Gas power could push up energy bills, says Committee on Climate Change as government gives go-ahead to fracking
- 13 Dec 2012, 15:55
- Robin Webster and Christian Hunt
The Committee on Climate Change's (CCC) new
report warns that electricity bills could be £600 higher in
2050 if the UK relies on gas rather than switching to a low-carbon
power system. But on the
Today programme this morning John Humphreys accused the head of
the CCC of "disregarding" the potential impact of cheap shale gas
on lowering energy bills. As the UK's energy future continues to
look uncertain, we look at the CCC projections.
Energy bills up to 2020
In the report, the CCC reiterates its
earlier assessment that green policy measures will add around
£100 to consumer energy bills by 2020.
Energy efficiency measures will reduce bills a bit, but
increasing wholesale energy costs, costs from environmental
policies and the cost of paying for upgrading energy transmission
networks will push bills up overall.
The CCC points out that households which rely mainly on
electricity for heating will see a bigger impact - up to £400 (See
page 27). Policies will be needed to limit this effect, the CCC
say.
It's important to note that this applies to around one in ten
households - because
we've seen it misreported before.
Energy bills after 2020
The CCC argues that after 2020 switching to renewables and
nuclear will result in lower price rises for consumers than relying
on fossil fuels - if a rising carbon price increases the costs of
fossil fuels. These figures aren't explained in the report - they
presumably will be in supplementary information the CCC tells us it
will be publishing this week.
The report projects that household energy bills will increase by
£25 between 2020 and 2030 if the power sector is largely
decarbonised. If it's not, household bills would increase by £50
over the same period as a result of the carbon price. If gas prices
rise, bills could increase by another £70 on top of that.
£600 extra?
In its press release, the CCC says continued reliance on gas
"carries the risk" of electricity bills being "up to £600 higher
than under a low-carbon system over the next decades".
The use of the slightly vague phrase "over the next decades"
caused some confusion, with the Guardian suggesting that consumer
energy bills would be £600 higher by 2020. This has now been
corrected online.
Making projections to 2050 is obviously difficult. It's
important to note that the £600 figure is at the higher end of a
spectrum of possible price rises the CCC suggests. We've pointed
out before such soundbite figures inevitably rely on a
particular set of assumptions, which are usually missed out of
press releases and subsequent media reports.
The report itself doesn't detail the figure much further, but a
CCC spokesperson directed us towards Figure 5.4 in the report,
which compares how much electricity will cost under a set of
different future scenarios. Red scenarios are gas based, green are
low carbon, and the scenarios differ in whether gas and carbon
prices are low, medium or high:
The spokesperson told us:
"...the difference in wholesale
electricity price in the low-carbon world (central technology
prices) and the gas based world, high carbon and gas prices, is
18.1 p (8.3 compared with 26.4) An extra 18 p/kWh for a household
consuming 3,400 kWh per annum is over £600 per year."
This high-cost scenario depends on two key assumptions about the
future:
A rising carbon price
Perhaps the most important assumption the CCC makes is that we
are heading into a "carbon-constrained" world. Its projections
assume that carbon prices will continue to rise over the next few
decades as carbon emissions are reduced.
Given the slow progress of the international climate
negotiations, this seems quite optimistic. But the CCC's role is to
act as an advisor to the government on how it can deliver on the Climate Change
Act, and the report should be read in the context of the Act's
requirements to cut UK emissions 80 per cent by 2050.
The CCC models the impact of three different carbon prices -
low, medium and high. The low and medium projections are based on
the government's projections. The CCC's medium assumption is that
carbon costs will rise to around £200 per ton of carbon dioxide in
2050.
The highest projection is based on modelling undertaken for the
CCC by University College London (UCL). According to the report
this:
"...suggests that carbon prices in 2050
could reach around £500/tCO2 even with an active global carbon
market taking advantage of trading opportunities to minimise global
abatement costs"
The three carbon price projections are illustrated in the
following graph:
It's worth pointing out that the highest carbon pricing (UCL)
scenario is significantly higher than the government scenarios, and
it's this scenario which underpins the £600 by 2050 figure. £500
per tonne is a high carbon price. We haven't looked at the
modelling in detail, but should you wish to scrutinise it,
figure 3.2 on page 17 of the UCL report is the source.
To put this in context, the carbon price has stood at around
£5 per tonne of carbon in 2012, or £18 per tonne of carbon
dioxide. The CCC says that the government projects the carbon price
will rise to £32/tCO2 in 2020 and to £76/tCO2 in 2030.
Gas prices
What about cheap gas? On the Today programme this morning, John
Humphreys accused the chief executive of the CCC, David Kennedy, of
"disregarding" the potential effect of cheap shale gas in the CCC's
projections.
Back in May, the International Energy Agency (IEA) released a special
report examining what would happen to global gas prices if
there was a significant investment in producing shale gas around
the world. In its "golden age of gas" scenario, it found that shale
gas would have "far reaching consequences for global energy
markets" and bring down gas prices in the States - but it would
have less impact in Europe.
The IEA's projections for European gas prices are broadly
comparable to DECC's 'central' gas price projections, as shown in
the CCC's report:
So Humphreys is right that the top-line figure of a £600 price
disregards the potential impact of shale gas - it is a high end
prediction, based on a high gas price scenario.
A high carbon price means gas is expensive
The
modelling the CCC used to support their high carbon price level
in 2050 is beyond our ability to analyse. The CCC tells us it will
be publishing the supporting calculations and other modelling their
assessment is based on this week. It's a shame that it wasn't
published with the report - it will be no doubt picked over in some
detail in the coming days.
The £600 headline figure rests on substantial assumptions - that
gas prices won't fall, and that the carbon price will rise very
dramatically as we approach 2050. It should clearly be taken as one
end of the spectrum of possibility.
But it's worth pointing out that the analysis seems to indicate
that even under a future where there is significant expansion of
shale gas around the world, it could still be cheaper for the UK to
switch to a low carbon energy system, if the carbon price continues
to rise.
It may not seem that surprising that in a hypothetical future
where gas prices are high and there's a high carbon price, running
an energy system on unabated gas is expensive. This is presumably
the point of the report - if we tackle climate change, gas will be
an expensive way to run an energy system in 2050.
There are some good points made about the £600 figure and
carbon capture and storage technology on the
Carbon Counter blog.