Investors believe the Government’s energy policy is based on a “lie”, a backbench Labour MP has claimed.
Barry Gardiner, one of the fiercest MPs to sit on Parliament’s energy watchdog, claimed investors believe the Government isn’t being forthright when it suggests energy is going to become cheaper.
In a calm, less fiery speech than viewers of the Parliament’s select committee hearings have come to expect, made at the Energy Event he said: “I was speaking to the investment community, major hedge funds and investors in the energy sector a month ago. One of them simply said the problem is, the government’s energy policy is based on a lie. I think he was actually too generous: it’s not based on a lie, it’s based on at least three.”
Firstly, he said, “The Government wants people to believe their electricity will become cheaper. It will not. It will become much more expensive.”
He then suggested the Government is wrong to claim new nuclear power stations can be built without dipping into the public purse: “If you look at the associated risks, capital, construction, development, it will not be built without absolutely upfront overt government subsidies.”
He suggested the Government was trying to sneak subsidy to nuclear power “covertly” through mechanisms in the Energy Bill such as the Energy Performance standard and subsidising the price of carbon.
He claimed the third “lie” is that Government is “neutral” and doesn’t pick favourites in energy: “Last year the OECD announced that in 2010 the UK subsidised fossil fuels by £3.6 billion. In last year’s budget, the Chancellor announced a further £65million to oil and gas in 2011… In contrast the total subsidy paid to onshore wind in 2010 was just £400million.”
However DECC was adamant new nuclear power won’t need a helping hand. A spokesman said: “We need investment in a diverse energy mix that is secure, low carbon and affordable. New nuclear will play a role in this, without public subsidy.”
September 12th, 2012 at 10:26 pm
Gardiner is right that green energy will be more expensive. But he’s is either a liar himself when he says “Last year the OECD announced that in 2010 the UK subsidised fossil fuels by £3.6 billion”, or he unwittingly reproduces one.
The OECD analysis of the UK’s fossil fuel sector is here: http://www.oecd.org/site/tadffss/48786785.pdf
It states:
“The United Kingdom has been a pioneer in deregulating and liberalising energy markets through price decontrol, the closure of inefficient coal mines, the removal of subsidies, privatisation and the introduction of competition and open access to electricity and natural gas networks, regulated by an independent regulatory body. Today, there is virtually no state ownership of energy assets and all markets are competitive.”
The greatest part of the £3.6 billion subsidy — £3,2 billion — is calculated by taking the difference between the “Reduced Rate of VAT for Fuel and Power” and the 20% standard rate of VAT that is charged on other goods. But the reduced rate of VAT is not a subsidy in any meaningful definition of ‘subsidy’.
This is highly misleading, especially in a comparison of subsidies to different sectors. The reduced rate of VAT is a benefit to consumers of energy, not producers, and is furthermore the same rate is applied to ‘green’ fuels.
In contrast, the £400m subsidy to onshore wind energy producers is taken from the consumer through their bills and given to producers.
This lie about fossil fuel subsidies was produced by a statistical sleight of hand, and by concealing the data on which it is seemingly based. It has persisted because the OECD’s credibility.
The OECD/IEA analysis compiled data for other countries, to produce the claim that subsidies to fossil fuel sectors was around 12 times greater than for greener energy sectors. However, when calculated on a per-unit of electricity basis, the figure was inverted. On a per MWH basis, green energy is subsidised 13 times as much, even if we include reduced rates of VAT (or their equivalents) as a ‘subsidy’. http://www.climate-resistance.org/2011/10/subsidising-the-argument.html
Report comment Report commentSeptember 13th, 2012 at 8:35 am
The UK energy industry is controlled by just 6 companies who act in unision when delivering energy and pricing. The whole business is opaque,
with over 4000 tariffs for just two products, Gas & Electricity. 50% of the
selling price is the wholesale cost with the other 50% is profit, tax and infrastructure. Bills are often over estimated to ensure credit balances in the account, which is an interest free loan to an already very profitable industry. Bills are complex and rarely understood by it’s customers and as a consequence hide massive profits. 20% of it’s customers are in fuel poverty! While, according to Ofgem the profit per customer is
£125 per annum and growing, to the delight of it’s shareholders, for a product they cannot avoid using.
The UK pays the most for it’s energy and switching companies rarely
deliver any savings, however, their profits are gross and also opaque.
September 13th, 2012 at 10:00 am
Well, it certainly is a lie that fossil fuels are subsidised. We pay over 50p per litre in tax on petrol.
And it is a lie that the government is “neutral”. There are huge subsidies for wind and solar power, through ROCs and Feed-in tariffs, paid for by all of us directly through our fuel bills.
Report comment Report commentSeptember 13th, 2012 at 6:14 pm
The taxes and subsidies for fossile fuels are a muddle. You certainly are taxed heavily on petrol and diesel from oil – much less so for the gas and coal used for generating electricity and heat. Subsidies paid to renewable energy are rather small as a proportion of your energy bill.
I don’t think it’s true (or grammatical) that “The UK pays the most for it’s energy”.
September 13th, 2012 at 6:15 pm
The taxes and subsidies for fossil fuels are a muddle. You certainly are taxed heavily on petrol and diesel from oil – much less so for the gas and coal used for generating electricity and heat. Subsidies paid to renewable energy are rather small as a proportion of your energy bill.
I don’t think it’s true (or grammatical) that “The UK pays the most for it’s energy”.
Report comment Report commentSeptember 14th, 2012 at 1:17 am
Unfortunately some people cannot grasp that a reduction in tax is NOT a subsidy. Fossil fuels are NOT subsidized.
September 14th, 2012 at 9:16 pm
I find it helps to think of fossil fuels as a hard-working household who pay their way and incur taxes on their earnings – and renewables as the family on benefits next door.
September 17th, 2012 at 3:22 pm
At the end of the day, subsidies are costs that can’t be recovered. They are supposedly provided to benefit an industry in order to help lower prices to the end consumer or halt it’s decline when that is also considered to be to the detriment of the end consumer.
The fossil fuel industry might not receive a direct cash injection but there are plenty of ‘subsidies’ that it does receive.
The largest are in the form of tax breaks ie. an indirect subsidy (and money that the Government will need to collect instead in other ways from the tax payer).
These are provided to both the Producer and the Consumer of fossil fuels.
The specific examples of these in order of importance to the fossil fuel industry are:
- reduced Rate of VAT for Fuel and Power (Consumer support);
- PRT Oil Allowance (Producer Support);
- PRT Tariff Receipts Allowance (Producer Support);
- PRT Exemption for Sales to British Gas (Producer Support);
- Inherited Liabilities Related to Coal Mining (Producer Support);
- a variety of tax breaks eg. not having to pay duty on field income to ensure they are fully supported.
Either way, support is being provided and the effect is the same – public money is being used to fund the fossil fuel industry.
Form your own opinion on whether it’s right or wrong but it can’t alter that fact.
September 29th, 2012 at 3:54 am
Of course, the government is going to lie about their energy policy. They don’t want a real debate. I think all of the financial figures should be made public, then we can debate the pros and cons of each energy source. However, this all needs to be done, open kimono. We can’t hide the financial subsidies or any additional costs to the tax payer. These costs should include financial projections to determine the true Net Present Value or Return on Investment of each project. With this complete financial picture, we can then decide as a society the best way forward.