Government energy policy a total sham

Last week's news that widening a stretch of the M6 motorway will cost £3bn, or £1,000 an inch, was depressing not just because of the huge sum but for what it says about the government's spending priorities.

It is 40 times what the government is spending on its low-carbon buildings programme aimed at boosting the take-up of renewable energies.

It is also what the government will reap from its recent rise in air passenger duty over three years. That, though, will do nothing to deter air travel because it only adds a few pounds to a ticket.
Instead of using the £3bn to widen a road, spending it on railways, solar panels, wind turbines or insulation might have been more sensible.

So many things make a mockery of the government's claim to be leading the world on climate change that this latest news hardly comes as a surprise.

Professor Nicholas Stern's review of the economics of climate change emphasises that Britain is talking the talk, not walking the walk. His call for extra spending now was not heeded.

What the government has also not done is send out new "price signals", as economists call them. If as a country we want to reduce carbon emissions in a serious way, those emissions have to be made more expensive. The government has long urged people to get out of their cars and on to trains and buses. But there is no price signal.

Protests

Motoring has got cheaper under Labour while train travel has shot up in price. So expect no change in habits, with car use continuing to grow. But if the cost of petrol was, say, doubled over a few years, that is a price signal people would respond to.

The government's problem is easy to see. It put up petrol duty by more than inflation until the fuel duty protests of 2000, since when it has backed away from any action in that area.

There are already two cars out there doing more than 70 miles to the gallon and there will soon be a diesel Mini that will join them. But people won't move over en masse with fuel at 95p a litre. They would at £2 a litre.

Another price signal would be a much bigger rise in air passenger duty than the recent increase. The absurdity that airline fuel is not taxed can at least be partly compensated for by raising APD. People could still fly, but would pay some of the cost of the carbon they emit.

Another price signal could come from a feed-in tariff (FIT) for renewable energy, used so successfully in countries such as Germany. The FIT sets a guaranteed price a consumer will get for any electricity he or she generates and exports to the grid.

At present, the government is running the ineffective low-carbon buildings programme, providing grants for things such as solar panels and wind turbines. But it keeps changing the system and recently slashed the grants to ensure that the £80m allocated for the three years to 2008 does not run out. Britain's nascent micro-generation industry is suffering as a result.

Some readers may recall that I installed a solar photovoltaic system on my house in the spring. I heard last week that the small company which fitted it has gone bust for lack of cash flow. Another company, Thermomax, the country's largest maker of solar thermal panels, has just gone into administration. Britain's climate change strategy, such as it is, is crumbling.

The problem is that the government has helped create monopolies by restricting its lists of approved suppliers for projects to a handful of companies, ensuring that the small guys go the wall and prices to consumers remain higher. My solar PV system, for example, would be more than 30% cheaper in Germany than it was in Britain.

The government's other support mechanism, the renewable obligation (RO) system, which requires energy producers to use a growing proportion of renewable sources, is hardly working. The government is planning changes but they won't come until 2009.

The proof of the pudding is in the eating. Britain's use of renewables rose about 10% last year to 4.6% of all energy use. And the pace of increase slowed. In Germany it is rising much faster and is already at 13% of all energy, a share Germany proposes to double by 2020. Germany now has 200 times as much installed solar energy capacity as Britain, for example.

Britain's chances of achieving the EU target of a 20% cut in emissions by 2020 are negligible. Indeed, the government has acknowledged it will not achieve it. Germany plans to over-achieve it.

The RO's essential problem is that it does not send a clear price signal and is aimed only at producers rather than consumers as well. The FIT gives a very clear price signal. It works because it is clearly understood by producers and consumers. Rather than going bust as in Britain, German renewables companies are some of the fastest expanding on the planet.

Early adopters

In the case of solar electricity, you get about 35p per kilowatt hour, four times the market rate, for 20 years. This puts the return on your investment up towards 10% - four times that in Britain - and brings the payback time below 10 years. The cost of the FIT is spread by the electricity companies among all consumers and has added about £1 a month to the average electricity bill.

The FIT for solar will be cut by 5% a year over the next 20 years, the idea being to encourage early adopters and give a boost to production levels so that costs will fall rapidly and eventually make the FIT unnecessary.

With a FIT, a company can expand knowing that the demand for its products is there. Banks will lend on projects because of the secure flow of finance. The market still works because consumers shop around for the best and cheapest products so firms have to innovate and compete. Prices of renewable technologies in Germany are much lower than the UK and it has 250,000 jobs in the industry - 10 times the total of the UK and a number expected to double by 2020. I don't think Germans will tell you that going green is damaging their economy.

The FIT brings ordinary people into the fight against climate change and reinforces the notion that something can and is being done. Governments, except ours, like the FIT because it does not cost them anything.

Thus, while in Britain you have to be mad to get into renewables, in Germany you are mad not to. That is what a price signal does. At the latest count, says Miguel Mendonca of the World Future Council, 47 other countries or states have brought in FITs.

Academics like it. "There is a lot of theory and evidence showing that large volumes of renewable energies are delivered cheapest under a feed-in tariff," says David Toke, senior lecturer in environmental policy at Birmingham University. "The RO system is a cumbersome, expensive and opaque way to finance renewables."

Other political parties are supportive. The Lib Dems are calling for an FIT. The Tories say the current system needs to change. But the chancellor, Alistair Darling, told the Guardian recently the government could not keep chopping and changing, even though it has been doing exactly that with its grant system.

So next time you hear the government claim it leads the world on climate change, do as the Germans do: burst out laughing.
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