From the September 1, 2009 Daily Telegraph (London)
September 1, 2009
by Irwin Stelzer
The world is swimming on a sea of oil, natural gas is being found in increasing abundance, there is more coal in the ground than the world can ever consume, and nuclear energy has been proved a safe and reliable, if expensive, source of power. For those who live in windy and sunny places, throw in a bit of wind and solar power, and you have more energy than can ever be needed by businesses and consumers.
Yet Britain faces brown-outs and blackouts. The national grid is under strain; its nuclear power stations are old and decrepit, with only one scheduled to survive 2023; many coal plants do not meet new European Union pollution standards, and will have to be abandoned if it proves uneconomic to fit clean-up equipment. Experts estimate that electricity shortages are likely between 2013 and 2016 – but will occur sooner if the economy recovers rapidly.
A "shortage" can only occur if prices are not permitted to rise sufficiently to price some users out of the market. In the case of electricity, a product considered essential to everyday living, no such price rise would be politically tolerable – or at least politicians and regulators would so conclude. So the power to allocate scarce supplies would pass from the market to – you got it – them.
The fault for the impending problem lies not with the Lord for failing to provide adequate supplies of energy, nor with the energy industries for failing to make them available at reasonable cost, nor with consumers for keeping their homes warm in winters and cool in summers, and their vehicles rolling merrily along. Nor does the fault lie in our stars – some inevitable "running out of oil". It lies in ourselves, or more precisely in the politicians in whom we lodge responsibility for energy policy.
These officials need reasons to be relevant. In the case of energy, that relevance comes from two threats: that unreliable foreign suppliers will capriciously cut off supplies, and that we are running out of, or for some reason should not use, fossil fuels. The first threat is met with calls for "energy independence". Why Britain or any other country should be independent of foreign energy suppliers any more than it should strive for "steel independence", or "tea independence" is never made clear. Nor do politicians confess that energy independence is an unattainable goal for any nation other than those endowed with vast supplies of oil, for many more decades the only fuel that will be able to power the vehicles that get most commuters to work and most goods to market.
It is true that most major oil sources are located in nations whose rulers wish western industrialised countries ill, and who have in the past and will in the future cut off supplies, in a search for political advantage. But the solution is not pursuit of the unattainable Holy Grail of energy independence: it is pursuit of supply diversity to reduce the risk of political cut-offs to a bare minimum. Britain's electric supply industry starts off with an advantage: unlike the continent, which must rely on Vladimir Putin to keep natural gas supplies flowing, Britain depends on reliable Norway for an increasing portion of its supplies. And other sources of the natural gas that now provides almost half the fuel for its electric generating stations are increasingly within reach. Technology has made it cheaper to drill for deposits not reachable only a few years ago, and more and more possible to rely on an increasingly broad and deep market in liquefied natural gas. Prices do tend to fluctuate, but since natural gas prices are no longer coupled to oil prices, and hedging against increases is feasible, the volatility that so unnerves consumers can be minimised. Add some more storage capacity, and you have a viable energy policy.
The second threat to an adequate supply of electricity is political. In the case of everything from wind machines and solar panels to generating stations, the Nimby rules. The not-in-my-backyard crowd can always persuade some local politician that a wind machine would impede m'lord's view of his domain, or a solar panel would consume too much space in some unpopulated desert, or a nuclear plant would curdle cows' milk or radiate sperm-destroying rays. The time and money it takes to get permits, and the willingness of politicians repeatedly to change the rules of the game, raise entrepreneurs' capital costs, making shortages almost a certainty.
Delete "almost". To save Britain from the scourge of global warming, the Government proposes to reduce carbon emissions to levels 34 per cent below those in 1990 by 2020, and 80 per cent below by 2050. This is not the place to argue whether the data support the warming thesis. Suffice it to say that there is enough evidence to suggest that it would be prudent to take some measures to reduce CO2 emissions, if the cost can be kept at reasonable levels. The cost of a shortage of electricity is not what one would consider reasonable. So add to a sensible policy the call by Ed Miliband, energy and climate control minister, for an acceleration in clean coal research, and it just might be possible to avoid the electricity shortage that is darkening the nation's economic outlook.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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