Article

Energy prices must rise to fight climate change

Declaring that climate change is a real and serious threat won't raise too many eyebrows these days. But where the debate really starts to warm up is in asking how much energy consumers should pay towards eradicating the threat of climate change. Soundings by Ofgem suggest that most people expect a reduction in emissions to come at a price. What's not clear is whether the amount people anticipate paying will match what they may be asked to pay.

Alistair Buchanan asks how much we should pay in our energy bills towards eradicating the threat of climate change.


Declaring that climate change is a real and serious threat won't raise too many eyebrows these days. But where the debate really starts to warm up is in asking how much energy consumers should pay towards eradicating the threat of climate change.

Soundings by Ofgem suggest that most people expect a reduction in emissions to come at a price. What's not clear is whether the amount people anticipate paying will match what they may be asked to pay.

Consumers are already feeling the effect of a number of schemes supporting energy efficiency and renewable energy. About 15 out of the average yearly household bill pays for green schemes - arising largely from government initiatives and a major European Union plan.

In the UK, the Renewables Obligation supports expansion of low-emission electricity generation and the Energy Efficiency Commitment requires companies to provide consumers with energy-efficient products and advice. At the same time, the pan-Europe Emissions Trading Scheme requires generators to reduce emissions while allowing them to buy and sell emission allowances.

The Renewable Obligation grows tighter each year and the second phase of the European scheme, starting in 2008, will place stiffer limits on generators.

In other words,... [truncated due to possible copyright]  

Alistair Buchanan asks how much we should pay in our energy bills towards eradicating the threat of climate change.


Declaring that climate change is a real and serious threat won't raise too many eyebrows these days. But where the debate really starts to warm up is in asking how much energy consumers should pay towards eradicating the threat of climate change.

Soundings by Ofgem suggest that most people expect a reduction in emissions to come at a price. What's not clear is whether the amount people anticipate paying will match what they may be asked to pay.

Consumers are already feeling the effect of a number of schemes supporting energy efficiency and renewable energy. About £15 out of the average yearly household bill pays for green schemes - arising largely from government initiatives and a major European Union plan.

In the UK, the Renewables Obligation supports expansion of low-emission electricity generation and the Energy Efficiency Commitment requires companies to provide consumers with energy-efficient products and advice. At the same time, the pan-Europe Emissions Trading Scheme requires generators to reduce emissions while allowing them to buy and sell emission allowances.

The Renewable Obligation grows tighter each year and the second phase of the European scheme, starting in 2008, will place stiffer limits on generators.

In other words, households will pay more for green schemes in their energy bills. In addition, Ofgem has approved an increase of about another £5.50 a year to fund £10bn worth of investment to upgrade Britain's electricity networks - some of that will help connect new wind farms and other green generation.

So how will consumers respond to a further hike in energy bills to cover the cost of protecting the environment?

Much will depend on their understanding of the issue - so we asked householders how they saw their involvement in tackling climate change. This was part of a programme at Ofgem - called Consumer First - to delve deeper into consumers' concerns about their energy consumption.

Two key elements emerged. First, there is a willingness to pay more to tackle climate change. Second, there is a spread of opinion on the threat of climate change. Consumers get the message that careful consumption cuts emissions and bills. But they want to see, very clearly, what exactly is behind any green premium. They want clarity from government on this and they want it itemised on the bill from suppliers.

The Consumer First project is a manifestation of Ofgem's priority, which is to protect consumers' interests. That means considering consumers in the future as well as those today. We fulfil that duty by promoting competition to help keep prices in check and by controlling the revenue and expenditure of the network monopolies to make sure that there is the right amount of investment in infrastructure.

The Government, in its recent Energy White Paper, demonstrated that it and Ofgem share the view that this approach, based on competitive markets and independent regulation, is central to achieving the UK's environmental goals.

Ofgem's most direct environmental work is on the electricity and gas networks where we exert controls on their revenues. For example, we incentivise the connection of small power plants - including renewable generators - to the regional networks, which reduces power wastage by bringing the generator closer to the consumer.

And we do vital engine-room work to administer the Renewables Obligation and the Energy Efficiency Commitment. Meanwhile, Ofgem promotes competition, which reins in the cost of stemming climate change.

Ofgem's part in tackling climate change is largely one of creating conditions where green initiatives can work while keeping the costs in check.

A good example is our recent relaxing of the rules governing the suppliers. This will make it easier for customer deals where the supplier sells them household electricity generation, such as a wind turbine, or energy-saving measures, like insulation, rather than just selling more energy.

Our rule changes could open doors for advanced metering, which can help people cut consumption by showing not just how much energy they use but what it is costing. The sight of hard cash being spent could prove just the incentive to stop leaving the TV on standby, for example.

These and other measures create opportunities for householders to use energy more efficiently, which will cut the emissions they are responsible for.

At the same time the measures reel in price rises - a vital consideration for those on low incomes and vulnerable to fuel poverty.

For a long time the UK had low energy prices, which made energy efficiency a tough sell. We had major gas reserves in the North Sea and Ofgem's work over successive years has brought bills down.

But recently, the beginning of the end of our self-sufficiency in gas has exposed the UK to price rises in global markets. Markets being markets, those effects are now receding as competition has attracted new sources of gas.

Those forces will remain in play but the rising influence is the environmental one. And it is one that will carry on well into the future.

Clearly the decisions on how to heat and light our homes are no longer simple ones and the demands of combating the greenhouse effect means the costs involved will no longer be trivial. Householders will have to deal with some inconvenient truths. Ofgem will endeavour to ensure that efficiency and transparency in the market makes those truths clear and that the bill is a fair one.
*


Alistair Buchanan is chief executive of Ofgem, the UK's energy regulator



Source: link missing! please notify us

JUN 12 2007
https://www.windaction.org/posts/9424-energy-prices-must-rise-to-fight-climate-change
back to top