Policy Exchange on “certainty for investors”

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There is a good post over at the think tank Policy Exchange arguing against a decarbonisation target for the UK’s electricity grid in 2030.

On the “certainty” this target will supposedly provide to investors:

Those arguing for the target claim it will give investors the confidence to build new turbine and nuclear technology factories in the UK, which the UK can then sell to the rest of the world. However, these investors are already being given a huge chunk of their longed-for certainty. First, they have the Climate Change Act which gives those legally binding 2050 commitments, which no other country has matched. Secondly, the Energy Bill itself is going to provide low carbon generators with decades-long guaranteed prices. Thirdly, the Treasury has agreed to provide around £9billion of support for low carbon generation in 2020 or, more accurately, it has made the commitment on behalf of electricity billpayers as these tariffs will be collected through bills. How much more certainty do you need? Do the amendment’s backers really think that an airy commitment to electricity decarbonisation will entice investors presently unconvinced by the impending cash bonanza?

On our inability to know how much things will cost in future:

The second strike against the amendment is that it is yet another effort to try and plan in minute detail what our energy system will look like far into the future. No matter how detailed or brilliant one’s model, the idea that you can predict exactly what technologies will cost in 20 years’ time, let alone what gas or oil will cost then, is fanciful. It may turn out that decarbonising the electricity sector is actually more expensive than a new low carbon transport technology. The best system we have for dealing with such uncertainty is a market. It would be much better to price or limit the pollutant (carbon) and then allow the market to decide which technologies are cheapest to achieve that level of decarbonisation. The decarbonisation target amendment is just the latest in a long series of climate change targets and sub-targets, none of which have ever sated campaigners’ thirst for more.

On the incompatibility of the decarbonisation target with the existence of the ETS:

The final, and biggest, problem with the proposal is that it will not save much carbon. Because emissions from electricity generation are covered by the European Union’s ETS cap, any additional savings made in one country create slack for others to emit more. British wind turbines will allow Polish coal to continue burning. While the ETS remains in place, the only way to reduce emissions from electricity further is to tighten the ETS cap. A 50g target would be about twice as demanding as current ETS-led emissions reduction efforts, taking the UK well out of step with the rest of Europe.

This final point should be enough to reject the decarbonisation target. What we are looking at here is a likely replay of the 2020 renewables target debacle. At that time the UK government quickly realized it would make the ETS redundant, and wanted to get their way out of it (and also probably because Tony Blair probably signed up for under false pretences). When this was leaked environmentalists were up in arms, and attacked the government for considering going back on the 2020 renewables target. But consider what government officials argued at the time:

“Impact on the ETS: if the EU has a 20% GHG target for 2020, the GHG emission savings achieved through the renewables target and energy efficiency measures risk making the EU ETS redundant, and prices to collapse.

And what happened? The ETS carbon price has collapsed, and is now redundant. There are rather obvious lessons to be learned from this, but it’s obvious many are unwilling or incapable of learning them.

So, we have a choice. We either figure out how to fix the ETS (preferably replacing it with a carbon tax) or we put in place policies that make the central plank of EU climate policy redundant for another decade.