Daily Archives: October 15, 2012

Now that the party conference season has drawn to a close, David Cameron must return to the real task of stimulating growth, all the more urgent given the worsening economic and fiscal outlook. One of the most immediate challenges he faces is how to unlock private investment in the power sector as nuclear and coal-fired plants age.

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Government-induced policy risk is the single biggest deterrent to investment, with profound consequences for growth, energy security, electricity prices and a low-carbon future. The energy bill, to be introduced in parliament soon, is an opportunity to give investors the clarity and incentives they need. This is how it should be used to set the direction of government policy.

First, it must adopt regulatory and planning structures that encourage investment in new capacity both from established and new sources of electricity – recognising the differences between technologies as regards scale, risk and the stage of development of low-carbon sources.

The bill must create efficient markets for capacity that promote entrepreneurship. As low-carbon technologies mature, the carbon price rises and competition grows, it will become more efficient to hold auctions within these markets of back-up capacity from renewable sources whose supply is intermittent.

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The government must also increase its support for research into new technologies for generation and transmission, and should advocate the development of a European super-grid that allows more effective matching of supply and demand.

Suppliers are more likely to invest in low-carbon generation if they can rely on a strong and stable carbon price, underpinned by the floor mechanism, which the government last year said would take effect from April 2013. Such a price corrects a market failure.

The bill should also establish the framework to set up “contracts for difference”, which have the potential to give investors confidence in long-term revenues and reduce the cost of upfront capital expenditure for new low-carbon projects. This also requires a single independent body as counterparty, operating with transparent rules and strong underpinning from the government.

Crucially, the government must make a more credible commitment to low-carbon electricity generation. The climate change act requires consecutive five-year carbon budgets, with a target of cutting greenhouse gas emissions by 80 per cent by 2050. However, the carbon budgets do not give the power sector enough guidance and nor does the current energy bill. It is all too easy to suggest that some other part of the economy can do the work, but the power sector holds the key to emissions reductions elsewhere, including in transport.

Moreover, while the government backed an independent committee’s recommendation that the fourth carbon budget should halve UK emissions from 1990 levels by 2025, it introduced a review in 2014 that could weaken the target. High-carbon growth is not a credible strategy: it will eventually have such severe environmental consequences that growth and development could be disrupted and reversed, and other countries will exclude dirty goods.

Natural gas will have an important role to play but cannot achieve all the emissions reductions if unabated, so will need carbon capture and storage, or a strategy for exit, as the power sector is decarbonised.

The apparent splits in government and lack of consistency on these issues produces uncertainty for investors and drives up capital costs for low-carbon sources. To resolve this, the bill should include a clear decarbonisation target to signal the government’s long-term intentions.

This could take the form of an “emissions intensity target” for the power sector of, say, 50g of carbon dioxide per kilowatt-hour by 2030, which could be consistent with the economywide carbon budgets. This makes more sense than a target for the amount of energy produced by renewables, as it relates directly to the task of decarbonisation.

This is a moment when the leadership of the prime minister and the cabinet is crucial to the UK’s economic prospects. If they embed decarbonisation of the power sector in a sound framework for reform of the electricity market, they will attract efficient and responsible private investment that can drive growth for the next two decades.

The writer is a professor at the London School of Economics

Recently an American friend asked me how let down I must feel as a Pakistani at the tail-end of the first Obama administration.

It is true that Pakistan started out as a strategic ally of the US and ended up as a pariah. But if I were a Tunisian, Egyptian or Libyan who had overthrown decades of dictatorship, a Syrian fighting the bloodiest war ever in the Middle East against the foulest of dictators, or a Bahraini whose rulers have stopped injured demonstrators from going to hospital without a peep from Washington, I would feel equally let down by US foreign policy over the past four years.

President Obama raised expectations in the Muslim world early on with his now famous Cairo speech, but there has been little in the way of follow up.

Faced by rigged Iranian elections in Iran almost immediately after the Cairo speech the administration did not how to react and its policy wafted from one side to the next.

More recently, it took weeks before the US administration supported the Arab Spring and then, country by country, dictator by dictator, only slowly did the US shift its position. Finally when regimes were toppled by people in the streets there was no follow up by the State Department or support from the Pentagon.

Western military support for the rebels in Libya was largely left to the Europeans.

When elections occurred in three Arab states and the Muslim Brotherhood came to power in Tunisia and Egypt, it was a changed Brotherhood which spoke less about sharia and more about women’s rights. It was apparent that their model for the future was Turkey – a modern democracy, an economic powerhouse with the army in its barracks, with a civilian government led by an Islamic party. The Brotherhood barely glanced at the models of Iran or Saudi Arabia. Yet there was still no US follow up.

Secretary of State Hillary Clinton has clocked up more miles than any of her predecessors, but what has this face time achieved? She visited the capitals of the newly free Arab states, gave congratulations and quickly forgot as she moved onto the next place. Instead, despite the global recession, there should have been a US-led international effort to get these countries’ economies and education and health systems working again, and to help their new governments find their feet in the international system.

The Arab Spring has by and large been successful in slowly changing the attitudes of societies which had lived under one man rule for so long. But there has been no coherent US response. If Secretary Clinton could not handle such seismic shifts, she should have appointed senior and respected US diplomats who could lead and encourage the change. Or the US could have called on the World Bank, the UN or other international organisations to help reform. Instead there has been no follow through of any kind.

For many Americans on the right of the political spectrum the riots across the Muslim world and the tragic death of the US ambassador to Libya, which have followed the fake film on the Prophet Mohammed, are just more proof that Arabs can not be trusted and that US aid to the region should be quickly frozen.

But the riots also reflect the anger of people who had expected help from the West rather than derogatory videos. Ultimately, I believe, this horrendous film and the riots which have followed will be seen as a small blip in the blooming of democracy and change in the Arab world. But the Obama administration’s outrage about the absurd views present in video has not come through strongly enough in the Muslim world. To many people in the Arab street it seems that US policy has been neither helpful nor supportive and has not changed since the Cold War.

Returning to my own country, we are faced with an ever worsening situation in Pakistan. Across the border in Afghanistan there is a plan for so-called transition from US to Afghan forces before 2014, but that too is not going well. There is no US strategic plan to secure the Afghan political process that will reach a crescendo of crisis by 2014, when presidential elections are due. The economy is likely to collapse and warlordism return. The lights may literally go off just as the Americans leave.

Pakistan remains on the brink of chaos and needs serious hand holding by outside powers starting with help on the economy. But Pakistanis also have to be told to help themselves by initiating a serious reform agenda starting with ending its double dealing with the Taliban. Relations have deteriorated so badly between the US and Pakistan that it is going to be a long haul just winning back each other’s trust. That too requires lots of follow through.

The only consolation for the Muslim world as we look back on President Obama’s term in office is that a Republican win would be a much greater disaster for everyone. Nobody in this region doubts that presidential hopeful Mitt Romney would soon plunge the US into another war in the Muslim world and we would be back to square one. For the Muslim world a Romney foreign policy has to be avoided at all costs. Barack Obama needs to win the election, and then he needs a team that will follow through.

The writer is best-selling author of several books about Afghanistan, Pakistan and central Asia, most recently ‘Descent into Chaos’

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