Saturday, 28 June 2008

Wonderful plan...

Two days ago, Gordon Brown unveiled his "grand plan" for renewable energy. He has layed out a commitment to generate 15% of Britain's energy from renewable sources (note that this 15% figure comprises 30% of the electricity supply, 14% of the heat supply and 10% of transportation).

It sounds good. £100 billion for renewables... What remains unclear at this moment is exactly how this is supposed to happen. We have seen plenty of feel-good government targets before. Remember the target of generating 10% of our electricity from renewables by 2010? Lets have a look at the current electricity generation mix, and see how close we have come.

At present, the UK generates 4.5% of its electricity from renewables. On the face of it, it would seem that we're half way to the 10% target. But this would be a deception, because hydro power (all of which is pre-existing) accounts for 3%, with wind power currently making up about 1.5% of this mix. So in reality, we have added about one percentage point to our renewable electricity generation, instead of the 7 percentage points that would have been required to hit the target. So why have we fallen so far behind? The government has an apparently effective incentive scheme in place (the renewables obligation certificates) to encourage power companies to build renewable sources of energy, after all.

The reality is that there have been two major problems for this grand vision of Britain. The first is that onshore projects are repeatedly turned down for a variety of reasons. Firstly, for projects smaller than 50 MW peak capacity, district councils are responsible for granting planning consent. Clearly, however, the business-as-usual planning system is not geared towards efficiency in any way at all, so this has been a major roadblock for smaller projects. But the problems don't stop there. Consider the Lewis onshore wind farm project, which was granted planning approval by the Western Isles Council back in 2005. There are few onshore wind sites more suited to generation. Firstly, as anyone who has been to the Outer Hebrides knows, there is precious little in the way of grand or beautiful scenery on Lewis, and very few people either. So you would expect that it would make an ideal location for a wind farm. Particularly important in this is that the Outer Hebrides alone contain sufficient onshore wind resources to provide up to 25% of the UK electricity needs (see here).

You might think that it was local opposition to the project that caused the planning decision to be reversed, but you'd be wrong. It was reversed on environmental grounds. Specifically, the Scottish Executive turned it down because it would potentially damage an important wildlife habitat. Now, there is no better reason for turning down planning, but one really has to ask how much damage it would cause. Each wind turbine needs an access road, and machinery needs to be brought in to construct it, but the overall footprint of the development is a tiny fraction of the total area covered by the farm. So one could expect (particularly if appropriate care was taken during construction) that the habitat damage could be minimised. The other concern is to bird life. This to my mind is an argument too far. Wind farms do provably cause some limited damage to populations of birds nesting in the area, but there is a much more serious threat to bird populations from the business-as-usual approach.

In recent years, many species of sea birds up and down the East coast of Scotland have ceased to breed effectively. This situation has come about because there has been a complete collapse of the fish populations on which they depend to feed their young. And as far as anyone can tell, the reason for this is precisely global warming (Puffin numbers decline, Worst seabird season on record). So not doing something effective about global warming is going to wipe entire species of sea birds off the map in the British Isles. When you weigh that against potential damage to a few birds nesting near the wind farm itself, it seems ridiculous to turn it down on environmental grounds.

So, in the interests of preserving our birds, we're going to kill the whole lot of them. But the problems go further than this. Because each and every large project that gets turned down is a very strong disincentive to anyone planning on building new renewables. So the problems with the planning system effectively send a message to all would-be green developers, saying "don't even bother, you'll waste years and millions, and then we won't allow development anyway".

Of course, whenever an onshore project is turned down, people then point at the "vast potential" for offshore wind development, which has fewer environmental impacts. Unfortunately, the economic case for offshore wind, unlike that of onshore wind, is far from clear. Take for example the planned London Array wind farm, which was planned in the outer Thames estuary. This would have been the largest single offshore wind farm in the world, with a capacity of 1000 MW peak. This was a flagship project, which would have added 50% to existing UK wind power. But Shell, one of the key players in the consortium, pulled out. They were attacked for this by politicians, but one cannot really blame them for their decision. One of the key factors in the cost of any offshore wind project is the price of steel. Rio Tinto, one of the largest producers of Iron Ore in the world, recently hiked their prices by 96.5%, which is expected to feed through into a further 40% increase in the price of steel. So the cost of the necessary materials for any such project will only rise. Shell had already seen projected costs rise by 45%, and with another hike in the pipeline, they felt that the money would be better invested in onshore wind projects in the US.

Given that Gordon Brown's announcement is made in the context of an effectively unchanged planning system and a worsening economic case for offshore wind, it is very hard to see how it can be achieved without government subsidy. But that is exactly what he isn't proposing. The figure £100 billion may sound great, but reading the text of the announcement, it seems that this money is going to come from industry. The government contribution to this project, it appears, will be far less. We will soon see how he plans to achieve this promised goal, but until something workable is announced, I don't have much faith in it. After all, we've had and missed targets before now, and while the reasons for our current failure are still in the frame, its hard to see what progress can be made in the future.

Tuesday, 10 June 2008

The Oil War

Very often, environmental policy is seen as being in direct conflict with economic growth. For instance, consider the EU-wide policy of placing high taxes on transport fuel. This issue has come to a head recently, as protesters gear up for a major battle with the EU governments. It is clear, however, that the current troubles have their origin not in the taxes placed on fuels, but in the fact that oil is running out, and global demand has finally caught up with supply.

It would be very easy at this point to come to the conclusion that the taxes on fuel are inflationary, leading to higher costs of goods throughout the economy, and therefore lower real economic growth. What this argument fails to take into consideration is adaptation. Because the EU (unlike the US) has pursued a strategy of placing taxes on fuel, we now use less oil and are therefore in a better position to weather the coming storm than the US, which has had no incentive to increase efficiency.

Thus, in the broad sense, the taxes on fuel have forced the EU consumers and companies to prepare to some extent for a future in which oil is no longer cheap. The US however, has had no such policies. Today there is still virtually no tax on oil in the US, and so, despite transport fuel still being around half the price there that it is in Britain, the US economy is ill-prepared to cope with the change. In some parts of the US, people are now spending more than 13 percent of their income on transport fuel (source: International Herald Tribune, 10 June 2008).

This situation, which is hardly mirrored in any section of European society, has arisen because in the absence of fuel taxes, there has been no incentive to develop public transport, and no incentive to car owners to consider fuel efficiency. As a result, people in rural areas often have long commutes to work, and their cars are often so-called "trucks", rarely doing much better than 20 miles to the gallon. In this situation, they have been left exposed to the price of fuel, because the changes that need to be made are long-term, and can only be made with capital investment. Someone who has just had 7% of their total income removed is unlikely to be able to buy a new car.

But there is a wider lesson in all this. Our economic prosperity is currently based on excessive consumption of non-renewable resources. If we do not use this prosperity to pay for the necessary changes to economic structures today, we will find ourselves poorer and less able to adapt in the future.