by Jeremy Becker
A nation’s fortunes are always closely tied to its energy policy, and Britain is no different. The island’s hyperabundance of coal was central to its industrial revolution and a key component of its 19th century export trade. Until the outbreak of war in 1939, Britain was the world’s largest energy exporter when its export trade was diverted to the domestic war effort and it lost access to Europe. Attlee’s postwar socialist government nationalised the coal industry and gave the trade unions extraordinary powers, leading to a precipitous decline in its coal output. Unlike the French who under De Gaulle invested enormously in nuclear power, Britain saw declining productivity and an increasing dependence on Middle Eastern oil, leaving it vulnerably exposed to the 1973 oil shock. This oil crisis led to a dramatic reconfiguration of its economy in a turbulent decade of stagflation, IMF loans and paralysing strikes while triggering a desperate search for alternative energy sources. Britain’s economic recovery in the 1980s was a much to do with Thatcherite restructuring as with the fortuitous discovery of North Sea Oil. In fact, by 1985 Britain had become the world’s 5th largest oil producer, ahead of Libya, Iraq, Nigeria, Iran, Venezuela, Kuwait and Egypt.
Starting in the Blair years, Britain led the pack of developed major economies in their efforts at decarbonisation. Ed Miliband as the energy minister in Gordon Brown’s government began a policy of shutting down Britain’s coal plants and replacing its share of the energy mix with gas, usually imported from Russia and Qatar creating a dangerous and expensive dependency on unreliable states and vulnerability to price-gouging. In 2008 Miliband torpedoed Britain’s first coal-fired power station in 30 years and then announced that “no new coal-fired power station would get government consent without it having equipment to capture and bury at least 25% of emissions now and 100% by 2025”. Britain’s energy prices fell from 1993 to 2003 but from 2004 onwards rose dramatically from 4p per kWh to 8p by 2009 and then from 8p to 14p from 2010 to 2019. These carbon-emission focused energy policies correlate not just with an era of rising prices but also Britain’s wider economic slowdown including its stagnation in productivity growth and decline in its industrial competitiveness.
This decarbonisation initiative took on new dramatic urgency under the May and Johnson premierships. Theresa May legislated to get net zero by 2050. In 2013 the government introduced extra carbon taxes to push electricity generators away from coal. British governments bet big on renewable energy of solar and wind in particular, and on the expectation of continuously falling prices, but this has proved mistaken. The current government has a new target set of 50GW of offshore wind by 2030 from current levels of around 14GW but this looks in jeopardy due to rising costs and rising interest rates. Energy UK, the trade body, claims that overall costs for new low carbon developments have climbed by 20pc-30pc in recent months. Henrik Anderson, chief executive of Vestas, the world’s largest turbine maker, warned in January 2022 of a “troubling and challenging market”. Vedas started the year 1.7 billion euros in deficit and raised the average selling price of its turbines by more than one-third to €1.15m per megawatt. Likewise, chief executive of rival company Siemens Gamesa warned the energy transition could be in jeopardy due to rising costs.
Boris Johnson boasted of his plan to make Britain “the Saudi Arabia of wind power” and made Britain’s leadership of COP one of the pillars of his premiership. Britain is the one of windiest nations in Europe and on the surface, this seemed like a workable idea. This vison however was based on fatal errors regarding wind power’s costs and reliability. Investment in wind has not heralded the improving reliability and falling cost of offshore wind, while each watt of renewable energy has had to backed up by fossil fuel supply, meaning Britain spends double for the same energy. Intermittency and storage costs have not fallen and remain a major barrier to any energy transition built on wind and solar.
Britain’s gamble on offshore wind has been coupled by a complete underinvestment in nuclear power. Nick Clegg as deputy prime minister in 2010 vetoed new investment in nuclear by arguing that it was no good because it would only come on grid in 2023. The case for nuclear power was further hindered by the 2011 Fukushima disaster in Japan, even though the incident demonstrated nuclear energy’s comparative advantages. The Government’s current plans see nuclear output more than tripling from 6.9GW to 24GW by 2050 to meet around 25% of Britain’s electricity demand but these plans are nowhere near ambitious enough. Electricity demand is also set to grow as heat pumps and electric cars proliferate. For example, in 2021 nuclear provided 68% of France’s electricity usage, Britain should aim for 50%.
Britain’s current economic woes: chronic inflation, a permanent deindustrialisation crisis contributing to stagnation in real wages and the consequent decline in incomes and living standards, is directly related to its misguided rush to decarbonise ahead of everyone else. The effect of carbon taxes, the starving of the coal industry’s access to investment and price guarantees to wind developers has meant in 2021, average electricity wholesale prices in Britain were £113 per MWh, compared to €96 per MWh in Germany.
British industry since the 1990s outside of its bloated service sector has hugely underperformed against its international competitors contributing to the nation’s trade and current account deficits. A major cause of this is its uniquely high energy costs. In fact, even before the Russian invasion of Ukraine, Britain had easily the highest industrial energy prices in the developed world. In average pre-tax industrial energy prices over the last 5 years Britain was higher than everyone bar Japan and double the USA and Germany. Britain’s decarbonisation has exactly paralleled its rapid deindustrialisation. The industrial price of electricity tripled between 2005 and 2019 and more than doubled in real terms. In fact, Britain has paid directly for this lead in decarbonisation with higher prices and lower growth.
A major victim of this energy policy has been the UK steel industry. Steel despite being more productive in output per hour than every segment of Britain’s service sector, has been left to die from laissez faire neglect, free-trade and exorbitant energy input costs. In the past half-century, no other country except Venezuela has seen steel production fall as fast as the UK. If wholesale energy prices are combined with carbon taxes and network costs, UK energy costs are nearly double Germany and more than a third more than those in France.
In the 1970s almost a quarter of a million people worked in steel, today it is down to around 39,000. Part of this is to do with automation and its productivity enhancement, but much of it is also to do with an industry shrinking from rising costs and falling demand in the face of foreign competition backed by cheaper energy. In fact, Britain’s failing steel industry could provide essential components for the enormous fleet of offshore wind turbines being built and help its energy transition but is thwarted by government neglect and bad energy policy. The materials for these turbines will instead likely be transported from abroad. The emissions from these industries likewise have not been reduced but merely outsourced to places such as China with no net effect on global emissions.
This energy policy has hindered Britain’s industrial competitiveness in other crucial sectors. Nissan, the only UK car manufacturer with a gigafactory in the country in May released a press report in which said it was considering building another two gigafactories in Britain but were put off by the country’s comparatively high energy costs. Britain’s richest man and one of its few homegrown successful billionaire industrialists Jim Ratcliffe called UK energy policy “crap”, arguing “Energy policy is complex, but it’s not rocket science [ . . .] You are not going to be able to power the whole of the UK on wind.”
From an environmental perspective this policy is also misguided. The UK contributes only around 1% to global carbon emissions and realistically speaking its policy decisions on the climate are negligible compared to the rising powers of China and India. Britain can play a significant role in mitigating climate change, but this should be done through developing new carbon-efficient technology that can then be scaled and deployed to major industrial economies not by an accelerated industrial suicide. Britain can only do this with a prosperous economy sustained by high growth rates that can develop and invest in new technologies. Rather than serving as a blueprint for other countries’ energy transition, Britain’s self-inflicted fiasco is likely to deter other countries from pursuing their climate policies.
There is an unmistakable positive correlation between GDP per capita and electricity consumption per capita. There has never been a wealthy nation with low-energy use. A policy of “degrowth” and a reduction in production and consumption is not just politically unfeasible, it is economic and environmental folly. Britain’s gamble on wind and arbitrary net zero deadlines have backfired and are driving its industrial and wider economic decline. A new policy based on growth sustained by cheap energy in the near term coupled with major investments in nuclear and grid infrastructure is desperately needed.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.
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