European energy policy is currently driven by climate change policy; the aim of ‘decarbonising’ the economy has become paramount. But once governments accept the need to do something, they tend to produce needlessly complex systems which ultimately can be counter-productive. Thus, governments need to raise revenue for their expenditure on social goods, but the (superficially simple) tax code in the UK ran to 11,520 pages in 2009, having doubled in length since 1997. Such complexity needs an army of bureaucrats and, despite constant efforts to close loopholes, encourages avoidance.
As with tax, so with climate change and energy. Rather than define the objective – phased reduction of carbon dioxide emissions – and construct a framework which allows this to happen in the most efficient and flexible way, policymakers have been unable to restrain their instinct to control the detail. Rather than introduce a simple, flat-rate carbon tax (simple being a relative term, of course), an expensive, flawed cap and trade system has been set up, which has demonstrably failed to achieve its objectives.
Take the emissions reduction target itself. A 20% reduction by 2020 has a typical EU simplicity about it; you can argue about whether it is achievable or even necessary, but it’s certainly clear. However, not content with this, the Commission devised the 20:20:20 plan, whereby the emissions reduction would be in tandem with a 20% increase in energy efficiency and a 20% use of renewable energy in the overall mix. For the sake of a snappy headline, achieving the primary objective has become more complex and inefficient.
Good objectives should give clear incentives to all those involved to encourage their compliance. Current energy policy, on the other hand, gives perverse incentives, which either work against the primary objective of emissions reduction or have other unintended negative impacts. Perhaps the most obviously wrong element is the policy on biofuels. Having decided, in their wisdom, that all sectors must share the burden, EU member states agreed incremental targets for the inclusion of biofuels in petrol and diesel. The USA has also enthusiastically followed this route.
Targets for (subsidised) biofuels have had very little impact on road transport CO2 emissions. Although getting the figures together wouldn’t be easy, it’s highly likely that the increasingly efficient engines in new cars are having a significantly greater impact. On the other hand, current technology means that biofuels are made from food crops, ethanol largely from maize and sugar cane and diesel from palm and rape oils. This has been an important factor in pushing up food commodity prices in 2008 and since.
Additionally, most biofuels save only a proportion of the emissions theory might suggest, once energy used for growing, harvesting and processing are taken into account. If the emissions from ploughing new farmland are included, the situation just gets worse. The message is that backing a specific route to achieve an objective rather than setting the objective and facilitating all and any routes to its achievement is not a sensible option.
The situation with renewable energy is similar. EU member states are committed not just to reducing emissions but to investing heavily in renewable energy technologies – wind and solar power – at the same time. No matter that replacement of coal by gas, or fossil fuels by nuclear power could achieve the targets much more efficiently; the rules say that operators of wind farms and photovoltaic panels are to be rewarded with generous feed-in tariffs, without which investment would simply not happen. Even worse, home-owners are given even larger subsidies to install solar panels on their roofs, implicitly suggesting that small-scale, distributed generation is in some way preferable to more efficient, larger-scale installations.
The consequences of this policy are now becoming more and more obvious. While it is true to say that the additional cost to consumers of these energy policies is quite small in countries such as the UK where renewable energy penetration is itself quite low, chickens are coming home to roost elsewhere. Germany in particular has been in the forefront of renewable energy expansion, and German consumers now pay the second highest electricity prices in Europe (second only to Denmark, which has a very large amount of wind generating capacity, while depending on neighbouring countries for reliable backup).
Germany has both the largest number of photovoltaic panels in the world (draw your own conclusions about the sense of that in northern Europe) and a large amount of wind generating capacity. These sources not only produce a lot of electricity (some 120 TWh last year) but raise utility bills rather significantly. The subsidy is paid via a consumer surcharge, which will increase from 3.6 cents per kWh this year to 5.3 cents per kWh in 2013 (German green power tariff to rise 47% in 2013). The total paid will amount to over €20 billion.
Money well spent, some might say, to reduce carbon dioxide emissions. The problem is that their impact seems to be rather small. Estimating emissions from different sources can be a tricky business, but quite comprehensive figures are available from the European Commission (EU Energy in figures 2010) and the International Energy Agency (World CO2 emissions from consumption of energy) and I am indebted to Dr Jack Ponton of the Scientific Alliance Scotland for analysis of these. They show that while German renewable energy generation nearly tripled between 2002 and 2011 (from just over 40 to 120 TWh, about 20% of total electricity supply), total CO2 emissions fell by just over 4%.
Over a longer period, from 1991 to 2011, emissions across all sectors fell by 11.9% as the contribution of renewable energy to the electricity supply went from 3.1 to 20.1%. But emissions from power generation and domestic heating remained almost static while the use of renewables increased so fast. Half or more of the total reduction was due to lower energy use by energy-intensive industries.
The conclusion must be that setting targets for renewables was an expensive and ineffective mistake. Allowing competition between various ways to reduce emissions (including nuclear generation, replacement of coal by gas, and energy efficiency measures) would surely have achieved greater reductions at lower cost. Unfortunately, the UK and other member states still seem set on following the same road as Germany. In the light of evidence such as this, politicians should be reviewing objectives for the benefit of everyone.
The Scientific Alliance
St John’s Innovation Centre
Cowley Road
Cambridge CB4 OWS
__________________________________________________