Wednesday, May 1, 2013

Maggie's energy failures

The media have been running various versions of the history of Margaret Thatcher’s rule, but few have focused on her impact on energy policy, apart that is from the obvious issue of the Miners strike- which was predicated by her decision to, in effect, close down the UK coal industry.  A brutal, divisive episode. The government won by using brute state power, aided by Thatcher’s commitment to nuclear  power, which, as the leaked Cabinet  minutes at the time revealed, was seen as having ‘the advantage of removing a substantial portion of electricity production from the dangers of disruption by industrial action by coal miners or transport workers’. 

Some mention has been made of the impact of the initial privatisation and subsequent liberalisation programmes on the electricity industry, and occasionally it’s noted that many of our current woes can be traced back to that- the attempt to create competition has lead to a new set of powerful players, mostly non-UK owned, operating in a deregulated market.  Presumably French domination was not what she had in mind.

Thatcher’s privatisation programme in fact presented her with problems back then. It collided head on with her nuclear commitment - she wanted to expand nuclear power dramatically (with 10 new plants proposed), but the city bankers made it clear that she couldn’t sell off the various chunks of the old nationalised CEGB if they contained nuclear plants. Much less get backing for new ones.  And she certainly didn’t want the state to pay for a big expansion. So the old plants were initially withdrawn from sale, and the expansion programme cut back to just one plant, Sizewell B. That was eventually sold off  (very cheaply) along with some of the old plants (even cheaper) to form part of a new private company British Energy. (It later went bust and had to be bailed out). So labeling her as ‘the plutonium blond’ (as she was sometimes called at the time) was not only rude/sexist, but also perhaps in the end less than accurate- she failed to secure much of a future for nuclear.  Put simply privatisation and market forces killed off nuclear- at least for a while. Not what she initially had in mind.  With British Energy later being taken over by EDF!
Some of her other policies also suffered from being hijacked by her enemies   In a speech to the Royal Society in Sept 1998, she referred to  ‘the increase in the greenhouse gases—carbon dioxide, methane, and chlorofluorocarbons—which has led some to fear that we are creating a global heat trap which could lead to climatic instability.’ She went on  ‘We are told that a warming effect of 1°C per decade would greatly exceed the capacity of our natural habitat to cope. Such warming could cause accelerated melting of glacial ice and a consequent increase in the sea level of several feet over the next century.’
Looking at programmes that had dealt with earlier environmental problems, like the London Smogs, she concluded in almost eco-modernist terms, ‘even though this kind of action may cost a lot, I believe it to be money well and necessarily spent because the health of the economy and the health of our environment are totally dependent upon each other.’
However she subsequently seemed to shift her views, as the climate issue was taken up by progressive groups. In her 2002 book Statecraft, we read  ‘The doomsters’ favourite subject today is climate change. This has a number of attractions for them. First, the science is extremely obscure so they cannot easily be proved wrong. Second, we all have ideas about the weather: traditionally, the English on first acquaintance talk of little else. Third, since clearly no plan to alter climate could be considered on anything but a global scale, it provides a marvellous excuse for worldwide, supra-national socialism. All this suggests a degree of calculation. Yet perhaps that is to miss half the point. Rather, as it was said of Hamlet that there was method in his madness, so one feels that in the case of some of the gloomier alarmists there is a large amount of madness in their method’. 
So looking back, although she did beat the miners, you could say many of her other energy policies led to outcomes she didn’t really want. And even on coal, we are now importing it from Russia and Columbia!
To that extent, David Cameron seems to following in her footsteps, trying for a massive nuclear expansion, but faced with increasing problems, with (mostly) state owned EDF seeking subsidies and market support guarantees before it will build (and profit from) nuclear plants in the UK, and a chaotic energy market dominated  by a range of overseas players. Gas is being imported at £10 bn a year from Qatar and escalating energy prices are being imposed on beleaguered consumers, many of them paying for power from French and German owned plants.
Cameron’s attempt to go green has also mostly come unstuck. Following Maggie, he has backed short-termists competitive market approaches.  So we are moving from one hopeless competitive market support scheme, the ROC trading system, to another, a new competitive contracts system for new low carbon projects, which could halt all but the most commercially viable renewables projects, and also, perversely, make life hard for new nuclear, since its CfD subsidy can’t be too much more than renewables.  So to raise the £50-100bn needed, EDF and the others (Japanese and maybe Chinese companies)  may have to be offered other subsidies and market guarantees. Cameron is also trying to kick life into the EU moribund Emission Trading System by setting up a unilateral carbon market floor price, backed ultimately by UK taxpayer and bill payers. At the point when the EU ETS carbon price has just fallen to an all time low of below  €2.6/tonne Carbon, this guarantees that carbon credits will be worth £16/tonne C!
Tragically, Cameron and the UK are not alone.  Japan does not seem to have learnt the lesson from Thatcher’s liberalisation attempts. Its new Liberal government is trying to do the same thing, in the hope that the market power of the big energy utilities can be tamed. As in the UK, the result could be that Japan too will go from bad to worse. Big profits for some, increasing prices for the rest and a failure to tackle the increasingly urgent issues of energy security and climate change.  
Thatcher didn’t invent free market economics, but part of her legacy is that it is now almost impossible to think about going beyond reformist attempts to deal with what are politely called ‘market failures’. Anything more structural is seen as Stalinism! So at best we get more regulation, at worst just endless technocratic adjustments to market systems, to the point where the Washington Post was moved to say that we should stop micro-market meddling and instead should be ‘putting a price on carbon emissions that is simple, predictable, aggressive and comprehensive, and then getting out of the way’.

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