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Thursday, August 11, 2022

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What’s Caused It and What Can Government Do – The Expose

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Net Zero Watch warned Conservative candidates jostling for the party’s leadership that any pledge to continue with a business-as-usual approach to Net Zero will lead to the worst energy cost crisis in British history.

To assess how serious each candidate in the Conservative leadership contest regarded the “cataclysmic” energy cost crisis Britain is facing, two weeks ago Net Zero Watch sent a list of key questions to all candidates to find out where they stand on each of these pressing cost issues. Their questions included:

  • Will you commission a cost-benefit analysis on current Net Zero plans?
  • Will you pause all Net Zero plans that are aggravating the energy crisis?
  • Will you suspend all green levies on energy bills to reduce the energy cost crisis?
  • Will you review all policy initiatives directed toward the 2050 Net Zero target, including the Carbon Budgets, the heat pump targets, and the overly ambitious timetable for the ban on petrol and diesel engines, in light of the energy crisis?

Net Zero Watch aims to highlight and discuss the serious implications of expensive and poorly considered climate change policies. “Increasingly conversations about climate and energy policy are becoming narrow and polarised. Net Zero Watch is here to give you a clear view of the reality of climate and energy policies and what they mean for you,” their website states.  

Net Zero Watch is run by the Global Warming Policy Forum. DeSmog wrote an investigational article on the Forum. Although the article refers to those who challenge the official “climate change” narrative as “climate deniers,” it provides useful information and links to resources for those seeking the truth about climate change – providing you can overlook the author’s obvious and flawed pro-narrative bias.

Before writing their letter to candidates in the Conservative leadership, Net Zero Watch published a short guide to the UK’s energy bills crisis. It consists of 8 pages of text explaining the pros and cons of the options available to the UK government to solve the crisis and then makes some recommendations. The guide begins:

The energy bill cost crisis is the result of failed policy decisions stretching back decades and presents short-term hardship problems that are extremely difficult to address, as well fundamental problems that require long-term reform of energy policy.

The Net Zero Watch Guide to the Energy Bills Crisis

Below are excerpts taken from Net Zero Watch’s guide. To ensure the excerpts are understood in their correct context please read the full guide HERE.

The Causes of The Present Crisis

The current crisis is the result of several interwoven policy failures that have rendered the UK electricity system fragile and vulnerable to shock, with British energy policy since 2002 focused on the development of renewable energy, particularly wind and solar electricity, almost to the exclusion of all other concerns.

Income support subsidies to renewables now amount to over £10 billion a year, and rising. This is drawn from consumer bills, with approximately one-third of that sum hitting households directly, and the rest increasing the costs of goods and services as industrial and commercial consumers pass on their share of the subsidy costs. VAT of 5% is charged to consumers on these subsidy costs.

Coal stations have closed, nuclear is winding down, and the combined-cycle gas turbines that guarantee security of supply have been offered a smaller and very irregular market from which to recover their fuel and, most importantly, their fixed costs.

System balancing costs in the UK have risen dramatically since the introduction of renewables, from about £350 million a year in 2002 to over £2 billion a year at present, mostly due to the presence of uncontrollable renewables.

Transmission system costs have also risen significantly, from about £2 billion a few years back to about £3 billion a year at present, again largely due to the presence of renewable generators.

Many European states have taken a similar path, meaning not only that electricity costs to consumers have already risen to very high levels, but also that consumers are critically exposed to the cost of natural gas, since this is required to guarantee security of supply. This has created the conditions for the emergence of the current crisis.

What Are the Government’s Options?

1. A VAT holiday for domestic energy

VAT, as noted above, is charged at 5% on the supply of electricity and gas to households, magnifying the cost of subsidies to renewables, system balancing costs, and also the rising price of natural gas. Since so much of the VAT take is comprised of a tax on a tax (green levies in this case) there is a case for zero rating, or at least a significant rate reduction, in the current circumstances.

However, it should be noted that the impact of the VAT holiday, though worthwhile, would not address more than a fraction of the likely increase in domestic bills, and it would have no impact on supplies to industrial and commercial consumers.

2. Loans for energy suppliers

It has been rumoured that the government is considering providing £20 billion of support to energy suppliers via bank loans so that the immediate costs of supplying gas and electricity need not be passed on to consumers. This would provide short-term relief, preventing the number of defaulting billpayers reaching critical levels, but it is likely to be inefficient, and would also possibly fall foul of international commitments to reduce subsidies on the consumption of fossil fuels.

Taxpayer support to low-income consumers, for example via low prices of gas in Iran and transport fuel in South America, is widely criticised by climate activists as constituting a subsidy to the fossil fuel industry. It is perhaps unlikely that Greenpeace or similar bodies would challenge the £20 billion as a subsidy incompatible with the Climate Change Act, but it is a possibility.

It would be difficult to ensure that the loans were recovered. While this can be done in principle, one wonders whether any government would be able to do it in practice.

Net Zero Watch, therefore, thinks that these loans would in effect be gifts, and would set a shackling precedent for bailouts to the energy sector. They would also be perceived by the public, to a degree correctly, as gifts to energy company fat-cats, and would therefore be extremely unpopular.

3. Direct support to households

As noted above, subsidising prices indirectly through “loans” to energy companies is likely to be both inefficient and unpopular. The Treasury could, therefore, and in spite of the many difficulties involved, consider a mixture of special direct assistance to household consumers via the tax, pension and benefits systems.

Many will consider that there is a strong moral case for direct assistance to those households on low and fixed incomes since the current crisis is largely the result of state policy. However, further increases in public spending are in themselves highly controversial and may not be affordable for the taxpayers onto whom the burden would be transferred.

Major tax reform to ease pressure on consumer budgets would require immense courage in the Treasury and would have to be accompanied by significant cuts in public spending. However, providing £20 billion of support in this way would certainly be more popular than bailing out energy companies. It is also hard to see how it could be challenged in the courts by environmentalists, and it would avoid setting a long-term precedent of support and price fixing in the energy sector.

4. Suspend the green levies subsidising renewables

Consumers have to carry considerable costs as a result of the deployment of renewables. Direct subsidies – via the Renewables Obligation, the Feed-in Tariff and the Contracts for Difference systems – run to £10 billion a year, but there is a further £2 billion from the high system costs renewables bring to the grid. The government could consider suspending the levies on consumers that fund the subsidies, providing relief to households and businesses directly, through their energy bills, and indirectly through reduced pressure on the general cost of living.

Realistically, however, adjustments to the Feed-in Tariff for small-scale generators (currently costing consumers £1.5 billion a year), are too complex and politically controversial for implementation.

The Renewables Obligation (£6.6 billion a year) and the Contracts for Difference (£2.2 billion a year), on the other hand, are fundamental causes of the current crisis and thus prime targets for reform.

5. Prevent further increases in electricity system costs

The presence of wind and solar is a large part of the reason that system balancing and transmission costs have risen so much over the last decade. Government should act immediately to:

  1. ensure that the costs of intermittency are charged to wind and solar generators, and
  2. that no further expensive grid expansions are permitted. Consumers cannot afford them.

6.  Encourage hydraulic fracturing for shale gas

The government should restart the process of fracking for shale gas, acting promptly to lift the unduly restrictive regulations. However, this would not provide immediate relief to consumers. As with nuclear generation, both for high-grade heat and for electricity, fracking for natural gas is now a medium-term policy. It is essential but it will not address the current acute crisis.

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