Budget 2009: Has the government begun to recognise the scale of the challenge?

The chancellor may have been inconsistent, but at least the budget has some incentives to encourage renewable electricity, carbon capture and storage, and the switch to low-carbon fuels.

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Feed-in tariffs: another romantic delusion

As with other great popular causes, such as improving access to public libraries, reducing the use of plastic bags, and the protection of urban hedgehogs, everybody is in favour of ‘feed-in tariffs’ for renewable energy. Widely used in other parts of Europe, these tariffs guarantee a high price for every unit of electricity exported to the grid from very small generating stations. Put some solar panels on your roof in Germany and you get paid 40p for every kilowatt hour that you produce and don’t use yourself.

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Yes, do lag your loft

For once, the government has got its climate change policies right. The idea of a windfall tax on energy suppliers has widespread support. One hundred or so Labour MPs have come out in favour. Caroline Lucas, the newly elected leader of the Greens, has advocated such a policy and many Conservatives express private approval. The trade unions were infuriated by Alistair Darling’s refusal to back the proposal. Rather than backing a windfall tax, it looks like he favours plans that oblige the utilities to improve the energy efficiency of customers’ homes.

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A public share offer is the right way to fund the gap in the financing of the London Array*

Shell backed out of its commitment to provide the financing for one third of the world’s largest offshore wind farm off the Kent coast. The London Array, expected to cost about £2bn, now needs to find a new investor. What about tapping the public? The project has reasonable economics, and private individuals could benefit from 40% tax relief by putting shareholdings into pension plans. Perhaps as importantly, such a move would raise understanding of renewable energy generation among the wider community.

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UK offshore wind farm development

The UK government has announced an intention to allow offshore wind farm development around most of the UK. John Hutton suggested that about 33 GW capacity could be added by 2020. This would provide about 25% of current UK electricity demand (which is itself rising by 1 to 2% per year).

Simple calculations suggest that this change may add about 15-25% to UK electricity bills. Offshore wind is more expensive to construct and operate than onshore wind farms. The announcement may suggest that the government believes that offshore wind can be pushed through but that onshore farms are likely to be successfully opposed. The big push for offshore wind seems to mean that the government is losing faith in nuclear.

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Conservative Party policy on local generation of electricity and heat

The Conservative Party published a policy paper in early December on decentralised production of energy. It argues for heavy subsidy for small-scale generation of electricity. The report is useful in focusing on the need to minimise the finance and administrative burdens on small generators. However, it omits any consideration of the costs of the scheme it proposes. It is woefully ill-informed about developments in other countries. The Conservatives have subscribed to a romantic view about micro-generation and are choosing to ignore the huge costs of subsidising inefficient local generators. If they want large-scale low-carbon generation they should either back nuclear, remove the planning problems with wind, subsidise tidal or biomass power, or invest in CO2 capture.

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Gordon Brown’s first speech on climate change

Gordon BrownThe environmental community tends to think that Gordon Brown doesn’t understand the complexity and size of the climate challenge. His first speech on the subject gave more detail than expected and reassured some that the prime minister does recognise the severity of the challenge. He moved towards an 80% reduction in GHGs by 2050, but even under optimistic assumptions his plans will not result in emissions reductions on the scale required. All his proposals were pain-free. He does not yet believe that the electorate is ready to face the real challenges of emissions reduction.

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The Severn barrage

Nobody expects a Severn barrage to be built soon. But government opinion appears to be swinging in favour of the idea. The independent Sustainable Development Commission has just brought out a report that broadly supports a barrage. Though the environmental costs will be high, it says that mitigation measures will counterbalance some of the damage. We now also have a better feel for the economics of the scheme or, more correctly, for both of the two main options for blocking the Severn. The bigger scheme blocks the estuary between Cardiff and Weston-super-Mare. It will cost about £15bn and deliver just under 5% of the UK’s electricity. The smaller – just downstream of the Severn bridges – will cost a tenth as much, or £1.5bn, but will provide a sixth as much power as the bigger project.

£15bn to build a barrage that decarbonises less than 5% of the UK’s electricity supply is a high price to pay. Scaled up to the whole of the electricity business, this is about 20% of one year’s GNP to replace coal and gas power stations. Even over twenty years, this cost is similar to Stern’s estimate of the cost of reducing the UK’s emissions for the economy as a whole. The smaller barrier delivers much less electricity, but at a capital cost per kWh of little more than half its larger cousin.

The Sustainable Development Commission acknowledges that private financiers are unlikely to put up the cash for the bigger scheme. The report doesn’t really discuss the viability of the smaller barrage but it is much more financially attractive. In terms of total capital cost and expected yearly output, the upstream barrage is very similar to the huge wind farm development called the London Array. The Array will be constructed with private capital. I believe that if the current renewable electricity support scheme remains in place a barrage across the upper Severn can be built with risk capital.

The Sustainable Development Commission thinks that the bigger scheme should be built with public funds. I am not convinced by this. The offshore wind resources around the UK are orders of magnitude greater than the useful energy of Severn tides. If the larger Severn barrage has construction costs of nearly twice the typical figures for offshore wind, wouldn't it be better simply to speed up the licensing of wind farms?

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