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on Jul 16, 13 • posted by rhoggett •

New Thinking Blog: The Structural Barriers to a Sustainable Economy – what the political parties have to overcome

The Structural Barriers to a Sustainable Economy: what the political parties have to overcome

Catherine Mitchell, IGov Team, 16th July, 2013

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

In this weeks The New Statesman Century, I argue that the British energy system has developed six characteristics over the last century which raise concerns for Britain’s ability to successfully undertake the transition to a sustainable economy: (1) our centralised energy system; (2) the dominance of a few large companies which expect to make money selling energy; (3) the laissez fair market orientated policy paradigm, including our system of regulation, which undermines a strategic approach; and then as a result of these first three factors: (4) the inflexible way we operate the energy system; (5) the lack of headway we have made in renewable energy deployment and in improving the energy efficiency of our system; and (6) the difficulties we have in innovating whether it be with technologies, new entrants, new business models, new ways of operating the system and new relationships with energy, such as local authority or customer involvement.

These structural characteristics all pose particular challenges to the various political parties as they position themselves in the lead up to manifesto publication in a year’s time. Ed Balls, the opposition Treasury Minister, has made a start on setting out the Labour Party position on delivering a sustainable economy. In an article for the New Statesman, and at a Green Alliance meeting in London recently, he clarified, amongst other things, his support for 2030 European renewable energy and energy efficiency targets and said the Green Investment Bank (GIB) would be allowed to borrow (as occurs with the successful KfW bank in Germany). In this way, the Labour Party differentiates itself from the Coalition Lib Dems – previously thought of as a Party which cared about the environment, and the Tories – now trapped in some depressing climate sceptic versus ‘green’ brawl. Either way the Labour Party is beginning to look like a possible home for (some) discontented green voters.

The Labour Party’s history in this area is not entirely great but at the end of its last period in office it put in place the Climate Change Act (which set the 80% CO2 cuts by 2050 and established the Committee on Climate Change and the carbon budgets) and set the small scale FITs and GIB in motion. Both good.

However, it also set EMR off on its tracks into the Energy Bill and so far has not been too critical of it – in large part because of the Labour Party’s continuing support of nuclear power. At least in the Ed Balls pronouncements there is a hint of concern about its progress.

The Balls’ speech however provides a sliver of hope going forwards for 2 reasons:

Firstly, European energy policy is a key driver of Member States energy policies. At the moment, the key European Union energy policy is the so-called 20-20-20 policy: to cut carbon dioxide emissions by 20%; to provide 20% of energy from renewable energy; and a 20% improvement in European energy efficiency, and all by 2020. Discussions of a 2030 target are already underway with the green groups arguing for 50-40-30 (50% cut in CO2, 40% of energy from renewable and a 30% increase in efficiency by 2030). This is supported by some countries, and opposed by others. The final European 2030 energy policy outcomes will have major implications for the technological pathways undertaken in Europe, where those costs and benefits fall (ie for the companies which provide those technologies; for jobs), the distributional impacts, impacts on incumbent companies or new entrants, whether carbon dioxide emissions targets are met and so on.

The political gossip is that the Coalition Government is teaming up with Poland to minimise all European 2030 targets. The strategy is said to be arguing for no renewable energy and energy efficiency targets while supporting a 50-40% CO2 reduction target. This would then allow Poland, and any other countries, to support the no renewable energy and energy efficiency targets but suggest even lower CO2 reduction percentages. The Labour Party clearly setting out its stall for a European 2030 renewable energy and energy efficiency target is good news for those sectors and climate change policy, and also fits with CCC advice. The other sliver of hope is that Balls did clearly argue that a low carbon infrastructure and an economic strategy is vital for the delivery of a green economy, as well as talking about an ‘industrial policy’, and this is to be developed by the Adonis Growth Review.

However, so far the Labour Party has had limited statements about the vital institutional and governance requirements to successfully transfer the Balls statements to actions (as well as to overcome the 6 key structural challenges raised above). Britain needs institutions and governance which can step up to the rapidly changing operational and technological world we live in. The Labour Party has, in the past, said that it would scrap Ofgem and create a tough regulator that consumers can trust. At the time, I questioned whether this was the right policy. However, I have come to believe that this would be the easiest option to ensure appropriate Duties, rules and incentives change within a regulatory body to enable a move to a sustainable economy. Ofgem is continuing to show itself to be too slow at change and too close to the incumbents (as an example, see discussion of Ofgem’s Second Report into Electricity Capacity).

Energy policy needs to be meshed with the needs of society to become part of a sustainable economic growth strategy. From a Labour perspective, green social democracy in a multipolar world needs to provide a sense of opportunity – and it can, not least as a buffer from world fossil fuel prices, from the spiralling costs of nuclear power and its waste, in opportunities for energy efficiency and buildings refurbishment, and in being prosumers. But it will not happen via the current electricity market reform or Energy Bill, which is just one more entrenchment on the part of the inflexible, centralised system. The Labour Party is going to have to bite the bullet and finally, clearly come behind a more managed energy transition. The Balls speech is one step in the one right direction.