Energy policy

After Nick Butler’s post on David Cameron’s energy policy John Kay writes about the complexity of retail energy tariffs and how the simplification of these will not be easy.

Last week, David Cameron told the House of Commons that UK energy suppliers will be required to ensure that all their customers benefit from the lowest tariff. Coincidentally, Britain’s energy regulator Ofgem published a document proposing simplification of retail energy tariffs. The document demonstrated that simplification will be complicated. Certainly more complicated than the prime minister’s statement implied. 

David Cameron is the first prime minister in living memory who has not employed a business policy adviser in Number 10. The lack of such an adviser is all too evident in the continuing shambles around the UK’s energy policy.

Picking up public irritation with rising electricity and gas bills, the PM declared that companies would be compelled to supply customers on the basis of the lowest tariff available. This signals a real lack of understanding of how business works. The rapid consequence of such a policy would be to push all tariffs up and to remove any incentive on any supplier to provide competitive packages to end users. 

The Department of Energy and Climate Change survives. For the moment. One of the subtexts of last week’s government reshuffle in the UK was whether this was the right moment for a change in the layout of Whitehall with both the culture and energy departments abolished and their functions distributed elsewhere. In the end, the politics of the coalition made that too difficult. Instead, the DECC is being emasculated with several of its powers transferred elsewhere. What does this mean for energy policy and for companies and investors? 

Mitt Romney has given Barack Obama a free pass when it comes to energy and environmental policy.  Obama needs only to point to Romney’s energy plan - with its proposed demolition of federal controls on new energy developments and its omission of any mention whatsoever of climate change to claim the votes of the environmental lobby.

Even those most disappointed by the last 4 years can hardly fail to back Obama when the alternative is someone who used his acceptance speech last week to mock Obama’s commitment to the environment and to contrast Obama’s aim of helping to save the earth and the oceans with his own commitment to helping ordinary American families get jobs.  But what won’t be said this week at the Democratic Convention in Charlotte is that the American energy outlook for the next four years at least is already very largely set, and won’t be much altered by whoever is elected in November. 

Thanks to those who have commented on the post on adaptation to climate change – or at least thanks to most of them.

Just to be clear, I don’t see adaptation as an alternative to emissions reductions but as an essential part of a twin track strategy.  We need both.  As I said, I can’t see emissions being kept low enough to avoid the risk of an increase of around 2 degree C.  That isn’t a statement of what is desirable, but a judgment of the current political reality.  I hope I’m wrong, but watching what is happening in the US in particular, I am not optimistic.  I will write more on the US situation in the run up to the election. Given my lack of optimism I feel that adaptation is an imperative.  But the other track should be pursued as well.  If we don’t limit emissions at all, the risk is that the average temperature change could go well beyond 2 degrees.  Then we really will be in trouble, especially in terms of food production and the fate of low lying territories and their inhabitants.