What is UK Energy Policy For? Fossil Fuel Support and Policy Contradictions

Catherine Butler, Caroline Kuzemko and Bridget Woodman – University of Exeter

Those of us interested in climate change mitigation like to think that UK energy policy is about making sure that our energy system is transformed, in a secure and affordable manner, into an environmentally sustainable system.  But this winter’s Autumn Statement, viewed in conjunction with statements made by Chancellor Osborne on Tuesday 20th January, about further tax cuts for fossil fuels, put a new complexion on the functions and aims of UK energy policy. It is increasingly hard to get a handle on the size of state support for fossil fuels, not least because of all the changes, but even before the November budget a report claimed that the UK has ‘expanded the scope of its national subsidies for oil and gas exploration dramatically’.  Recent research, conducted prior to Mr Osborne’s most recent comments, has also claimed that 61% of all UK energy infrastructure spending in 2014-15 will now be on fossil fuels.

The current claim, based on the ‘Wood Review’, is that the UK should extract as much oil and gas as ‘economically’ possible from the North Sea, as part of a wider plan to ensure the UK’s supply security and generate domestic revenue.  This ties in with notions of ‘home grown’ energy that have been increasingly popular since perceptions of energy supply (in)security have risen, and particularly since the UK became a net importer of oil and gas. One only has to re-read the 2006 Energy Review or the 2009 Energy Security review to get a full taste of the degree to which investing in UK fossil fuels is seen as an acceptable answer to fears about supply security.  These fossil fuel support mechanisms are, arguably, also about making sure that the UK does not entirely lose North Sea tax receipts given that the current administration cannot afford lower revenues in its (thus far) unsuccessful bid to balance the books.

Questions arise here, however, concerning who benefits from further fossil fuel support and whether investment in other parts of the UK energy system would yield more positive societal returns.  All social policy exists, after all, to support the collective good of society.  DECC have estimated that the reforms proposed in the Wood Review could deliver 3-4bn barrels of oil equivalent in excess of what would otherwise be delivered over the next 20 years, and that this in turn would yield a £20.7-56.3bn net benefit to businesses.  It is worth noting that since these estimates were made oil prices, and forecasts, have been dramatically falling.

Given, however, that national budgets are, in a time of fiscal austerity, limited decisions about supporting fossil fuels have implications in terms of support not given elsewhere, for example to cleantech or demand reduction.  In addition, analysis by the International Energy Agency (IEA) suggests: that state support for fossil fuels makes it far harder for clean energy to compete; that benefits usually accrue to the wealthy; and, as such, it calls for a phasing out of subsidies globally.  The UK often claims to be a leader in global climate negotiations – but on the basis of its growing support for fossil fuels this claim must surely be contested.  In fact, questions about how support for fossil fuels relates to the UK’s climate mitigation agenda have been almost entirely absent from this national debate – as if energy policy were only about enabling greater extraction of fossil fuels.

So, to be clear: a reconfiguring of state support towards the highest possible economic extraction of North Sea reserves is not positive for climate change mitigation because:

a)     state resources are used up here instead of investment in new demand reduction and efficiency, or low carbon technologies;

b)     using the extracted oil and gas leads to emissions;

c)      it reinforces the supply orientation of the UK energy system;

d)     it feeds into long-term lock-in for fossil fuels in the UK, with global climate implications;

e)     it distorts energy markets in favour of fossil fuels making it harder for clean technologies to compete.

It is also of note that one of the most consistent Government narratives of the past 20 years or so has been about limiting state intervention in and support for energy markets.  In fact, there is also a striking disparity in the narratives that some members of our current government tend to use when discussing support for fossil fuels and that for renewables.  With North Sea oil and gas or fracking, they tend to highlight job creation, national wealth, and future energy security.  When they discuss renewables and efficiency, the message is often about the costs to consumers, reducing subsidy levels, and ensuring improved performance and economic efficiency.  There is a kind of wilful denial in this discourse which ignores the downsides of fossil fuels while enhancing the current need for renewables to rely on subsidies to compete with other subsidised energy options.

In December 2014 the UK Energy Minister, on a trip to Canada, celebrated Britain’s role in developing tar sands, prioritised the North Sea and fracking but did find time to mention the environment.  The fact that no differentiation was made between these areas of policy displays a worrying lack of recognition of the kinds of contradictions laid out above between fossil fuel and climate mitigation policy – both of which are of course part of overall energy policy.  This, in turn, raises the question as to whether, or even when, some energy policy choices and/or priorities need to be discussed and made.  By doing so the UK would have a clearer, more transparent strategy and would send a less mixed set of political and market messages.  This, however, would require the kind of long-term planning and strategic thinking that UK liberal political rationalities militate against.

23rd January 2015

Catherine Butler – HASS Research Fellow

Caroline Kuzemko – IGov Research Fellow

Bridget Woodman – Director MSc Energy Policy

 

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