UK’s energy policy has too much micromanagement - 23 May

“The British government is proud to announce the creation of Green plan. As our energy policy paper, published yesterday [Wednesday], makes clear, the only way to tackle climate change is central schemes and targets for everything from light bulbs to biomass. We need a Low Carbon Transport Innovation Strategy. We need a succession of five-year plans. We need Green plan, modeled on the old Soviet economic planners at Gosplan, to take control.”

Or almost. Wednesday’s policy paper contained some sensible – if rather vague – stuff about energy security and a new generation of nuclear power plants. But it also contained plans, some decided by the European Union, to micromanage exactly how and where carbon emissions will be cut.

The problem for target-setting central planners, be they Gosplan or an imaginary Green plan, is information. The government knows it wants to reduce carbon emissions. But it has no idea whether it will be cheaper to do so by generating renewable energy or making cars more fuel efficient or insulating attics. Whatever it mandates is unlikely to be the cheapest solution.

There is evidence for this. A recent regulatory report estimates that the mandatory requirement for generators to buy renewable energy costs an average of £400 to emit one less tonne of carbon. Yet the EU’s emissions trading scheme can do the same for under £70.

There is a better way. The government should set a uniform price per tonne of carbon emitted. By means of taxes or, where necessary, emissions trading schemes it should try to ensure that carbon costs the same whether it comes from a coal-fired power station, an uninsulated roof or out of a car exhaust pipe.

Once that is achieved the market will decide where it is cheapest and easiest to reduce emissions. It will judge which technologies are most likely to succeed and direct investment towards them.

There is still a role for government beyond enforcing a price for carbon. It should invest in basic energy research. It is also reasonable to change planning policy and building regulations to favour clean transport and energy efficiency.

But carbon micromanagement will mean that cuts to emissions cost far more than necessary. Impose too many costs and public support for the goal – stopping climate change – will be lost.

Britain purports to lead the world in its response to climate change. But its strategy, based on this policy paper at least, is descending into bureaucratic muddle. Gosplan, the world agrees, did not work. Green plan is unlikely to be any better.