The particularly sad and venal story of that loan guarantee is just one example of how attempts to secure green growth so often end in disaster. The pattern is clear. Huge amounts of consumers’ and taxpayers’ money wasted; the promised boon to employment not living up to its billing; and a nasty aftertaste of cronyism.
There are spectacular amounts of money at stake here in Britain. According to research from Citigroup, our energy sector needs to invest €229bn (£200bn) to meet environmental targets by 2020. That’s more than in Germany (€87bn), France (€60bn), Spain (€53bn) and Italy (€23bn) put together.
Paying for that investment will require higher profits for the sector. Paying for those profits will require higher prices, up to 50 per cent in real terms. And that will mean higher bills for consumers. Citigroup thinks dual fuel bills could rise by over a third in real terms despite improvements in energy efficiency – and before paying for improved insulation – and that the sector is facing an “affordability crisis”. The problem is exacerbated because politicians pick losers and give the biggest subsidies to the least efficient sources of energy.
The huge investments needed to meet climate targets aren’t just expensive, they are risky. There is construction risk. For example, nuclear plants often overrun and the industry has little experience of the operating costs of offshore wind turbines, or even how long they will last. There is power price risk. With a weak international economy, oceans of shale gas being discovered and instability in the Middle East slowly subsiding, fossil fuel energy might be more affordable than expected. And there is policy risk. Across Europe, governments have responded to the rising cost of their energy policies by cutting the subsidies – as in Spain – or imposing special taxes to get the money back – as in Germany.
All that risk deters investors and makes it increasingly unlikely that we’ll meet our green targets.
The government has responded with a range of measures that transfer the risks from energy companies to the rest of us. The electricity market reforms transfer power price risk to the consumer. The Green Investment Bank, if it is going to be effective, will mean taxpayers’ money is on the line if green investments don’t work out. These desperate measures don’t look like they will be sufficient to secure the investment needed to meet environmental targets but they do up the ante. If things go well, then the special interests who have lobbied for these measures make a fortune; if they don’t, then we pay an even higher price.
Will this tidal wave of money create jobs? Is the Humber Estuary Renewable Energy Super Cluster really what our struggling economy needs?
The arithmetic only works for green jobs if you don’t just supply your own market but capture large export markets as well. Many countries hope to be major net exporters of equipment like solar panels and wind turbines, and in a competitive world with limited demand, most of them will be disappointed. At the same time, rising energy prices will certainly cost investment and jobs in energy-intensive industries such as steel and chemicals.
Even in mighty Germany, academic studies suggest that over time support for renewable energy costs more jobs than it creates. The sun definitely isn’t shining on their solar photovoltaic industry. Firms like Q-Cells, Conergy and Phoenix Solar are losing money and losing market share to lower cost Asian rivals.
The attempt to ration fossil fuel energy brings unprecedented government interventions in the economy, making political connections more and more important. A major Solyndra investor was also a prominent fundraiser for Obama, and visited the White House a number of times before the loan guarantee was approved. Energy companies lobbied energetically for the carbon floor price here and Credit Suisse estimates the floor could yield it a £7bn profit. But the regulation won’t reduce emissions by a gram: it doesn’t alter the overall emissions cap, and will reduce the carbon price in the rest of Europe to the extent it increases it over here.
Major emitters like China, India and the United States are not going to adopt the kind of draconian regulations and targets we have. We need to rethink the fundamentals of our approach to cutting emissions. Focus on research and development that doesn’t deploy prohibitively expensive sources of energy. Stop taking more and more risks pursuing the current approach. We can’t afford more failed bets on bad climate policies.
Matthew Sinclair is the director of the TaxPayers’ Alliance and the author of Let Them Eat Carbon, a new book on climate policy.
The arithmetic only works for green jobs if you capture large export markets as well.