Global warming agenda to hit living standards
LOOKING at the scale of the fiscal correction needed, does anyone seriously think that a major new burden on the households who rely on benefits the most is remotely affordable?
Politicians are clinging to their climate change policies but that is going to become increasingly untenable as the costs mount.
Citigroup expect that in order to meet environmental targets, €229bn (£200bn) will need to be invested in Britain’s energy sector alone. Paying for all that investment will take higher profits and higher prices. They believe it will require a 52 per cent increase in dual fuel bills above inflation.
The government thinks it can avoid putting more pressure on families by improving energy efficiency. But someone needs to pay for all that investment. Citigroup says that even with energy efficiency gains there will be a 35 per cent increase in bills, and that’s before paying for the insulation work which could offset the savings.
It is no accident that cutting emissions is expensive. Ever since the Industrial Revolution, growth has been associated with using fossil fuels more and emitting more carbon dioxide. While we get more efficient over time, and can try to accelerate the process, cutting emissions too quickly will almost certainly mean cutting living standards.
The government makes it worse by picking losers.
It insists large shares of the emissions cuts have to come through renewables and have to happen by 2020. Therefore, there isn’t time for relatively low cost options like nuclear and we have to rely on offshore wind. With offshore wind dependent on £90/MWh subsidies that means higher prices. Electricity from conventional gas plants costs half as much. They then give the least economic sources of power the most in subsidy, so solar power can get over £400/MWh.
Benefits for poor and elderly households are the biggest items in the government’s budget. Higher energy bills will make it much harder for them to stomach the long term fiscal adjustment that the country needs.
Industry will also suffer. Energy intensive sectors like steel, aluminium and chemicals employ tens of thousands of workers. They won’t stand a chance if energy prices rise sharply here and not in other industrialised countries.
Some companies are making fat profits right now from climate policy. But that won’t last. Rising profits and rising prices will mean a backlash. The only question is whether we get an early reversal of this failing agenda rather than something much more self-destructive like a windfall tax. That will depend on whether the public know what is going on.
Matthew Sinclair is the Director of the TaxPayers’ Alliance and the author of Let Them Eat Carbon, published by Biteback Publishing, price £9.99