An impressive vision – but where is the route-map?

One of the problems with looking at the stars is that you can trip over obstacles at your feet. This is the major fault of the Energy White Paper recently published by the Department of Trade & Industry (DTI) – it offers a clear view of the future, but the immediate next steps on the path to a low carbon economy remain unclear.

For the first time, the UK government has committed to achieving a 60% cut in carbon emissions by 2050. The Royal Commission on Environmental Pollution (RCEP) first proposed this target in 2000 and now even Tony Blair accepts that this figure could be attainable without huge impacts on lifestyles or the economy.

Energy efficiency

After all the reviews and

consultations, the White Paper strategy relies heavily on an increase in renewables and greater energy efficiency. These twin motors will drive the push towards a low carbon economy by 2050.

By 2020, it says that cuts of 15-25m tonnes of carbon (MtC) could be achieved, which will be necessary “to ensure firm progress towards 60% reductions by 2050”. Half of the target is to be delivered by greater energy efficiency. “The cheapest, cleanest and safest way of addressing all our goals is to use less energy,” says the document. However, it recognises that “we have to improve efficiency far more in the next 20 years than in the last 20”.

Some help may come from the implementation of the Energy Performance of Buildings Directive, recently approved by the EU. This aims to increase building energy performance by an average of 22% across the European Community.

The Building Regulations will also undergo a further major revision in 2005, much sooner than originally planned. The Energy Efficiency Commitment, the programme through which energy suppliers have to offer customers energy saving measures, may also be extended in time (beyond its current end date of 2005), scale (to perhaps twice its current funding) and scope (consideration is being given to extending it beyond the domestic sector).

Even so, energy efficiency needs to improve. Energy intensity in the UK has been improving at an average rate of 1.8% a year over the last three decades, but levels still remain higher than in most other EU countries. And the downward trend in UK carbon emissions has been due to fuel substitution (gas for coal). Emissions have in fact risen over the past few years due to the moratorium on gas-fired power stations, but the government notes that they are expected to fall again in 2002 now that the coal is declining once more.

Renewables

Renewably generated electricity is expected to provide 20% of the emissions reductions. However, no firm target has been set – this expansion of capacity is only an ambition.

T

he beauty of this for the Treasury is that ambitions and aspirations do not have to be funded: targets do. The recent bail-out of British Energy may have persuaded officials that the UK energy sector has had its share of the tax pie for the foreseeable future.

Renewables have already received significant funding over the last few years and the White Paper says that support for renewables will be increased by a further £60m above that announced in the 2002 Spending Review.

However, the lack of substantial funding commitments today will hinder the UK’s ability to deliver the targets in the future. As Andrew Warren, director of the Association for the Conservation of Energy (ACE) said to EBM: “The White Paper is very impressive in terms of vision. The government clearly knows where it wants to be in 50 years’ time. The difficulty is knowing what it is going to do over the next 50 weeks!”

Members of ACE oversee all of the work for the Warmer Homes programme, which is designed to tackle fuel poverty. Indeed, for the first time UK energy policy has included among its goals the provision “that every home is adequately and affordably heated”.

According to the government’s own advisory body, this will require the existing annual budget for fuel poverty measures to be increased by 50%. Yet members of ACE are being asked to put forward proposals for the coming year based on a 15% cut.

The losers

There are some significant losers in the White Paper. The nuclear industry is livid over the way that its prospects have been effectively dismissed. The government says that current economics make it an unattractive option and there are still important issues surrounding nuclear waste to be resolved.

Sir Bernard Ingham, secretary of the Supporters of Nuclear Energy group and Lady Thatcher’s former press secretary, has described the policy as “incompetent, irrelevant and frankly dangerous”.

“At a time when greenhouse emissions are rising in Britain, it proposes to continue to allow the nuclear industry, which emits no greenhouse gases, to run down,” he said. In addition, the government says there will be a new White Paper and “full public consultation” on the nuclear industry before any further building projects are approved. This would slow the process still further and makes any future building programme improbable.

Combined Heat & Power (CHP), until recently a major part of the Government’s drive to a low carbon future, merits just three pages in the document. The official target of 10GW of generating capacity by 2010 is re-stated, but no substantive new support measures are outlined. Yet with the current economic conditions of high gas and low electricity prices, coupled with the constraints of the market trading system, this technology needs specific support to grow.

“The White Paper does formally commit the government to achievement of its target to double CHP use by 2010,” says David Green, director of the Combined Heat & Power Association. “Yet in the absence of any new measures that will have an impact now, such an aim is meaningless. It does not bode well for securing the investment confidence that will be needed to deliver the government’s aspirations for any green technology.”

Split responsibilities

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he original Performance & Innovation Unit (PIU) report, upon which the White Paper was largely based, proposed the setting up of a Sustainable Energy Agency to oversee and administer energy policy. While half a dozen new groups will

co-ordinate activity, responsibility for implementation is still split between the DTI and DEFRA.

The fact that CHP and energy efficiency are within DEFRA’s remit may impact on funding for these two areas, according to Warren. “The bulk of DEFRA’s budget is being taken up with the continuing fall-out from the food-and-mouth epidemic. There isn’t sufficient money available within the department to fund energy efficiency adequately. Even current expenditure is being cut.”

Price increases ahead

Industry has also noted that the White Paper says that energy prices will rise over the coming years, although the government blames this on the introduction of a new European emissions tading scheme in 2005. Gordon MacKerron, an associate director at economics consultancy NERA, believes that increases are inevitable. “It is very welcome that the government has come clean and admitted that a sustainable energy policy will mean higher prices, even though to blame most of these future increases on the European emissions trading scheme is hardly fair.”

For business, though, such increases are of real concern. The White Paper suggests that over the 17 years to 2020, the policy measures listed – on emissions trading, renewables and energy efficiency – could add 10-25% onto industrial electricity prices and 15-30% to industrial gas prices. Gas prices are already at historically high levels. The government claims that industrial prices are among the lowest in the EU. This is disputed by, among others, the Energy Intensive Users Group (EIUG), which says that contract prices for electricity are currently broadly competitive with most EU competitor economies, though above France.

The director of the EIUG, Jeremy Nicholson, said, “The big dilemma for energy policy remains how to achieve a low carbon economy without damaging competitiveness, given that international agreement may not be forthcoming. Many competitor economies, such as the United States, Australia, and most developing countries, currently show no serious commitment to decarbonise. If the UK and other EU states press ahead unilaterally, the effect of higher energy prices on industries located in Europe – especially in the energy-intensive sectors – could be devastating.”

Don McGarrigle is electricity advisor to the Major Energy Users Council (MEUC). He is concerned that prices could rise even more steeply due to lack of capacity. “It’s odd that the government claims nuclear is economically unattractive,” he says. “We can buy nuclear-generated electricity for £17/MWh, while renewables – when we can get them – are anywhere between £30-60.

“As major energy users we want a diverse mix to ensure secure supplies. Yet the largest current contributor to the UK mix – nuclear energy – is being left to wither on the vine. I’m not sure that renewables and energy efficiency are going to be able to fill the gap. And if they can’t, we are all going to pay still higher prices for fuel in future.”

Setting targets

The government has been severely burned by failing to meet previous targets it has set in fields such as health and transport, so it is perhaps understandable that it has shied away from setting short-term targets. But unless this is done, the whole policy framework will fail.

As Rebecca Willis, director of the Green Alliance, said: “The White Paper offers us a tantalising glimpse of the future, without saying quite how we’ll get there. The lack of concrete policy measures or targets is disappointing. A cleaner, greener future will be good for the economy and the environment – but we need bold policy to match the bold vision.”

Bold policy means bold targets that are measurable and achievable. Without firm deadlines over the coming few years, the longer-term prize of a low carbon economy will remain completely out of reach – a result that neither we nor our children can afford.