March of the market makers?

Matthew Lockwood, IGov Team, 14th June 2013

About Matthew: http://geography.exeter.ac.uk/staff/index.php?web_id=Matthew_Lockwood

Twitter: https://twitter.com/climatepolitics

Ofgem’s new proposals for liquidity in the wholesale electricity market, out this week, have already attracted a lot of attention. The press release says that : “Industry has responded positively to some of the challenges Ofgem has set for increasing liquidity in the wholesale power market”, but reports are already filtering through that the Big Six are, not surprisingly, unhappy.

If the changes do come through, it is unclear what the implications would be for movement towards a more sustainable energy system, including more renewable generation, energy efficiency and demand-side response. In theory, a more liquid long-term market could mean less volatility in the day-ahead market, with fewer spikes in the reference price that will be used as the basis for the contract for difference (CfD) under the electricity market reforms, which would be good for renewable generators. But in practice the whole system could be vulnerable to gaming, and some smaller players, such as Ecotricity, remain sceptical.

More widely, if the reforms reduce barriers to entry in both wholesale and retail markets we could see greater genuine competition in the form of smaller, potentially more innovative actors entering on both the generation and supply sides – this is clearly what some of those actors hope for. However, if the more fundamental barrier to entry in retail markets is to do with the difficulty of gaining new customers in a market with low rates of switching, then improving wholesale market transparency isn’t necessarily going to help much.

At the same time, Ofgem’s approach begins to look slightly Heath Robinson in nature. There is no such thing as a natural electricity market – all around the world the structure of markets is created by regulation. In the case of Britain, the underlying market design (i.e. the New Electricity Trading Arrangements (NETA), subsequently extended to Scotland in 2006 as BETTA) has produced illiquidity and opacity. To address this by adding on a new market makers obligation seems like reacting to being in a hole by digging deeper. If you want liquidity and price transparency, why not have a pool arrangement or something similar, with a design that ensures sufficient entry and competition to avoid the gaming problems experienced last time round in Britain’s original 1990s Pool?

By: Dr Caroline Kuzemko,  Energy Policy Group, University of Exeter

EPG Working Paper: 1303

Abstract

This paper explores one set of conditions under which a policy area, energy, became politicized. It also explores the relationship between concepts of ‘speaking security’, which claim that the language of security is politically potent, and notions of (de-)politicization. It argues that framing energy supply as a security issue influenced an opening up of UK energy, which had been subject to processes of depoliticization since the early 1980s, to political interest and deliberation. Speaking security about energy had a high degree of popular cognitive authority and to have been instrumental in revealing a lack of policymaking capacity in energy.

Keywords: politicization; securitization; energy and climate policy; change

Contact: c.kuzemko@exeter.ac.uk

Date: June 2013

Download WP3 – Politicizing UK Energy

Catherine Mitchell, IGov Team, 7th June, 2013

About Catherine: http://geography.exeter.ac.uk/staff/index.php?web_id=Catherine_Mitchell

On 4 June 2013, 290 MPs to 267 voted against an amendment to the Energy Bill to include a decarbonisation target of 30% by 2030. Such a target is in line with the Committee on Climate Change’s (CCC) recommendation to meet the UK’s policy of 80% cut by 2050, which in turn relates to maintaining a 2 degree global rise in climate change. A 30% target would also fit with wider requirements to get Europe onto a pathway of meetings its targets, as well as helping to move the UK, Europe and the Globe on from the current inadequate climate change plans and policies in place, as forcefully explained by the IEA ‘s 2012 World Energy Outlook. The amended Bill now moves to the House of Lords for the final vote.

Those who voted against the amendment tend to reduce the argument to (1) we have a legally binding target of 80% cuts by 2050, we do not need another one, and (2) very few other countries have a legally binding target for 2030, so why should we? This is one of those negative, clever-clever arguments which are ultimately dishonest. It could for example be turned around and said ‘What is the problem with having a 2030 target if you intend to meet the 2050 target’. Both these statements avoid the ‘real’ issues that were involved in the vote.

The vote was really about what sort of energy future Britain should have, and how seriously Britain takes climate change. And as shown, a majority of our politicians voted for a ‘dirty’ business-as-usual energy system and gave two-fingers to the idea of climate policy. Without a legislative target by 2030, the current conventional fossil based energy system can continue for a while longer doing exactly what it has always done; with private incumbent interests rather than society’s long term benefit taking priority. It fits with a near-term energy policy based on increased natural gas, some potentially sourced from fracking, but without the constraints of achieving environmental goals (thereby reducing the pressure to improve our renewable energy deployment rate or energy system efficiency) or security and affordability goals.

It is true that not all countries have legally binding 2030 targets. And creating sufficient confidence for investment in an energy system is not just about targets, as usefully explained by the evidence provided by the company, Renewable Energy Systems, to the Energy Bill’s Scrutiny Committee. However, if you are a country like Britain which is trying to increase low carbon investment but has reduced investor confidence because of the complexity of the Energy Bill, then incorporating a decarbonisation target into the Bill becomes a necessity .

So, the only way that voting against the amendment makes sense is if MPs were voting for short-term, private interests or because of political pressure from their Whips. It does not make sense for societal interests of any timescale. No-one is saying that society’s transformation to a sustainable economy is not complex. There are always going to be winners and losers in this transformation but surely the point of Government, and our MPs, is to at least keep Britain on that pathway which is necessary for society, thereby allowing the private winners and losers to slug it out around that framework.

Decisions are made all the time by politicians but those relating to climate change are of a different order, because of its future impacts. 95% of climate change emissions in Britain derive from energy. Energy policy is central to our society’s wellbeing and we have to get it right. The different technological pathways we take are likely to cost us different amounts – the cheapest being the one with the smallest energy capacity on the system because it is energy capacity which drives the total cost of the system. Beyond this, when and where those costs fall differ substantially and have very different distributional impacts, and therefore very different impacts on the development of society and its economy. At root, a rapid move to an efficient energy system and a high proportion of renewable energy will negatively impact the current incumbents and their supply chain. For example, Denmark has a policy to reduce total energy demand by 50% by 2050 – that is reducing sales by 50% and providing energy from new technologies, and by new investors. That is a major change in who is making money out of the energy system. It is because of this that there is a huge fight going on about which technological pathway to follow, and this vote was part of that fight.

The vote also illuminates how ‘political’ energy policy is. There are those who argue that politics should be taken out of energy. But the institutions we have, the process by which rules and incentives of the energy system are agreed and changed is a result of a ‘political’ decision making process, as is shown by this week’s vote. The CCC was put in place so that it gives independent scientific advice to Government on what is needed for climate change – and the vote took no notice of it.

Another amendment voted down was the creation of an expert panel to scrutinise EMR. There is currently no oversight of government decisions in the climate and energy field. Somehow Britain has to create an institutional and governance structure in Britain which acknowledges the political nature of climate change and establishes some cross-party, transparent, evidence based process for establishing the institutions and policy framework we need to meet the challenges of climate change. This might be the creation of an Office of Carbon Responsibility in parallel to the CCC; it might also be separating out a public system operator from the private National Grid; it might be something else. Whatever, Britain has to implement something quickly. It cannot remain captured by the past if we are to have a better economic and environmental future.

Climate Governance by Targets: Where are we now?

Caroline Kuzemko, IGov Team, 5th June, 2013

About Caroline: http://geography.exeter.ac.uk/staff/index.php?web_id=Caroline_Kuzemko

Twitter: https://twitter.com/CarolineKuzemko

A recent and perhaps controversial report by the Berlin based think-tank, SWP Berlin, poses some interesting questions about the global warming limit, and about climate governance by target setting.  It strongly suggests, based on current global emissions trends, that the 2°C limit will be exceeded.  It proceeds however not by discussing what policies are still needed in order that the target be met, but by taking the more radical step of analysing ways in which the limit could be plausibly revised upwards.  The reasoning for this radical, and to some perhaps dangerous, approach is that targets that are presented as ‘make-or-break’ can become if missed a political liability and a detriment to the credibility of climate policy and, indeed, climate science.  This presents us with a Catch 22 situation – targets, as explained in detail below, are an essential part of climate change governance but missing them could also undermine public credibility in low carbon transition.  We need to make every effort to meet climate targets, but must also be in a position to avoid climate governance meltdown in the event that targets are missed.

Target setting lies at the heart of climate governance.  This is essentially because thus far broad political consensus internationally has been limited to agreement on the 2°C limit which means that this target sits at the centre of what international political consensus there is on climate change.  The range of other international and domestic climate change targets that have been set, such as those aimed at reducing carbon emissions, increasing renewable energy and energy efficiency, are aimed at restricting global warming.  Agreement on the 2°C limit, and other associated climate objectives, can also be understood as progress in operationalising politically scientific knowledge about anthropogenic climate change.  Objective setting is one method, therefore, of taking scientific ideas and giving them political saliency and agency in that they direct policy in certain directions – but this also can establish direct connections between climate policy and climate science.  Indeed, policy objectives can be understood both as a statement of what a nation, or a group of nations holds important – in this instance it states that climate change mitigation is something that a given collective is working to achieve.  In some countries these commitments are made legally binding, see the UK’s Climate Change Act, which infers that climate targets will be difficult to miss – but also perhaps that there is a likelihood of missing them which the UK wishes to avoid. 

Climate targets, derived from climate science, are politically important also in that they can be used to hold politicians and civil servants to account on an ongoing basis.  Some countries have established institutions, such as the UK’s Committee on Climate Change, that are responsible for monitoring progress and reporting publically on successes and failures. NGOs around the world have long evaluated and publicised progress made by international and domestic governance institutions in terms of climate change mitigation but this job has been made easier given publically clear targets against which to evaluate progress and hold institutions to account.  Targets as a method of holding political institutions to account is, however, where governing towards clearly defined, binding climate objectives becomes more complicated and we are reminded of the deeply political nature of these targets. A recent report by the Energy Coalition suggests that EU 20-20-20 targets, especially that of energy efficiency, will not be met.  This is just one of a host of recent reports suggesting that targets may not be met in Europe, and globally, and raises questions about how climate targets will be treated if they are missed. What people experience if and when targets are missed may, unfortunately, colour their opinion of the credibility of the targets and the science behind them. 

Such debates are arguably symptomatic of the lack of consensus and perhaps knowledge about the all-important question of how to mitigate for climate change – particularly at the level of detail below producing more energy from renewables, increasing efficiency and lowering emissions.  The Kyoto Protocol implicitly acknowledges this in that it is structured around target setting but does not seek to dictate how to reach them.  These political differences need to be better accepted and debated given the emergence of a more multipolar world that implicitly recognises a wider variety of capitalisms but also because different approaches to climate mitigation exist within countries. Recent debates between supporters of market intervention to support, for example, renewable energy in the UK and those that strongly disagree are illustrative of these ongoing divides that are delaying progress towards meeting targets.  What is also important to note is the degree to which current attempts to mitigate for climate change are unprecedented in nature, particularly in terms of the scale and timing of changes currently required to meet 2°C limits.  This adds a further level of uncertainty.  

The centrality of targets to current climate governance, the unprecedented nature of low carbon transition and the changing political environment in which we currently live makes the question of what happens if targets are not met one that does need to be considered in detail.  This is also because little is really known about what the consequences will be – legal, political or otherwise – beyond the strong sense that climate policy and associated science could lose considerable credibility.  The recommendation, in the SWP Berlin report, that the limit needs to be changed upwards is, perhaps, one that many will disagree with.  Clearly Plan A remains to make every possible effort to ensure that the 2˚C limit is met and, as suggested by an Environmental Audit Committee report, to make much more regular checks against climate targets and improve policies if countries are not on track.  Perhaps what is also needed is the addition of annual indicative targets to keep policymakers on track and, importantly, politicians focused between elections.  But debates about how to proceed in the event of key targets being missed as well a forward planning also need to take place.  This is not least so that alternative plans can be debated, formulated, understood and communicated well in advance of needing to adopt them.

Guest Blog from Graham White, IGov Advisory Group – 3rd June 2013

Current energy policy debate in the UK tends to focus on the role of nuclear and renewables, particularly wind, and the level of subsidy energy users should pay for the development of these low carbon technologies. At a time of economic hardship the balance of energy policy across its three main objectives – security of supply, reducing carbon dioxide emissions and affordability – is under scrutiny and has started to increasingly focus on consumer bills. This has tended to highlight the costs of mitigating climate change – not just in the UK but at the EU and global level as well.

But no matter what rate we agree is a sensible pace at which to reduce carbon emissions it is clear that fossil fuels, particularly oil and gas, will still be needed in substantial quantities for several decades to come. Oil will largely remain the fuel for transport and in the UK gas will remain the fuel for heating. But gas’s role in electricity generation becomes even more important than it has been – when its share of generation has reached around 40 %. As coal plant closes over the coming years gas will increasingly provide the flexibility needed to meet variations in demand and balancing the system as higher levels of intermittent and inflexible low carbon generation come onto the electricity system.

This means a lot of new gas power generation plant will be needed over the next 15 years or so. Analysis by DECC suggests that up to 26 GW of new plant could be required by 2030 and that this could be even higher if the EU does not tighten the EU-ETS and that as a result the 4th Carbon Budget is revised upwards. Under almost any future scenario it is clear that a substantial amount of new gas generation capacity is needed. What is less clear is the pace of development of renewable technologies and nuclear power, and hence the load factor at which new gas plant will operate – the more renewable and nuclear capacity the lower the load factor for gas.

This uncertainty around the generation mix means that to alleviate concerns around security of supply i.e. whether there will be adequate levels of generation capacity, it is important to introduce an effective and efficient capacity market that ensures adequate levels of capacity are available as older plant close. As part of this policy framework to ensure security of electricity supplies the role of the electricity “cash out” arrangements being developed by Ofgem are also relevant and need to be clearly explained and shown to be complementary to the capacity market.

Gas will remain central to the UK’s energy requirements and our energy policy must reflect its important position in our energy mix. This increasingly crucial role for gas has a number of implications for energy policy in the UK. First, it must, for a number of reasons, make sense to develop UK shale gas resources if this is economic and is done in an environmentally acceptable manner. Second, we must continue to pursue a balanced approach to the role of fossil fuels and low carbon technologies – given that we don’t know the likely future costs of low carbon technologies or future fossil fuel prices. Third, we must not ignore carbon, capture and storage – not just because it could be important for gas generation but also because of the increasing use of coal in other countries such as China. Fourth, there needs to be clarity and certainty around Electricity Market Reform, including the level of low carbon subsidies, the form of capacity markets and the extent to which carbon pricing (and its implications for the competitiveness of UK industry) is determined at EU or UK level. Fifth, public and political consensus on the overarching longer term energy policy framework, including the balance between the three main objectives and the role of the private sector, is vital for future investment. 

Given the huge investment challenge facing the UK energy sector, and the current difficult investment climate, the need for a stable, predictable and balanced energy policy has never been more important. Balancing the three objectives of energy policy is not just a decision for the UK – it is dependent on the international climate change negotiations due to be completed in 2015 and the EU’s position in those negotiations. This in turn will have an impact on EU energy policy. These negotiations will determine how far and how fast the international community, and the EU in particular, are prepared to cut carbon emissions. They will also raise the question about whether it make sense for the UK to go beyond the EU’s position, both in terms of emission targets and setting carbon prices. There is unlikely to be clarity on these points in the short term and it may not be until sometime after 2015 that the situation becomes clear. But for the UK this policy balance needs to be agreed sooner rather than later, otherwise we risk delays to the building of new gas plant that will be needed over the next decade.

In the meantime the future UK electricity market will be characterised by a range of Government interventions that determine (a) the overall generation capacity (the Capacity Market); (b) the level of emissions from power stations (the Energy Performance Standard); (c) the share of low carbon generation capacity (the Contracts for Difference); and (d) the carbon price (the Carbon Price Floor). Such a system, with a number of unknown interactions, risks the development of private sector participation that simply looks for guaranteed rates of return provided by Government and with all the risks borne by the Government.

This more interventionist approach is in sharp contrast to the previous policy of free market competition which is still largely being pursued across Europe. In order to transition to a low carbon generation mix, is such an approach (with a much stronger role for Government) inevitable? Or can a regulatory framework be developed that, over time, gives the private sector a bigger role and encourages competition to deliver innovation, cost reduction, etc. Given the widely different cost structures for the different forms of low carbon generation, competition between technologies seems unlikely and a long term capacity market in which the Government continues to set the fuel mix the most likely outcome. But if a more competitive framework can be designed then the private sector needs to be clear about the type and size of market in which it is to compete for the long term (20 years or so) so that it can take the necessary investment decisions.  

But the UK cannot develop its energy policy in isolation to Europe and key decisions on the EU policy framework still need to be clarified. If the EU is serious about tackling climate change it cannot continue to pursue a simple free market approach to energy, it needs to develop a stronger focus on carbon reduction (leaving the means to achieve this to member states) and strengthen its commitment to carbon pricing through the EU-ETS; clarify its approach to low carbon subsidies (including what constitutes state aid); and decide on the electricity market framework it wants to put in place (including the role of capacity markets). All these policies raise issues around the balance between what is decided at EU level and what is right for member states to decide.

Contracts for Difference – Devilishly Detailed

Tom Steward, IGov Team, 30th May, 2013

About Tom: http://projects.exeter.ac.uk/igov/people/igov-team/tom-steward/

Twitter: https://twitter.com/Steward_T

It seems the Government and EDF may be moving towards shaking hands on a deal to financially support to a new nuclear plant in Somerset,  Hinkley C. Unsurprisingly, this has led to enormous speculation over how much consumers will have to shell out over the coming decades – such as  here, here and here.  These figures are little short of terrifying, and although I think they should be taken with a healthy pinch of salt[1], I want to explain why they are not the only reason that Contracts for Difference (CfDs) represent such a bad deal for everyone – except maybe anyone looking to build a new nuclear plant.

What are CfDs and how will they work?

CfDs are now widely-discussed, and fairly well-understood, so this section may be worth skipping for anyone who is well-acquainted with the mechanism. I include an explanation here to lay out as clearly as possibly the complexities of the CfD, in order to highlight what effect they are likely to have. As with any complex policy, the devil is in the detail, and the CfD is nothing short of devilishly detailed.

The CfD is essentially a financial support mechanism for low-carbon generators in the form of a contract between the generator and a government-owned counterparty.  The CfD will eventually replace the Renewables Obligation (RO) but expands support from just renewables to include new nuclear and Carbon Capture and Storage (CCS) as well. The level of payments from a garden-variety CfD is based around two things – a ‘strike price’ and a ‘reference price’. The strike price is set in advance of the start of the contract and is likely to be fixed in real terms (The exact method by which the strike price will be inflation-adjusted is yet to be confirmed). The reference price is  dynamic and moves in reference to the wholesale electricity price. The payment that is received by the generator is the difference between the reference price and the strike price. If ever the the reference price exceeds the strike price, the generator is required to pay that difference back to the counterparty. So far so good.

The detail…

There are essentially two different types of CfD – one for intermittent generation (ie renewables) and one for baseload (ie nuclear and CCS). These differ principally around three things – length of contract, the reference price calculation, and the strike price.

Contract Length – Contracts for renewables are likely to be in the order of 15 years, CCS 10 years, and nuclear is as yet unclear. Discussion for Hinkley C, the only new nuclear plant under specific discussion at the moment, have been rumoured to focus around the 35 – 40 years mark.

Reference Prices – Even more devilish is the mode by which the reference price is set. For renewables it will move with the day-ahead market, meaning the reference price and the market price will track each-other quite closely. However for baseload generation, the reference price will be set for 12 months at a time on the basis of the average year-ahead wholesale price.

Strike prices - These will be set differently between baseload and intermittent technologies. By this, not only do I mean that different technologies will receive different strike prices (this seems quite logical, and is what occurs under the current RO). But also, that where renewables will have their strike prices imposed upon them, baseload technologies (namely nuclear) will negotiate strike prices on a project-by-project basis. This is exactly what is currently happening between the Government and EDF in relation to Hinkley C.

So what does this all mean?

Inequality of contract length is fairly self-explanatory, but things get a little murkier when looking at the reference price setting. Essentially it means that if the wholesale price spikes above generators’ respective strike prices, renewables will have to make payments back to the counterparty (because their reference price tracks the wholesale market), but nuclear generators may in fact make super-normal profits during this time as their averaged reference price does not so closely track short-term spikes in the wholesale market. Ie they will continue to receive CfD payments based on a reference price below the market price, and additionally be able to sell into the market at a higher price.

The method for setting strike prices are too, somewhat unclear. Centralised-setting of strike prices, as occurs under the RO, could be argued as fairly logical (possibly with a few caveats). However, negotiations between a generator and the government over the appropriate level of support, held behind closed doors, surely sets alarm bells ringing for everyone. A robust strike price is essential to the working of the CfD. The central premise has always been that the strike price should act as an upper-bound to support, so that if wholesale prices rose sufficiently high, generators would begin returning payments to the counterparty. If the strike price is set at a level that the wholesale price is never likely to reach (or even approach) these return payments will never occur.

What are the other issues?

PPAs – The CfD also means that renewables may be facing a tougher future than they would under the RO. The nature of the RO requires suppliers to source a certain amount of their electricity from renewable generation (or purchase equivalent ROCs) – which gives renewable generators, which are often independent from suppliers, some leverage when negotiating supply contracts (PPAs). The removal of this obligation, and with no prioritised access to the market, removes this bargaining chip. This removal also means that vertically-integrated suppliers like the Big-6 have a reduced incentive to invest in renewable generation.

Affordability and Generation Mix – The interaction between CfDs, affordability, and technology-mix is particularly interesting. CfDs will fall under the Levy Control Framework (LCF) – this limits the direct financial impact that DECC’s policies have on bills. The level of the strike price for Hinkley C, and the future wholesale price, will have huge impacts on how much money is left in the pot for other projects. The nature of the mechanism means that as the wholesale price increases towards the strike price, less subsidy is paid, leaving more room in the LCF for investment in other technologies. However, obviously high wholesale prices mean high retail prices – not very affordable.

However, if we faced a situation where the wholesale price was fairly low, a large proportion of the LCF would be swallowed up by the support for nuclear. This would leave little room to support other technologies, likely creating a knock-on effect for their attractiveness for investment. It is not hard to imagine that in such a situation, we could see an upswing in investment in traditional generation such as gas plant – helping to bind retail prices to the notoriously volatile wholesale gas market – again, not very affordable.

Added to such concerns around affordability, is the lack of clarity over the degree to which the government may agree to underwrite the cost of construction overruns of nuclear plant – something that new nuclear has become famous for.

All in all, I agree with many spectators that the level of support likely to be given to nuclear (a technology that has been in commercial operation since the 60s!) is completely exorbitant. However I worry that the anger at huge figures distracts from the more concerning underlying features of the CfD that risk stemming the flow of investment in renewables.

1pm – 4pm

Library Events Room, The Royal Society, 6-9 Carlton House Terrace, London SW1Y 5AG

Attendees:

IGov Team: Catherine Mitchell, Matthew Lockwood, Caroline Kuzemko, Richard Hoggett, Tom Steward

Advisory Group: Tim Foxon,  Dorcas Batstone, Chris Harris, Staffan Jacobsson, Richard Lowes,  Keith MacLean,  Simon Skillings, Chris Welby, Graham White and Judith Ward.

Agenda

1)    Roundtable introductions

2)    Discussion on role and remit of Advisory Group

3)    Overview of IGov

• Introduction to IGov 
• Overview of work to date
• Introduction to next work package

 4)     Feedback and discussions

 Papers:

• Summary of IGov
• Overview of work to date on theories of change
• Overview of what we think is wrong with the current energy system and how it should change

Richard Hoggett, IGov Team, 22nd April 2013

About Richard: http://projects.exeter.ac.uk/igov/people/igov-team/richard-hoggett/

Twitter: https://twitter.com/HoggettRD

The gap between the rhetoric and reality in climate and energy policy has never been wider. We recently passed the symbolically important 400 parts per million level of carbon dioxide in our atmosphere, a level not seen for millions of years; and WWF asked how long will it be before we hit 450ppm, the level at which there is a 50:50 chance of keeping global warming to less than two degree centigrade. New research also highlighted that, based on nearly 12,000 peer reviewed papers on climate change, less than one per cent of them reject human causes. A new report from the IMF on global subsidies for fossil fuels showed that in 2011 these amounted to $1.9 trillion in 2011, equivalent of about two and a half per cent of world GDP. Whilst research from Carbon Tracker shows how little of the world’s current proven reserves of fossil fuels can be used if we are to avoid the worst effects on the climate.

The current UK government continues to show poor leadership on climate change. This includes on-going support for fossil fuels, such as the tax breaks offered to both oil and gas, and more recently shale gas. There are suggestions that they may now support the import of Canadian tar sands oil, despite the impact these have in terms of climate emissions. We have sceptical senior politicians undermining climate action – Osborne, Hayes, Paterson, Lilley, even Gove is giving it his best try. Not to mention the on-going political fudging around introducing a 2030 decarbonisation within the Energy Bill. Most recently the Government confirmed its position on pushing ahead for ‘responsible’ shale gas production – despite the fact this could lock the UK into fossil fuels for longer, may have little impact on energy bills, and cannot be relied upon to increase our energy security. It needs to be left in the ground.

In our policy goals for climate and energy security, as well as affordability, climate is coming out a very poor third. In  recent blogs, my colleague Matthew Lockwood highlighted that not only is the climate change act  not politically secure, but that there is a growing populist climate denial, requiring new and better communication on the issue. More political attention is instead given to concerns over the lights going out, driven in part by the media – despite the reality of this being low; and most importantly to growing concerns over energy bills. Voters are also portrayed and understood as being more interested in other issues, such as economic growth and employment – the salience of climate change, for many, is comparatively low compared to these. No doubt, many also feel disempowered by the enormity of climate change, the implications it has for how we live our lives and what we might be leaving for our children. The result, no political party is serious about climate change.

How have we got to here?

Whilst our energy system has changed to some degree over the last few decades, and we have made some ambitious targets, the policy approach has not led to structural change or more sustainable outcomes. This in part, I think, reflects the fact that the grey, pale, males that dominate the energy policy world are stuck into centralised thinking: Large scale generation and supply; institutions; rules and regulations; and a focus on supply almost regardless of the level of demand. All these suit a few big players and the money, influence and lobbies that come with them. These incumbents are able to use their assets and strength of position to resist or direct the kind of change that could be forthcoming. Furthermore, the dominant pro-market approach, and the institutional regime that is been built around it, favours these incumbents and those technologies that are least disruptive to it. Our current ability to make a transition is therefore constrained by the nature of the UK’s institutional system and policy paradigm – something IGov is focussing on.

In addition, energy continues to be viewed as commodity, rather than a public good, with no serious or sustained attempt to engage people about the climate or energy options that we have. People are characterised as passive, unaware and uninterested in energy and so the impacts our demand for direct energy services (heat, light, mobility, etc) and of our wider indirect consumption of goods and services, get lost from view. This is all tied up in our behaviour, lifestyle and consumer practices, which interrelate in multiple and complex ways. However, tackling climate change and moving to a low carbon future needs both the acceptance and take up of low carbon technologies, and changes in the way people  use, think and interact with energy.

How might this change?

Clearly there is no one solution, but an important and overlooked one, for me, relates to scale. A lot of our end use comes down to the built environment in which we work and live. Reducing demand is the logical first step, something the complexity and interest rates of Green Deal may or may not achieve, especially in light of its early results; and as ACE recently highlighted, as something the DCLG consistently undermine. Making energy-use more visible through smart meters and the options this may open up for demand side response also have a role to play. In addition, local generation can create more active consumers (or pro-sumers) through smaller scale technologies, like PV at the building scale. Data on the UK feed-in-tariff shows that within three years there have been over 379,000 installations – there is not a direct correlation, but this represents a significant number of new players within the energy system, as well as new investment. I have written before on how Community-led approaches can also play a central role, attracting local investment; increasing participation, control and democracy; and helping to change attitudes and behaviour towards technologies, demand and the climate. Increasingly those schemes that generate revenue are also able to self-fund wider energy and sustainability initiatives at the local level. These projects come in ranges of scales, and many are not small and cuddly – the ambition and appetite is considerable. Most of these projects, outside of Scotland at least, have emerged despite of policy, not as result of it. More individual or community based approaches are not for everyone, but for those able and willing to participate, they potentially offer an important route for moving to a more sustainable energy system.

It’s early days for knowing the impact of these sorts of approaches in terms of wider behaviour and emission reductions at the household and community level, but the signs are positive – from communities themselves, funders, academics and from those suppliers that put the people at the centre of what they do. Yet successive governments have never given much space or support for more decentralised, people-focussed approaches; it’s always been a side show in the centralised thinking. Grant programmes have been small, and have come and gone. The frameworks that shaped and enabled local authority engagement and support were also dismantled by the Coalition; including regional energy and sustainability strategies, and the National Performance Framework that included indicators for per capita carbon dioxide emissions – something that was widely adopted by local authorities.

If we are serious about climate change, the economic benefits that green growth can bring and if we recognise that people need to be engaged – scale deserves more attention. The market needs to change to benefit those who pay for it – i.e. people. The Energy Bill is a million miles from this, despite some recent potential positive noises for smaller scale generators. Evidence to the current ECCC sessions on local energy is highlighting the range of benefits that smaller scale projects can bring, as well as the barriers that these sorts of approaches face. DECC are also in the process of developing a community strategy; let’s hope this has some real meat to it and that it gets some space and recognition in the bigger picture of things. For me, an approach that puts people back into the heart of the energy system is a missing part of the low carbon jigsaw, collectively we all can play a much bigger role than our politicians are currently willing to acknowledge or support.

Martin Wolf recently pointed out that there is a risk that we will watch the rise in greenhouse gases until it is too late to do anything about it. In John Ashton’s talk last week, he highlighted that to fix climate change politics, we need to fix politics itself, to get the consent and democracy is an explicit political choice – the social fabric and public vision have and are being lost. This requires leadership and giving people an honest and real opportunity to play an active and meaningful role within the market; it could also open up a more democratic and effective approach to a sustainable energy future.  

From: Caroline Kuzemko

To: Research Meeting with Earth and Environment Group at Leeds University

Download Presenation: CK-Leeds-16-05-13

Summary:

Socio-technical transitions literatures can tell us a great deal about how complex, dynamic systems transition – partly through the analysis of previous large-scale, industrial transitions.  One key insight from STT literatures is that governance, and specifically policies that can help to incubate and support technological innovations, is important to low carbon transition.  The politics of energy system change, towards a lower carbon future, is however not at all straight forward – politics has in many respects acted as a constraint on transition more often than it has facilitated change.

This presentation applies a framework based on STT and sociological and historical institutionalism to UK energy and climate governance in order to provide specific and contextual explanations of change.  It argues that in order to explore and understand the politics of low carbon energy transition specific understandings need to be formulated: both of how energy interacts with other political institutions and of how energy policy is itself constituted.  Other political institutions, for example the neoliberal economic policy paradigm, have constrained and coloured change even given specific renewable energy targets.  This has partly to do with how this paradigm has over time structured power relationships in the UK between government and private institutions (or states and markets).  Energy policy, on the other hand, is now formulated with three different objectives in mind – each in turn based on a different conceptualisation of energy, its function in society, and how it should be governed.  This energy security-climate nexus has interacted with the neoliberal economic policy paradigm to create a highly complex and fast changing energy governance system – that has so far afforded little support for low carbon technologies or, indeed, other climate change targets.