That is one thesis of Dieter Helm’s latest
report for the UK government, a review of the cost of energy. Helm attempts
to bring some rigorous economic analysis to economic and environmental policy
that has often appeared to consist largely of ad hoc patches and “initiatives”.
However the report has attracted criticism,
notably from Richard Black, Director of the Energy and Climate Intelligence
Unit, who argues that the report is lacking on evidence, even on such simple
questions as the actual extent of energy price increases, or whether the UK
really is seriously out of line with other European countries.
One particular criticism appears to hit home, the accusation
that Helm has simply cherry picked the data, using 2004 as a base year, even
though it was characterised by unusually low energy prices. This, Black claims,
is the kind of dishonest twisting of evidence practised by climate policy
sceptics such as Lawson and the Global Warming Policy Foundation (whose work is addressed on
another page). However the broader divide is between Helm, who, like many
economists, has a strong preference for more direct carbon pricing approaches,
and Black, who argues that in an imperfect world, we should be more prepared to
accept a “mixed” approach.
There are other nuances. Black attempts to link Helm with
Lawson, both having been significant witnesses in front of the House of Lords
Select Committee, whose rather inadequate report appeared earlier this year.
This seems unfair to Helm. I have commented
before[1]
on the weaknesses of the Select Committee report but Helm has little in common
with Lawson’ refusal to accept the evidence and logic for warming provided by climate
science.
It’s worth making a number of points on the general subject
of energy prices and carbon taxes and their place in relation to climate policy.
Regular readers of blog will have heard some of these arguments before, so
please excuse the repetition.
First, the exchange rate is a much more important driver of
international competitiveness than energy. Significantly we have heard very little
about industrial energy prices since the Brexit induced fall in sterling. In
part this may be because Brexit is a much more serious existential threat to
the UK economy, but mainly it will be because the UK comparative position will
now look much better.
Second, economists rightly stress the virtues of a rational approach
which far prefers a transparent carbon tax or price to ad hoc policy interventions
that can have unfortunate or even perverse consequences. However, as Black
clearly feels, the real world is sometimes more complicated. The truth is that
the EU ETS, the only international carbon pricing mechanism to which we
currently have access, has been a dismal failure, not producing a realistic
carbon price, and again this has been the subject of
earlier commentary. Unsurprisingly most member states have adopted
additional measures in a similar manner to the UK.
Third, if the UK were to adopt carbon taxes at a level that reflected
the long term social, environmental and long term damage, it would need to be fairly
substantial. A figure of £100/tonne of CO2, for example, which is
well above most estimates of the point at which baseload nuclear becomes
economic, but well below any estimate of the carbon sequestration from the atmosphere,
would add nearly 4p/kWh to the unit price of electricity generation (given the
current mix). This is if anything rather higher than the cost of current policies.
This should help us put the issue in perspective. It is of
course true that recovery of public policy costs through utility prices is an
unsatisfactory way of doing things. As we may see, in future comments, it is an
approach that becomes unsustainable in a world where, increasingly, customers
can try to escape this form of “tax” through their own generation. But that is an interesting subject for
another day.
