

"It is apparent that someone in Downing Street is keen to simultaneously destabilise Chris Huhne's low-carbon agenda and signal to the Tory faithful that the prime minister is not happy about green taxes. It is a case of crass political point scoring over one of the most significant challenges the UK faces."

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