Hot air, energy policy and a windfall tax
The debate concerning fuel cost rises and their adverse affects on fuel poverty continues and is taking another turn, namely towards a windfall tax on energy supply companies. Often it is not clear precisely what people are advocating (a tax on all energy suppliers, or just oil suppliers? ) nor what level the levy ought to be. This frequently places the debate in the realms of emotive ‘feels the right thing to do’ rather than in more concrete terms of what really is to be done.
The call for a windfall tax, though, is gathering momentum. The Think Tank Compass, for instance, has recently joined the call for one (http://www.compassonline.org.uk/campaigns/campaign.asp?n=2773). Whilst we appreciate some of the motives behind the suggestion, especially as a number of people in the Midlands have been moved down into fuel poverty ratings following recently energy increases, in our view it is on shaky foundations. Apart from the suspicion that there is a degree of Old Left ‘punish the rich’ mentality behind the idea, the point that energy suppliers make about the need to secure investment in future energy supplies is valid. There are a number of problems with the UK energy system that need addressing, including our limited capacity for storing reserves of gas (http://www.guardian.co.uk/commentisfree/2008/aug/03/energy.gas). Spot prices for gas (the price for immediate purchase rather than at some date in the future) have fallen significantly recently. The UK needs a drastically improved storage system to take advantage of market fluctuations.
If we accept the need to invest in energy infrastructure then it is better if power companies are allowed to retain profits to finance that investment, rather than appropriating them to meet short term government funding requirements. If there is an area where it is appropriate for the state to interfere in the operation of the market it is to ensure that the funds are used for investment instead of immediate investor returns. On current evidence, however, the interference is not justified in that particular sphere and our view is that there is more likelihood of the energy industry making good long-term decisions than the government.
We would prefer to see a government brokered energy supply reform strategy in which the supply companies agree to a concrete plan to address the problems in the energy supply market. This would help alleviate longer term structural problems – which a windfall tax would leave unaddressed. Recent events in Georgia have emphasised the critical need to ensure future energy security. Western European governments have relied far too much on energy deals with Russia, often involving bilateral arrangements rather than a unified European energy policy. Attention now needs to focus on meeting long-term energy requirements from reliable sources within the European Union. This would be true even if it meant reliance on existing coal reserves, although it is essential that coal fired power stations are developed and modified to improve efficiency and incorporate carbon capture technology. At the same time we must maximise the use we make of solar, wind and tidal technologies.
In our view nuclear power is also an essential part of the mix. France offers an earlier example of a move away from reliance on insecure external sources of energy to a predominately nuclear model. It is important to note that this was made possible through the will and direction of the French state. In many ways the involvement of the state in the French economy has been unhelpful for the country’s development. In the context of energy policy, however, market forces will not lead to the best outcomes on their own. We earnestly hope that the government has enough sense of its obligations to the our future lives to resist the calls for a windfall tax coming from some unions and the Left. Instead it must do all it can to guarantee future secure supplies by encouraging the power industry to formulate a suitable strategy. It can start immediately by ensuring that the EDF bid for British Energy is concluded as quickly as possible.
We do agree with the calls by some, including Compass, to more closely couple the fuel poverty issues with environmental challenges. Assistance with fuel poverty would be greatly helped in the longer term by more fuel efficient homes. Further, more homes supplied with their own micro-generation facilities and renewable energies would be helped out of fuel poverty. Many of those in fuel poverty live clustered in particular buildings and neighbourhoods so it would be possible to develop neighbourhood energy schemes to assist them. A national commitment to this would itself offer a major component of future energy policy.
The call for a windfall tax, though, is gathering momentum. The Think Tank Compass, for instance, has recently joined the call for one (http://www.compassonline.org.uk/campaigns/campaign.asp?n=2773). Whilst we appreciate some of the motives behind the suggestion, especially as a number of people in the Midlands have been moved down into fuel poverty ratings following recently energy increases, in our view it is on shaky foundations. Apart from the suspicion that there is a degree of Old Left ‘punish the rich’ mentality behind the idea, the point that energy suppliers make about the need to secure investment in future energy supplies is valid. There are a number of problems with the UK energy system that need addressing, including our limited capacity for storing reserves of gas (http://www.guardian.co.uk/commentisfree/2008/aug/03/energy.gas). Spot prices for gas (the price for immediate purchase rather than at some date in the future) have fallen significantly recently. The UK needs a drastically improved storage system to take advantage of market fluctuations.
If we accept the need to invest in energy infrastructure then it is better if power companies are allowed to retain profits to finance that investment, rather than appropriating them to meet short term government funding requirements. If there is an area where it is appropriate for the state to interfere in the operation of the market it is to ensure that the funds are used for investment instead of immediate investor returns. On current evidence, however, the interference is not justified in that particular sphere and our view is that there is more likelihood of the energy industry making good long-term decisions than the government.
We would prefer to see a government brokered energy supply reform strategy in which the supply companies agree to a concrete plan to address the problems in the energy supply market. This would help alleviate longer term structural problems – which a windfall tax would leave unaddressed. Recent events in Georgia have emphasised the critical need to ensure future energy security. Western European governments have relied far too much on energy deals with Russia, often involving bilateral arrangements rather than a unified European energy policy. Attention now needs to focus on meeting long-term energy requirements from reliable sources within the European Union. This would be true even if it meant reliance on existing coal reserves, although it is essential that coal fired power stations are developed and modified to improve efficiency and incorporate carbon capture technology. At the same time we must maximise the use we make of solar, wind and tidal technologies.
In our view nuclear power is also an essential part of the mix. France offers an earlier example of a move away from reliance on insecure external sources of energy to a predominately nuclear model. It is important to note that this was made possible through the will and direction of the French state. In many ways the involvement of the state in the French economy has been unhelpful for the country’s development. In the context of energy policy, however, market forces will not lead to the best outcomes on their own. We earnestly hope that the government has enough sense of its obligations to the our future lives to resist the calls for a windfall tax coming from some unions and the Left. Instead it must do all it can to guarantee future secure supplies by encouraging the power industry to formulate a suitable strategy. It can start immediately by ensuring that the EDF bid for British Energy is concluded as quickly as possible.
We do agree with the calls by some, including Compass, to more closely couple the fuel poverty issues with environmental challenges. Assistance with fuel poverty would be greatly helped in the longer term by more fuel efficient homes. Further, more homes supplied with their own micro-generation facilities and renewable energies would be helped out of fuel poverty. Many of those in fuel poverty live clustered in particular buildings and neighbourhoods so it would be possible to develop neighbourhood energy schemes to assist them. A national commitment to this would itself offer a major component of future energy policy.
