We just need the political will to reduce destructive energy prices

Matthew Sinclair
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OUT of all major economies, politicians in the UK have embraced aggressive climate policy in the most starry-eyed and expensive way. No other country has taken on more ambitious targets, done less to protect industry from the consequences or imposed more draconian unilateral regulations.

We were the only country to set serious targets in the European Union’s emissions trading system from the start. Most of the other countries involved took the opportunity afforded by the system’s lax controls to print money at our expense. According to the think tank Open Europe, this led to a £1.5bn transfer to other European economies over the first phase of the scheme.

We also accepted the most ambitious target to increase the use of renewable energy, and the government is paying lavish subsidies to try and get there. And the more expensive the source of energy, the more generous the subsidies tend to be. Onshore wind gets over £40 per megawatt hour from the renewables obligation, on top of the normal price of energy and the carbon price generated by the EU’s emissions trading system. Offshore wind is more expensive – it gets over £80 per megawatt hour from the renewables obligation.

Citigroup has estimated that meeting our current environmental targets would require £200bn of investment from 2010 to 2020, and paying the profits to justify that investment would increase prices by 50 per cent.

We also have the highest taxes on petrol and diesel in the European Union – 60 per cent of the price that motorists pay at the pumps is tax, and they pay vehicle excise duty on top of that. In theory, the idea is to encourage people to drive less and drive more efficient cars. However, cars are already becoming more efficient, so the Treasury is panicking. It’s now looking for an excuse to “reform” this tax in a way that will allow them to keep on taking motorists’ money anyway.

Our tax on flights – air passenger duty – is also exceptionally high. The EU’s emissions trading system also applies to flights and we are stopping the sector from increasing capacity at the most popular airports. The UK is missing out on new routes from emerging economies that should be bringing tourists and investors to our shores.

The most recent example of our exceptional embrace of expensive climate policies is the new floor under the carbon price. Artificially increasing the price of energy used in the UK will reduce the amount that people emit here. That will reduce demand in the EU’s emissions trading system carbon market and depress the price in the other countries, as they haven’t implemented a cap. It will therefore increase emissions in those other countries. The net result, then, is that the measure does nothing to reduce emissions. It simply means we do more of the work and our industry is handicapped twice: we pay more; our competitors pay less.

The resulting costs to British industry have been enormous. Earlier this year, a Department for Business report estimated that climate policies will add nearly £30 a megawatt hour to energy prices for energy intensive industries here by 2020, while other European countries will pay half that. Families are also seeing substantial increases in their own heat and power bills, and vulnerable elderly people in particular are struggling to pay. Only a handful of politicians have spoken up about it though.

But now things are starting to change. Talented backbench MPs like Dominic Raab and Chris Heaton-Harris are willing to take on the subsidies, and the special interests profiting from them. And within the government, both the Treasury and the Department for Business are trying to limit the rising costs. Owen Paterson, the new Secretary of State at the Department for the Environment, is keen to encourage the British shale gas industry. If he is successful that will further undermine the economics of renewable energy.

More and more politicians are starting to see the case for a more affordable energy policy. Unfortunately, the targets set in Brussels and the major policies enacted already mean that tinkering won’t work. Only a government willing to make serious changes can deliver the lower bills that businesses and families need.

Matthew Sinclair is chief executive of the TaxPayers’ Alliance and author of Let Them Eat Carbon.