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Britain’s energy policy? Let good economics decide

Energy policy should be about good economics, not about enforcing a particular lifestyle.

This week, Tory leader David Cameron will be visiting a Norwegian glacier to highlight the threat of global warming and woo the green vote. Ironically, this comes as England and Wales have just experienced their coldest February and March since 1996, according to the Met Office – and there was even a substantial snowfall in southern England days before this April Easter weekend.

In a free society, anyone can choose to go green, even if it is generally more expensive. As societies become richer, individuals become more willing to spend money on the environment. Most people are not desiccated calculating machines; many of us make uneconomic decisions every day about clothes, relationships, food and holidays. That’s because these are lifestyle choices. Yet politicians are now increasingly seeking artificially to impose these usually metropolitan green lifestyle values and the accompanying costs on to the wider population, rather than addressing the real problems.

Energy policy should be about good economics, not about enforcing a particular lifestyle. While the uncertainties of climate change science are real, Britain’s energy predicament is beyond dispute and... more [truncated due to possible copyright]  
This week, Tory leader David Cameron will be visiting a Norwegian glacier to highlight the threat of global warming and woo the green vote. Ironically, this comes as England and Wales have just experienced their coldest February and March since 1996, according to the Met Office – and there was even a substantial snowfall in southern England days before this April Easter weekend.

In a free society, anyone can choose to go green, even if it is generally more expensive. As societies become richer, individuals become more willing to spend money on the environment. Most people are not desiccated calculating machines; many of us make uneconomic decisions every day about clothes, relationships, food and holidays. That’s because these are lifestyle choices. Yet politicians are now increasingly seeking artificially to impose these usually metropolitan green lifestyle values and the accompanying costs on to the wider population, rather than addressing the real problems.

Energy policy should be about good economics, not about enforcing a particular lifestyle. While the uncertainties of climate change science are real, Britain’s energy predicament is beyond dispute and is not being addressed properly. There is an emerging power gap, future geopolitical risks from purchasing supplies from abroad and rising costs, possibly for years to come. These are the issues that government must address first.

A recent example of what is wrong with the current UK debate is the call to arms for microgeneration – mini windmills and solar panels on the roofs of homes used to generate your own electricity. Once you get past the rhetoric, the economics of it don’t add up. Small wind turbines at best cost twice as much as a full-scale windfarms, usually at a minimum of £1.50 per installed watt for small devices. If it were possible to build and find 1m locations for micro wind turbines in the UK – and with our tortuous planning system that has to be in doubt – they would generate even on a good day only one-third of the power of a single one gigawatt nuclear power station. Even then, this would be a mighty achievement. So far, only a few hundred thousand wind turbines of all sizes have ever been built the world over.

Solar economics are even worse given the UK’s pitiable number of sunlight hours and feeble solar radiation. The cost, at about £6 per installed watt, is massive. Of course, if the numbers were to change, then we would all be fans. But until they do, politicians should not be seduced by the micropower lobby. People should buy micropower only if the price is right for them personally.

Investors should look at energy positively and start planning for a long bull market. The world has enormous pent-up demand for energy as living standards rise. The average world citizen still only earns $7,000 per year; billions of people are looking forward to catching up with rich Westerners. That’s why the International Energy Agency predicts that energy consumption will grow by some 50% by 2030. Hydrocarbons – and specifically oil and gas – can’t meet all of that demand at the kinds of low prices enjoyed in the 1990s.

Clean Edge, a San Francisco alternative energy consultancy, estimates turnover in the solar, wind, fuel cells and distributed hydrogen sectors will quadruple to $111bn by 2015 and the biofuels market will triple to $52bn. Nuclear power is now also on the verge of a renaissance, thanks to off-the-shelf designs for power stations and the intrinsic low fuel costs of uranium when compared to gas or coal. This makes it a stable hedge of electricity prices far into the future.

Politicians must stop being dazzled by technology and cease promising vast taxpayer resources to fund already booming industries. For every energy system there is a right and a wrong price, but we need a market to tell us where that is. What policymakers should be doing is encouraging a shift in financing away from government support and regulation to the marketplace, which has already shown itself ready to oblige with new technologies and alternative sources of energy.

Climate science has become a playground for tax-funded scientific studies. There is much doom mongering, to the great delight of the media, which loves lurid headlines and apocalyptic scenarios. But opinion polls suggest we worry about many other things more than climate change, such as terrorism or paying the mortgage. Winston Churchill once said that scientists should be kept on tap, not on top. So what would he make of the Chief Scientific Adviser, a serial alarmist bent on upsetting the American administration and hogging all the headlines? A dispassionate economics-based analysis of energy matters offers us a sure way through the minefield of vested interests – be they scientific, green or industrial. The priority for Britain is to establish an investment-friendly and subsidy-light regime that will in time produce lower energy costs, cleaner energy and increased security of supply. We cannot afford anything else.

Dan Lewis is Research Director of the Economic Research Council www.ercouncil.org



Source: http://www.thebusinessonlin...

APR 16 2006
https://www.windaction.org/posts/2173-britain-s-energy-policy-let-good-economics-decide
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