Energy cold war goes hot

  • 23 Jul 2012, 17:00
  • Robin Webster

Some political fights go on under the table, in corridors and behind the scenes. Some don't, and over the last few weeks, a cold war between the Treasury and the Department of Energy and Climate Change (DECC) over energy policy has 'gone hot'.

The latest salvo comes from Parliament's Energy and Climate Change (ECC) Committee, which has released a report describing the latest energy reforms as "unworkable" and "vacuous" and accusing the Treasury of " imposing policies with perverse consequences". Meanwhile chancellor George Osborne has mounted an all-out push for expanding gas power as a 'core' part of the UK's future energy strategy.

The issue: Britain's future energy mix

What at first appeared to be a fairly a niche tussle over the level of reductions in renewable subsidies to wind power has been revealed over the weekend to be a rather large argument between elements of government - apparently over whether they subscribe to the legally-binding emissions targets contained in the Climate Change Act.

The warring parties

This behind the scenes disagreement has been conducted in a media environment where there are plenty of people who will argue that wind power doesn't work and we need gas for security of supply and to keep household energy bills down. Others counter that onshore wind is a viable technology, future gas prices are at  least as likely to go up as down, and relying on gas for our future power needs will scupper climate targets.

Fuelled by a belief that gas is cheap and wind power doesn't work are the pro-gas lobby -the Daily Telegraph, Daily Mail, backbench Tory MP Chris Heaton-Harris and his cohort of  anti-wind MPs, George Osborne, the Treasury and various right-leaning thinktanks.

Pro-renewables and bothered by continuing government support for fossil fuels are the decarbonisers - the Department for Energy and Climate Change (DECC), energy minister Ed Davey, the Lib Dems, the Guardian, the CBI, the renewable energy lobby, and voices from the investment community who want to put their money into renewables. Despite the attempts of various newspapers to present this as a straight fight between the Tories and the Lib Dems, this camp also includes some significant Tory MPs.

Then there's David Cameron who has remained silent.

The battlegrounds  

1. The Energy Bill

Introduced to Parliament in draft form in March, the aim of the UK energy bill is to reform the UK electricity market, paving the way for a shift to low-carbon energy. It has been met with a cool reception by those who might be expected to carry out or support such a shift, getting strongly criticised by the ECC Committee, the renewables industry, green groups and renewables investors.

According to Tim Yeo, the ECC committee's chair, this is partly because the Treasury significantly influenced the draft bill, including setting a cap on the costs the reforms would place on consumer bills - presumably the result of active (but not always accurate) media campaigns against so-called 'green taxes' on energy bills.

2. Subsidies for wind farms

Back in February, 101 Conservative MPs (and a handful of others) signed a letter to the Prime Minister objecting to the roll-out of onshore wind farms and asking for him to cut subsidies for wind farms.

Over the last few weeks some parts of the media opposed to wind farm expansion appear to have been under the impression that the battle was won and the subsidies would be abruptly cut by a quarter.

Following the release of a leaked letter from George Osborne, it now appears that despite the Telegraph describing it as a done deal, the 25% cut was never agreed - Osborne writes that he will accept a 10% cut to the subsidies, on the basis that the energy department allows the expansion of gas power.

Which brings us neatly to...

3. Gas policy

Back in 2008, the government's advisory body the Committee on Climate Change (CCC) recommended that, in order to deliver an 80% reduction in emissions by 2050, emissions from the power sector should fall to almost zero by 2030.

This would effectively mean that gas would be used to produce electricity only as a backup to wind power, and only with carbon capture and storage (CCS) technology fitted to reduce emissions. And all this in less than twenty years.

The government has so far refused to accept this target, which is not contained in the draft energy bill. In February, DECC announced gas power stations constructed now will be able to emit without restrictions until 2045. The CCC was not impressed, arguing that this leaves the door open for a 'dash for gas', driving up carbon emissions and threatening climate change targets.

Today's leaked letter from Osborne makes it clear that he wants an expansion of gas power - which puts him at odds with the Committee on Climate Change.

When do we find out who wins?

Government energy bills have a difficult recent history - and looking back at bills from  2008, 2010 and 2011 which set out various different visions on the UK's future energy mix, you might fear that the answer is 'never'.

But this time, maybe something is different. Investors are looking for the government to create some certainty in the energy market, which may put pressure on government to make a decision about onshore wind subsidies fairly soon.

Meanwhile, the energy bill is due to be debated in the Autumn, so that particular tussle is going to go on for a bit. The ECC committee's far-reaching recommendations could be difficult to ignore, leading to a bit of rewriting.

As far as gas policy goes, the government argues that it could introduce a limit on emissions from gas power plant at any point. If it wants to - so that one could run and run.

In this case it does appear that Osborne is fighting a very personal battle, and if someone else takes over his job, that could change the dynamic.

But at this point we're into the territory of reading the political runes, so your guess is as good as ours. (Maybe Osborne will be made energy secretary in a reshuffle?)

Finally, if everyone continues to argue ad infinitum, the stand-off will be resolved when the lights all go out and everyone has to sit around in the dark, grumbling.

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