EU climate policy, energy bills and how best to decarbonise the UK
A string of headlines this morning say EU climate policies will add £150 to household energy bills in 2020.
The Daily Express says: “Green energy will send household bills soaring: Energy bills to rise by £150.” The Times says: “EU is blamed for big rise in power bills.”
The Daily Mail has the story too. These articles are based on a new report from free-market thinktank Open Europe that argues against targets for renewable energy. We spoke with report author Raoul Ruparel to find out what it’s all about.
Energy bills going up – and down
Coverage of the Open Europe report says it finds that energy bills will rise £150 in 2020 as a result of EU green policies. Open Europe sources this figure from a 2013 report from the Department for Energy and Climate Change (DECC), which we covered at the time.
The headlines aren’t quite right, however. The DECC figures show that an average bill in 2020 would be £1,331, up from £1,255 in 2013. That’s an increase of £76 or six per cent.
Ruparel says it’s fair to argue some of the headlines are “a bit misleading”.
He says:
“An overall £150 increase isn’t expected. We’re saying there are factors driving bills up and other parts that may bring bills down.”
So what’s going on? A range of UK and EU climate and energy efficiency policies are being implemented. Some of these will add costs but others are expected to reduce bills.
Policies that add costs include the price on carbon set by the EU carbon market, the Emissions Trading Scheme, and the UK’s Carbon Price Floor that sets a minimum price per tonne of emissions. An EU target for the UK to get 15 per cent of its energy from renewable sources also costs money.
Cost-saving policies include EU product policy and energy efficiency measures. These are designed to help households use less energy by making fridges and boilers more efficient. Open Europe says the combined cost of all EU climate and energy goals will be £150 in 2030.
But Ruparel adds:
“If you look at the DECC figures, they say the net impact on bills will be a saving.”
Overall DECC thinks bills will be £166 lower in 2020 than if all policies were removed, because the policy-driven savings will outweigh the costs. A DECC spokesperson says:
“We estimate that, in 2013, household energy bills were, on average, around 5 per cent lower than they would have been in the absence of all our energy and climate change policies. In 2020, we estimate that our policies will continue to reduce energy bills.”
But Ruparel argues that we could keep the beneficial energy efficiency policies that will save money while ditching some of the other policies that add costs to bills.
What Open Europe says we should do instead
Which policies does Open Europe want to ditch? It remains fully behind EU targets to cut emissions and help tackle climate change. Ruparel says:
“Overall emissions targets make sense.”
He would support an EU reduction target of 30 to 40 per cent of 1990 emissions by 2030, broadly in line with proposals being discussed by EU leaders in Brussels today and tomorrow. What Open Europe doesn’t support is a specific target for renewable energy.
It wants the UK to unilaterally ditch its 2020 EU obligation to get 15 per cent of energy from renewables. Ruparel argues this target adds the largest part to UK household energy bills and that emissions cuts could be achieved more cheaply if it were dropped.
If the UK refused to meet the 2020 target it could be taken to court by the European Commission. Open Europe acknowledges this risk and says the UK could ultimately be fined up to £226 million per year if it continues to breach the renewables target.
But Open Europe argues it will cost £4.2 billion per year to comply with the target, making it cheaper to accept a fine.
There would also be unquantifiable political costs, however. If the UK, a major EU member state, chose to deliberately ignore this piece of EU law it would set an uncomfortable precedent for others.
Rapurel says:
“I accept a unilateral dropping [of this target by the UK] is a bit extreme and may not be politically palatable. [By proposing the idea] we are trying to shake things up a bit.”
Let’s accept the idea for a moment to find out what Open Europe sees as the alternative. It says the £4.2 billion expected annual cost of meeting the 2020 renewables target could be diverted to insulating millions of the UK’s draughty homes instead.
Not all of the money would be available for this, however. Rapurel accepts that some of the money would need to be spent on cutting emissions in other ways.
He says:
“Switching to gas from coal would be more cost-effective in the short term than renewablesâ?¦ It’s not a perfect strategy but gas stations won’t be around forever and it’s still a better option than facing high short term costs now.”
The government’s Committee on Climate Change has said that an approach relying on gas would be more expensive than using renewables and other low-carbon energy sources. It says will be cheaper to take the long-term view and to avoid a dash for gas.
Rapurel hasn’t checked exact figures but maintains his proposed short-term reliance on gas would be the best approach. That’s despite accepting that the UK would have to stop burning gas in the longer term, as emissions targets get ever tighter.
Rapurel also accepts that his proposed approach could see gas capacity built and then mothballed well before the end of its natural operating lifetime, unless carbon capture and storage technology is developed and added on.
Why has Open Europe published now?
The report might appear timed to try to influence EU leaders meeting today and tomorrow to discuss 2030 climate targets. It is probably too late to shift the UK’s position, however, and the government is already on board with Open Europe’s opposition to a 2030 renewable energy target. Instead the EU is set to agree a renewables target that is binding on the EU but not on individual member states.
An alternative view is that Open Europe’s real target is the Conservative Party manifesto for 2015. Open Europe’s report calls for the UK to ignore the 2020 EU renewable target and to go for gas and nuclear instead.
This will chime with those Tories who wish for an EU exit as well as those who dislike windfarms. The Conservatives have already pledged to end subsidies for onshore wind if they win a majority at the next election.
If the Conservative manifesto really was the target of Open Europe’s report then it’s worth remembering a couple of things. First that Open Europe remains behind overall climate goals. And second that Conservative leader David Cameron has been one of the EU’s strongest advocates of an ambitious 2030 climate targets.
So Open Europe’s report is weighing in on the debate about how best to decarbonise the UK – it isn’t suggesting we don’t bother decarbonising at all.