House
of Lords Select Committee on Economic Affairs. The
Price of Power. Reforming the Electricity Market. February 2017.
Perhaps the most controversial
element of the Committee’s report lies in those of its recommendations which would
have the effect of downgrading the sustainability objective aimed at reducing
UK emissions. Whether the Committee might have felt emboldened by the election
of climate sceptic Donald Trump, or the success of the Brexit campaign[1], will no doubt be a matter
for political scientists to discuss. A degree of comfort to climate sceptics might even be considered ironic, given
the current House of Lords stance in relation to the triggering of Article 50. What is more disturbing is the absence of any
serious evidence or analysis in the report to justify such a major change of
stance in relation to the “energy trilemma” of sustainability, affordability
and security. Ultimately these choices are indeed partly economic, especially
in the affordability/ security trade-off, but the main issues in relation to
sustainability have become essentially ethical and political, involving as they do,
inter alia, considerations of intergenerational equity.
The Committee began with the intention
of examining market failure in the power sector. Inadequate means to reflect into
actual costs and prices the irreversible environmental damage of CO2 emissions,
the “social cost of carbon” externality, is arguably the biggest market failure
of all by a significant margin. A number of those giving evidence[2] drew attention to the
issue, but the Committee nevertheless proposes a downgrading of the importance
of the corresponding policy objective. It does this without solid argument, and
perhaps more importantly without having taken much evidence relevant to a comparative
assessment of the urgency attaching to climate objectives. In global terms this
includes both growing scientific concern with climate change as an existential
threat (eg over Arctic ice), and growing political acceptance of the need for
urgent action as manifested, despite its shortcomings, in the Paris agreement.
The Committee has preferred
instead to retreat to the letter of the 2008 Act and the 2050 target, arguing
for a slower pace of emissions reduction towards that single year target. This
in itself is somewhat disingenuous, given that attachment to arbitrary target
dates is criticised elsewhere in the report. It is a rather obvious truth[3] that the real objective in
reducing emissions has to relate primarily to cumulative carbon dioxide in the
atmosphere, not to an annual emissions figure for an arbitrary year. Inter alia this
tends to imply that current emissions reduction should be valued even more
highly than future reductions.
The proposal that the pathway
to 2050 can be back-end loaded is beguilingly simple but in reality is very
misleading. A globally back-end loaded
reduction profile implies substantially higher cumulative emissions, and
earlier and bigger climate impacts. Early reduction in emissions in contrast
has substantial options value in postponing by several years both cumulative
CO2 and climate milestones, as well as the need to spend large sums on adapting
to adverse consequences of climate change[4]. In each case this means
more time to address the most difficult parts of the emissions reduction
problem (eg aviation) and the unknowns associated with adapting to impacts of
climate change.
The Committee’s proposal has
therefore the potential to be extremely damaging, at least to the UK’s
contribution to climate change mitigation, and, if copied elsewhere, on a
global scale. The only defence for this position that can be inferred from the report’s
approach is that because the UK remains a small contributor to global emissions
(c. 3%), it should therefore be willing to free ride on the efforts of
others. This is hardly a principled position. The Committee has made itself a cheerleader
for those parts of the energy industries that hope if they can postpone
effective action for long enough then the problem will go away. It won’t.
Overall, and despite some useful
content and evidence, this is a disappointing report, failing to recognise a
number of changing paradigms both in the nature of the electricity sector and
in the global environmental challenge. But on the key issue of sustainability
it is a shortsighted and retrogressive attempt to downgrade the most
fundamental challenges for energy policy, the growing existential threats of
unmitigated carbon emissions and climate change.
[1] Ideological leanings and demographics may play a
strong role in determining views on both climate issues and Europe. CLIMATE CHANGE AND POLITICAL STEREOTYPES
[2] For example in the
submission by Professor
Hepburn and his colleagues.
[3] The arguments, for anyone not familiar
with them, are spelled out on another page of this blog, CUMULATIVE CARBON.
[4] Fuller
discussion on this topic can also be found in the author’s earlier paper. Cumulative Carbon Emissions And Climate
Change: Has The Economics Of Climate Policies Lost Contact With The Physics?,
John Rhys, OIES Working Paper EV 57, July 2011.
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