Coalition-era cuts to energy efficiency and clean energy programmes could hold crucial lessons for policymakers today as they wrestle with how to respond to soaring gas prices
Ministers faced with tackling the escalating energy bill crisis would do well to heed the lessons of the recent past.
Two separate analyses published this week have detailed how households and businesses around the country are currently paying the price for political decisions taken in the wake of the last surge to energy bills in 2013 that uiltimately served to undermine the UK’s energy security.
The first, from Carbon Brief, calculates David Cameron’s decision to axe a number of clean energy and building energy efficiency policies are now costing the average UK household around £40 a year, a figure that is set to rise to £60 a year if the current energy bill price cap rises as expected in the coming months. Decisions taken by the coalition government to essentially ban new onshore wind farms, gut energy efficiency subsidies, and axe the zero carbon homes standard have resulted in energy bills that are currently around £2.5bn higher across the UK, rising to £3.1bn next winter, it calculates.
The second analysis from Tim Lord at the Tony Blair Institute think tank calculated that energy customers in the UK are now paying £140 more a year due to policy changes made between 2013 and 2015. Posting the rough calculations on Twitter last Thursday, he argued the UK would have saved £3.9bn in energy bills this year if the building and energy decarbonisation policies had not been axed.
The sobering numbers should act as a warning to policymakers facing the task of steering the UK out of the current energy crisis, as they consider a range of proposals for curbing energy bills in the coming months, several of which almost precisely emulate the cuts pushed through by the Cameron administration. The message is clear: a knee-jerk approach which allows short-term concerns about the relatively low cost of climate policies to overshadow the pressing and urgent need to unhitch the UK’s energy market from fossil fuels only leaves the UK more exposed to future gas price volatility.
In a media briefing this morning, Emma Pinchbeck, CEO of trade body EnergyUK, drew a direct line between former Prime Minister David Cameron’s culling of climate policies in the mid-2010s with the problems in the energy market today. “When we ‘cut the green crap’ in 2015, we cut investment in energy resilience and on things that help people reduce their bills,” she said, referring to the directive allegedly made by former Prime Minister David Cameron to his advisors in 2013.
Her comments were echoed by fellow panellist Michael Grubb, professor of international energy and climate change policy at University College London, who said the turbulence currently rocking the UK’s energy market had been driven by poor planning. “This whole crisis is a monument to short-term economic and policy thinking in a very long-term industry – not just the energy industry, but the whole housing sector,” he said. “The retreat from energy efficiency measures – boy, is that now biting us.”
The UK is yet to unveil a policy programme designed to shield households and businesses from the impact record gas prices are having on gas and electricity bills. Potential short-term fixes to alleviate bills include shifting environmental levies from energy bills and into general taxation; removing VAT from energy bills; expanding fuel poverty schemes; and developing a financing mechanism whereby the costs energy suppliers are facing as a result of soaring wholesale gas prices can be spread across a longer-period.
However, the analyses published by Lord and Carbon Brief hammer home the importance of policymakers complementing any short-term measures with policies that attempt to tackle the root cause of the issue, and rejecting any policy plans that would undermine the net zero transition outright.
A small group of Conservative MPs and their allies in the media have in recent weeks argued that net zero policies are largely to blame for the surge in energy bills, insisting that the government should axe green levies and expand the UK’s domestic gas industry in a bid to curb energy costs.
But their analysis has been roundly rejected by energy experts, who have repeatedly highlighted how soaring gas prices are the primary factor driving up bills around the world and any attempt to boost UK domestic gas production would both undermine decarbonisation efforts and have a negligible impact on wholesale prices. The International Energy Agency (IEA) chief Fatih Birol warned last week that gas prices were the major driver of the current turmoil in energy markets, and just this morning Carbon Brief published findings which attributed 90 per cent of the increase in bills over the last year to a tripling in the price of gas.
Grubb said it was now critical to accelerate investment and access to clean energy sources that were “not so directly subject to the vagaries of the international fossil fuel market”. “Fossil fuel prices, they’ll go down again, then they’ll go up,” he said. “But the one-way street has to be towards increased use of renewables, particularly knowing what we know now about their cost, and that they are very attractive compared with anything that people are seeing presently. That’s all very consistent with net zero. The current crisis is a clarion call to align long-term thinking around a long-term goal.”
Pinchbeck added that it was important the government “press on” with the policies it had already announced in the Net Zero Strategy last autumn, which she stressed would enable the low costs associated with renewables to be passed more directly on to consumers, instead of being artificially hiked by gas markets. “The UK is exposed to gas because we have a huge amount of gas burned in our homes, and so helping people get off gas boilers onto other forms of heating technology is critical over the next decades, to reduce our reliance on places like Russia, but also to make our building stock, much more energy efficient,” she said.
While some have questioned proposals to move green levies into general taxation, where they could fall prey to the whims of the Treasury, Pinchbeck argued that moving green levies from electricity bills into general taxation would help incentivise customers to switch to low carbon vehicles and boilers. “We put all our policy costs onto electricity,” she said. “But electricity is the fuel of the future in the UK so you can see that not being perfectly sensible. As more people use electric vehicles and have electric heating in their homes, you want those technologies to be rewarded for using what should be the cheaper fuel.”
Net zero policies are not only a mechanism for driving decarbonisation and energy security, they are also a means of securing the long-term proseperity of the UK, Pinchbeck said. “If we stopped talking about it as green and just started talking about it as the right thing to do for the future economy, we would all help ourselves out,” she argued.
It remains to be seen how the government responds to a cost of living crisis that could further exacerbate its current polling woes, but there is a broad acceptance some form of intervention is needed to address energy price hikes on a scale not seen since the 1970s that threaten to push millions of households into poverty and ramp up costs for thousands of businesses. Reports today suggested that the Treasury was considering a proposal from the Social Market Foundation that could see significant grants paid directly to fuel poor households, but plans for loans to energy suppliers and reforms to green levies are also said to still be under consideration.
However, the figures crunched by Carbon Brief and Lord suggest the volatility and misery currently rocking the energy market could be quickly repeated in the future if the government does not take concerted action to wean the UK’s electricity and heating systems off fossil fuels. Consumers and businesses today are currently dealing with the very real consequences of past decisions to weaken climate policies in response to rising energy bills. The hope is that the government does not make the same mistakes all over again.