Ed Davey: "To help our economy grow, we have to attract tens of billions of pounds of investment in energy."
Where should the UK get its energy—and is government policy on course to take us there? The desire to cut carbon emissions while securing affordable and competitive energy, in a time of changing technology and high global oil prices, is among Britain’s greatest challenges. Ed Davey, Secretary of State for Energy and Climate Change, confronted this knot of problems at a Prospect roundtable discussion, held in partnership with BG Group and Durham Energy Institute, one of Durham University's research institutes.
“We have a massive infrastructure programme in the UK,” said Davey. “About £250bn in the course of the next decade—and half of that is in energy. If you think infrastructure is key to helping our economy grow, it’s basically energy and we have to attract tens of billions of pounds of investment.”
But even if such amounts are raised to pay for new energy infrastructure, this huge injection of capital could bring further problems, he said. “We have to do that with an eye on the impact on prices,” said Davey. “Energy prices are a very big issue for households and business. We’ve got to do this massive investment in a way that is affordable. The need to do that is critical for growth. If we hobble the UK—consumers and business—with high energy prices, then that’s a very bad thing, whether you’re thinking about fuel poverty [some households’ difficulty in meeting their fuel bills] or the global race in which the UK’s competing.”
David King, the former chief scientific adviser to the government and director of Cambridge Kaspakas suggested that the maintenance of low energy prices could prove counterproductive for climate change targets as this encouraged consumption. “If we are looking at energy costs,” said King, “there is an argument for pushing energy costs up to drive better behaviour through the system. The question is, how do we deal with fuel poverty in those homes where the government is assisting people in terms of energy poverty? A more dirigiste approach is required here.”
King also raised the matter of the government’s balance of payments, saying that there was a strong economic case for generating more energy in the UK than is presently the case. “Our production of North Sea oil, which used to be 3.1m barrels a day, is down to 1.6m,” he said. “We are having to import today and we are seeing a rising part of our balance of payments in Britain coming from energy imports. We need to focus on what we can produce in this country, putting British people to work on these energy sources and cutting down on the need to increase exports to buy in the energy we need.”
But government intervention in industrial policy has a sorry history. Davey stressed the importance of using market forces as well as government pressure, because “we are only going to move to a low carbon market if there is government intervention. Left to itself it would not happen. We have to combine a state approach with the power of the market.”
“The critical success factors are politics and money,” said Davey. “Politics is a necessary condition for getting the money. This means we have to have consensus—these policies are long term and we have to convince investors to put their money up for 20, 25 years, with nuclear even 60 years.” Getting a political consensus is crucial “so that people feel confident that policy isn’t going to change in two years.”
Political consensus is strong, he argued. Davey noted that the Labour party is broadly supportive of the government’s plans, adding that “Ed Miliband set off some of the leadership work on electricity market reform.” As for agreement between Liberal Democrats and Conservatives within the coalition government: “It is true to say that it’s a little bit more difficult in coalition,” Davey said, “but a little easier than the papers would have you believe.”
However, some topics are highly contentious, such as the location of wind farms, and though he recognises that wind must be part of Britain’s energy mix, “I don’t want to have onshore wind in places that irritate people… We have looked at how communities can benefit from hosting onshore wind. I hope this can persuade people that this is not so unacceptable as people might think. If you show communities that there is something in it for them, their acceptance levels increase dramatically.” Suggestions that communities have been bribed into accepting wind turbines in their areas have led to criticisms of this approach. There has also been a forcefully put case that the economics of wind power is ill thought out and that the incentives offered to wind energy companies have a distorting market effect.
Responding to this criticism, Davey said that: “Wind developers don’t get any money or subsidies if they do not generate. If they are as bad as some people say, they will go bust. It’s almost as if people think these people are getting rich with wind turbines that are not going round. Not true.”
Fracking, the injection of high-pressure fluid into the ground to release pockets of gas, is also contentious. This process has been used in gas exploration near Blackpool and was blamed for several earthquakes that struck the area. Activity was halted—Davey accepted that his lifting of the moratorium on drilling in the area in December 2012 was not universally popular, but argued that the regulations governing the practice are now stringent.
On Britain’s potential to replicate the US’s success in exploiting shale gas and fracking to get comparatively clean, much cheaper energy, he advised caution. Some people are saying “that ‘if only the Lib Dems were not holding back shale gas we’d have cheap energy now’,” said Davey. “It’s nonsense.” The volume of drilling in Britain is not comparable to that of the US, and the principal motive for drilling for gas in Britain would be energy security, not price. “It’s better to have it produced in the UK than bringing it in from Qatar,” said Davey. “But you have to take the public with you.”
He expressed concern about the public perception of the future of energy in Britain. “I have tried to avoid suggesting that cheap energy is round the corner,” said Davey. “It would so irritate the public if that doesn’t arrive that we might lose the whole political ability to deliver this transition. I’m mulling the question of how frank we should be about cost.” People assume that governments can control global energy prices, he said. “We need to make it clear that we cannot.”
Much of the speculation surrounding the decline in energy prices has come because of over-optimistic assumptions about the effect of gas discoveries on the UK economy. Richard Davies, director of the Durham Energy Institute pointed out that the scale of extraction required would have to be vast: “It would take many years and thousands and thousands of wells to make an impact on the imports that we now have,” he said.
Professor Julia King, vice chancellor of Aston University challenged Davey on climate change where, she said, “urgency seems to have been lost.” Plans for setting a decarbonisation target by 2016, show “that we have not really understood the urgency and we are prepared to keep putting things off,” said King, meaning that targets on global warming will be missed. “We need to sharpen people’s understanding about what these kinds of temperature changes will mean.”
At the 2009 UN climate change meeting held in Copenhagen, participating nations agreed a target to reduce emissions of greenhouse gasses, to stand a good chance of limiting global warming to two degrees Celsius above 1997 levels. However, Davey said, “The scientists who advise me say that [the] two degrees [target] is not gone but that it is very hard to get to.”
Davey allowed that the most crucial decisions on the question of global warming will be taken in Washington and Beijing, but said that Britain has influence, not least within the EU. But Chris Finlayson, CEO of BG Group, indicated the importance of keeping close watch on developments in European energy production: “The US has done more to improve its carbon output while our friends in Germany are putting in more lignite capacity and the EU, the home of carbon concerns, is increasing its carbon footprint.”
According to Davey, in certain eastern European countries, there was a lack of concern about climate change. This was especially true in Poland. “The Poles are critical,” said Davey. “If we can help the Poles create an energy policy that is climate change friendly, we will push Europe more quickly and that will help the climate change talks in 2015.”
As for the US, “Obama is likely to go to carbon capture and storage,” a process whereby carbon dioxide from power stations is stored in such a way as to prevent its entering the atmosphere. “I think you will find the Americans are putting in a huge amount of money,” said Davey. “The Chinese are putting in huge amounts of money,” to carbon capture, partly because of environmental degradation in China and the political consequences that the government fears from further deterioration.
One member of the panel commented that the magnitude of the problems faced by Britain and the world were so extreme that energy reform of the required scale could only be realistically thought of as a 100-year project.
“A 100-year project?” said Davey. “We don’t have the time.”
In attendance:
Rt Hon Ed Davey MP, secretary of state for energy and climate change
Bronwen Maddox, editor, Prospect
Professor Sir David King, UK government’s chief scientific adviser and head of the Government Office of Science, 2000-2007
Chris Finlayson, CEO, BG Group
Sir John Grant KCMG, executive vice-president policy & corporate affairs, BG Group
Professor Richard Davies, director of Durham Energy Institute, Durham University
Professor Jon Gluyas, chairman, Board of Studies & professor in CCS and geo-energy, Durham Energy Institute
Laurence Carpanini, director, smart metering and smart grids, IBM UK
Tim Cornelius, CEO, Atlantis
Malcolm Grimson, associate fellow, energy, environment and resources, Chatham House
Professor Michael Grubb, faculty of economics, University of Cambridge
Professor Michael Jefferson, former deputy secretary for the World Energy Council
Guy Johnson, company secretary, general counsel and director of regulation, RWE Npower
Angela Knight, chief executive, Energy UK
Professor Dame Julia King, vice chancellor Aston University
David Odling, director, Oil & Gas UK
Thomas Reilly, head of UK government relations, Shell
Denis Linford, corporate policy and regulation director, EDF
Will Straw, associate director for globalisation & climate change, IPPR
David Williams, CEO, Eco2
Adrian Worker, vice president business European nuclear programmes, CH2M HILL
David Handley, chief economist, RES Group
For further information contact Adam Bowie, partnerships & events manager on Adam.bowie@prospectmagazine.co.uk
