March 24, 2009
by Irwin Stelzer
Ed Miliband must be the bravest man in Gordon Brown's Cabinet. Anyone who would agree to serve as Secretary of State for Energy and Climate Change has to be either very dull or very brave. And no one has ever accused this Miliband of lacking brain power.
Miliband's first problem is the contradictory nature of his mission, which he describes as "sustainability, security and affordability". Sustainability means reducing the carbon content of the fuels Britons use to heat their homes, drive to work, cook their dinners and wash their clothes.
But security of supply means making sure the lights don't go out – and that requires a lot more generating capacity that is available all of the time, not just when the wind is blowing or the sun is shining (think coal and nuclear). And affordability is another word for "cheap enough not to tax the budgets of low-income consumers".
Since carbon-free sun, wind and nuclear power cost more than coal and natural gas, affordability conflicts with the goal of reducing carbon emissions, which in turn conflicts with the goal of security of supply.
Miliband took the job knowing that he is inheriting a mess. He knows that the key to the development of a less carbon-intensive energy sector is to put a price on carbon – to make polluters pay. But Britain is in the midst of a recession, and loading extra costs on businesses can hardly be high on the Prime Minister's priority list.
True, there is the European cap-and-trade system designed to price carbon by putting a value on tradable permits to emit CO2. But that price fluctuates wildly, from somewhere around 40 euros to less than 10 euros.. Great for traders in permits, but not so good for entrepreneurs trying to work out whether available subsidies make their wind farms or solar panels cost-competitive with carbon-emitting fuels.
Economists agree that the only way to give renewables a cost target to aim at is to tax carbon – but the political will to do that is no more evident in Britain than in America.
Miliband also has to contend with the incoherence of his green constituency. The environmental lobbyists want wind power, but are great advocates of Nimbyism – not in my back yard – nor anywhere that might interrupt the view anywhere they might choose to visit. They want carbon-free generating stations, but oppose new nuclear plants for reasons ranging from unhappiness with the methods available to dispose of nuclear waste to the risk of terrorism.
To make matters worse, Miliband has decided to postpone a decision on the new coal-fired plant due to be built at Kingsnorth in Kent. This pleases environmentalists, but threatens to make it more difficult for Miliband to meet his goal of security of supply and, crucially, postpones the development of clean coal technology. The Secretary of State recognises that "by 2020 a third of our power plants will be closed due to age or rising environmental standards"; that producers of renewables are as caught in the credit crunch as other businesses; that the fall in the price of oil from its lofty $140 level has caused the cancellation of many renewable energy projects; and that a resumption of economic growth will increase the demand for energy, even if sensible conservation efforts are successful. Given the lead time required for the construction of any project – green or otherwise – he must decide, soon, just where the power will come from to keep the lights on.
Then there is the question of jobs – the jobs that Miliband claims will be created by Britain's new energy economy. The revival of the nuclear industry would, under ordinary circumstances, deliver just the sort of high-value employment the Prime Minister says is crucial for Britain's future prosperity. But Areva, 85 per cent owned by the French government and scheduled to handle the construction of at least 10 new nuclear stations in Britain, has announced that the really good jobs will be reserved for workers in its factories in France, with British firms eligible to bid only for the low-value work. Free trade has never appealed to President Sarkozy, who holds Areva's purse strings.
There's more, including Miliband's inability to get his EU partners to make the investment needed to dilute Europe's dependence on Russian natural gas by tapping the resources of the Caspian Sea, and the difficulty inherent in favouring more costly renewable energy sources and at the same time stating that "it is no part of my climate change strategy to drive the most vulnerable consumers into fuel poverty".
Perhaps most difficult for the Secretary of State will be to overcome the barriers to his goal of making the UK "the best place in the world to locate or build a low-carbon business". Britain is becoming mired in debt, which any entrepreneur will know means swingeing increases in taxes, in addition to the Prime Minister's planned increase of the top marginal income tax rate to 45 per cent. Also, dealing with the multiple bureaucracies that stand between an entrepreneur and the ribbon-cutting on his new venture is beyond irksome. Miliband will have to leave the solution – or not – of those problems to his colleagues. He has problems enough to tax his formidable intellect and consensus-building skills.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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