There is a simple Tory response on energy prices and Labour needs to beware

by Jonathan Todd

Ed Miliband provided answers to some questions posed by Uncut in the book we launched at Labour conference. Less so, others.

We asked where the money will come from. He committed to 200,000 extra homes a year without – unlike David Talbot’s chapter in our book – making clear from where the extra public resources needed to deliver this will come.

Miliband did tell us where the money for his promised energy price freeze will come from, the companies themselves. It is an imponderable whether this will result in reduced profits for them or diminishment in the green investment that Miliband treasures.

It is clear, however, that without the costs of this investment, there would be greater scope for lower household bills. Whether this investment will sufficiently dampen the impacts of climate change to justify its hefty cost is another imponderable.

The incoming prime minister of Australia is among those who doubt it. The prime minister of this country will have noted this and knows that reducing the green push will increase the scope to minimise household bills before May 2015. If Cameron were to take this option, the energy firms will align with Cameron, as both leaders would be telling them to reduce prices but only one would be enabling them to reduce costs – assuming Miliband remains faithfully green.

The public may see their bills fall before 2015 – a record of delivery for Cameron, potentially to sit alongside a steadily improving economy. Rather than return him to office, the public would be asked to vote for a freeze in energy prices by a Labour party likely to be enamoured by the green lobby but less so by business, at least big business.

Miliband needs to get on the front foot about the assistance he has offered to small businesses, while considering exactly how wedded he is to imposing green costs on energy firms. Unless these small businesses become Labour advocates, the party risks being painted as anti-business. Without some flexibility on green costs, Miliband may risk Cameron achieving more on lower energy prices before he is even in a position to implement his freeze.

It would be hard, under this scenario, to imagine the public voting for Miliband’s promise over Cameron’s delivery and while big business may be somewhat less trusted than it was, they are likely to be more powerful advocates in 2015 than the green lobby. In an era of sharply constrained public budgets, politics is as much about who you choose to disappoint, as who you please. The big energy firms are Miliband’s chosen enemy but there is a way for Cameron to trump him on household bills if he’s prepared to make an enemy of the green lobby.

Cameron has the advantage of leading the party last to hold their conference, allowing him to recalibrate his remarks to Miliband’s. We’ll certainly hear more about Labour being an unaffordable risk – promising to take a further £800m from the bankers, as Ed Balls did, does little, perhaps even less, to take the sting out of this charge. In our book, we stress the importance of rendering this claim absurd but argue this will require difficult choices to bear down on spending.

The chapters from Paul Crowe, Kevin Meagher and myself  emphasise that these reduced public budgets need not come at the expense of increased delivery. The further advantage enjoyed by Cameron is that he’s in a position to deliver. Not just on energy bills but totemic reforms already introduced: free schools and universal credit, for example. Notwithstanding some fundamental flaws in the design of these policies, especially universal credit, there remains a window of opportunity for Cameron to contrast whatever Miliband says, or doesn’t, on education and welfare with what he’s delivered.

Delivery is the follow through that matters for Cameron beyond conference. Even without an energy price offer to match Miliband, he’ll be well placed if he can maximise his record of delivery between now and May 2015. Britain would have done better, just under a different leader from that which Miliband anticipated this improvement. It’s often said post-Coulson that Cameron lacks an Alastair Campbell but the absence of a Michael Barber is the bigger threat to this future.

Campaign traction is the follow through that matters for Miliband. He wants to lead a mass movement against big energy. This will be spiked if Cameron is prepared to disappoint the green lobby. Miliband’s only option then to neutralise Cameron’s new energy price offer, would be through a diluted commitment to green infrastructure, or transfer his campaigning focus from an opposition to big energy to a unity with the green lobby.

Miliband should reflect whether such a transfer – though consistent with his political record and conference speech – is really best advised. The jam today of lower prices is likely to be more attractive to many than a green tomorrow.

Going much further on home insulation, as our book recommends, would reduce household bills and please the green lobby – a rare policy to unite Miliband’s stress on climate change and the cost of living. If Miliband were prepared to face up to some tough choices, he’d find the public resources to carry this forward, as well as fund his housing commitment. I know where he might look for suggestions.

Jonathan Todd is Labour Uncut’s economic columnist. ”Labour’s manifesto uncut: how to win in 2015 and why” was launched last week and is available online


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7 Responses to “There is a simple Tory response on energy prices and Labour needs to beware”

  1. I do agree with your conclusion that investing in insulation is a much more sustainable way of reducing the cost of energy than any other possible method.
    However I don’t agree that any government should be more “flexible” on green targets.

    The financial cost of imposing the climate change levy is often cited as being a significant factor behind increasing energy costs; however the increase in costs due to CCL is, I believe, 8%. A small proportion of the overall increase. Furthermore the proceeds of the CCL do not all go to direct subsidy of wind farms; Greg Barker, the Climate Change Secretary, was on Newsnight last Friday and he stated that “almost 2/3rds” of the money raised from the CCL is spent on increasing “energy efficiency and fuel poverty programs”.

    It is worth noting that fossil fuels still receive more government subsidy than all renewable sources combined. A report by Oxford Energy Associates for the Environmental Audit Committee of the Houses of Parliament (http://www.longfinance.net/programmes/london-accord/34-london-accord/reports/798-energy-subsidies.html) found that oil, gas and coal received about £4.5bn pa in subsidy. Renewable energy receives just over £3bn pa. In addition to this the government contributes approx £2.3bn pa to the Nuclear Decommissioning Authority; the full extent of the cost of dealing with the waste legacy is not currently quantifiable.

    If David Cameron is to play party politics with climate change then it is important that Labour is not drawn into a bidding war but maintains an ethical objectivity. You rightly state that focusing in improving the existing building stock is a very important way of reducing energy consumption; might I propose that reducing VAT to 0 or 2.5% on insulation could be an effective way of securing private investment in building improvement.

    Finally I want to state my opinion that the majority of people against wind-farms seem to not want their “view” to be spoilt. They must be aware that energy needs to be produced somewhere but would rather it wasn’t where they live. I speak as someone who grew up in the north midlands surrounded by smoke-belching towers. From one hill in Scunthorpe it was possible to the see five power stations plus the exhaust towers of the steel-works. No-one complains about the view being spoilt there; mainly because most people know several others who work at one of the power stations, the steel-works or on the north-sea gas-fields.

    Much of the rest of the UK is intensively industrialized; several of the beautiful ‘lakes’ in Cumbria are man-made reservoirs, a large number of forests are managed for timber production and the vast majority of farmland in the UK is a biological desert. The chocolate box villages in Devon and Derbyshire may look attractive but behind the facade is an vast industrial complex. Why should these areas be immune from change? I personally have no objection to on-shore wind farms; off-shore wind would seem to make more sense but is also dearer. Nuclear may seem attractive but also comes with legacy issues that are not fully appreciated. A wind-farm may impair one persons perception of beauty but will only last 25 years. Nuclear leaves a much more permanent scar. While I’m on my soap-box I may as-well throw the Severn Barrage in the mix; I happen to agree with Peter Hain that it would be a worthwhile investment http://www.theguardian.com/environment/2013/jul/25/case-severn-barrage?utm_source=dlvr.it&utm_medium=twitter.

  2. Ex-Labour says:

    @Robin Thorpe

    I think you will find that most people object to is the fact that wind turbines are grossly inefficient, highly subsidised and only 0.6% of Uk energy was produced this way.

    Your response conveniently missed the fact that the measured efficiency of most wind turbines is around 25-30% where fossil fuel power stations are 60% +. Of course when the wind does not blow the turbines become “power negative” as they draw from the grid to be able to continue functioning. Of course lets not forget in that trying to keep the lights on we have to have fossil fuel back up generation as the wind farms are rubbish.

    Also new reports have come to light that manufacturers are aware of the sound issues which affect the human hearing range – despite protesting for years that it was not a problem. Reports in the US and now here in the Uk are showing that wind turbines are affecting wildlife including killing rare birds, bats etc.

    In a dash to appease the green dodgy science we also have gone for Biomass generation (which is balmed for deforrestation) and biofuels (which is blamed for global food shortages). I hope the greenies dont have any more of these wonderful ideas do you ?

    Now I do agree with insulating properties and making new properties more efficient, but the rest of it is a non starter.

    Now Shale Gas is the way forward……and plllllllleeeeeeaaaaase do not write nonsense on here about polluting water etc etc. Its nonsense and has been shown to be the media spin yet more enviromental taliban. The US has a gas price which is one third of ours – now that would be a good thing for us to rescue us from fuel poverty.

    Oh and by the way I have corresponded with Greg Barker and can tell you he has no scientific background or credentials and based on his musings to me, little common sense either.

  3. swatantra says:

    I have a gut feeling that HS2 is right, better now than later when costs will rise by 20%. Having travelled just recently from Chelmsford to Ipswich and Clapham Junction to Brighton, we could also do with HS3 in the S and E as well. This weekend will be travelling up tpo Edinburgh, and will see the need for High Speed travel across Britain.
    Better than Flying.

  4. @Ex-labour

    You could be right that people object to wind-turbines on the basis that you suggest; at the very least people use these arguments, although I suggest the NIMBY element is also significant. The ‘highly subsidised’ argument was the objective of my comment; the research paper shows that fossil fuels receive more subsidy than renewable energy. The point of subsidy should be to enable emerging technologies to compete on a more equal footing with established technology; do you think that fossil fuels deserve government support?

    You are right that wind turbines only have operational efficiency of upto 30%; this means that the wind does not blow at 15m/s all the time. Wind turbines operate for approximately 85% of the time; the velocity of the wind determines their output. The 30% figure is the actual output compared to the potential output. I don’t think that 30% is too bad compared to a traditional power station; the average efficiency of which varies from 50-60%. The older power stations are much closer to 50%; which I don’t think is a good return for the total cost (financial and environmental).

    I accept that wind turbines aren’t perfect and no-one (not even Friends of the Earth) are suggesting that we rely entirely on wind -power. But the wind is blowing at a good speed somewhere around the British Isles (and Europe) every second of every day; it would be folly not to try and capture some of this energy and the more we invest in wind technology now the cheaper it will get.

    The bird argument is not accepted by any environmental body; the threat of climate change is a far greater hazard to bird and animal populations then turbines. Similarly the issue of noise; electricity pylons themselves hum in some weather, telephone masts emit radiation (microwaves) as do mobile phones and people cook food in electric ovens that use, you guessed it, radiation. Almost nothing is without risk; it is about the balance of what the worst effects could be. The effect of climate change is potentially worse then any hazard arising from low-level noise.

    Biomass and bio-fuels are themselves not intrinsically bad ideas; I would agree that if abused they cause more problems then they create. Biomass generation can be done in a sustainable way; wood-chip pellets made from sawmill waste for example, or the burning of other waste-derived fuels.

    Similarly bio-fuels are only really sustainable when done using oil factions derived from waste products. Chip oil is the most high-profile one but there are now factories in the UK that process food waste to recover the energy and reuse it to produce energy. Thames Water, for example, use biodiesel sourced from restaurant fat, oil and grease and the sewers to produce energy to power the desalination plant in Beckton. http://www.thameswater.co.uk/media/press-releases/16966.htm
    My favourite bio-fuel technology is in the Netherlands and Germany where they use methane produced from livestock effluent (and waste food) to power municipal buses. They will soon be coming to the UK http://www.bbc.co.uk/news/uk-england-berkshire-21243654.

    Shale gas is a fuel source that can be used to provide fuel security; but I don’t think it will produce cheap energy in the way that it does in the USA. Primarily this is because of the differing nature of the markets in the USA and Europe but also because of the impact on water resources in the UK; not just the potential for pollution but also the quantities of water required for the process of hydraulic fracturing. The effects of methane leakage have almost certainly been overstated in the press; but the concerns over ground-water are very real.

    There have been documented instances of aquifer pollution in the USA and this has been linked to shale gas extraction; not proven but a link has been shown. There is a potential for this hazard to occur, therefore the risk must be managed. This requires extensive surveys of ground-water and an enhanced regulatory framework.

    It is possible to extract shale gas and oil without causing ground-water pollution; but it will not be cheap to do so. It will hopefully reduce the gas price, which is artificially high because a significant portion is imported from outside the EU, but it won’t produce the drastic reduction in energy prices that have occurred in the USA.

    I don’t think we should prohibit fracking; but I don’t think it requires subsidizing and it is not a panacea to solve our energy problems. It will be a part of an energy mix that must also include renewable technology. As I said in my original comment I would like to see the Severn Barrage being built and in addition to this more use of tidal and wave power to produce electricity. Too often in the past the UK has focused on reducing carbon emissions through transport; energy production accounts for a far higher proportion of CO2 then transport. I suppose air travel is an easy target, but reducing energy requirements is a far bigger prize.

    To return to the article by Jonathan I think that EdM is right to oppose the monopoly of the energy market by the big six; the geothermal and CHP scheme in Southampton is an example of public and private institutions working together to produce reliable, sustainable, local energy https://www.southampton.gov.uk/s-environment/energy/Geothermal/

  5. Ex-Labour says:

    @ Robin Thorpe

    I agree there is a NIMBY element but the noise issue is one which manufaturers have consistently denied, yet they knew all along. Apprently the frequecy is on some wavelength which interupts sleep patterns in humans and possibly led to other more serious conditions, although this has yet to be firmly established.

    In looking at the comparison between fossil and renewables you have to look at it in terms of the amount of each not the value of the subsidy. Fossil fuels are still used in much greater quantity, so subsidies would be higher. The renewables figures also will not include the hidden costs we pay as well. The government claim that only 8% of our bill is for the Renewables Obligation, but we know that there are other costs buried within bills which mean the figure is more likely 20% according to independant assessment. Thats why the government and DECC went crazy when the energy companies suggested they itemise their bills so consumers could see what exactly was being spent and where. Incidentally an onshore wind farm generally needs 100% and offshore 200% subsidy. Its worth noting as well that the cost included for the wind farm does not include the grid connection costs i.e. laying underground / subsea cables etc.

    As for the birds issue I think you will find a lot more evidence for this in the US who have more sites that we do and the phenomenon is more well documented. Its noticebale that in the UK the RSPB back the wind farms, but of course they would when they are recieveing funding from the energy companies building them.

    I think you are mistaken on the subject of Shale Gas and monetisation in the UK. The US was exactly in our position in that they were building LNG import terminals to take delivery of LNG shipments. Gas prices are usually linked to oil prices but what Shale does is decouple that relationship and their spot price is way below ours and the LNG import terminals are now being converted to liquifaction plants for exporting gas.

    Fracking is very safe if done properly and the methods and technology has moved on significantly from the early days in the US. Even then there were only a few reports of potential probles but these were never proven to be from the fracking process itself. As for water usage it does take a lot of water but again we have moved on where water can be recycled, cleaned and reused. The environmental taliban make a big issue of the chemicals but quite franly the amount of chemicals used is miniscule and the type of chemicals can be found under your kitchen sink.

    Of course what you are seeing and hearing now is people like Ed Davey at DECC, various environmental groups trying desperately to dump all over the idea of Shale purely on idealogical grounds. This would be a huge mistake for our economy and our country.

    At some point we must realise that we are putting ourselves at a disadvantage and the eco-loons must take off their hemp underpants and hair shirts and stop trying to take us back to the dark ages.

  6. Naomy Watson says:

    We all should understand that Ed Miliband is a mere official and he can only provide the official answers to the public questions. Where the money is supposed to come from? Sadly I could suggest it could only come out of printer.

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