Both this Government and the previous administration have promised the UK’s environmental policies, which are driven by EU law, would produce a new lowcarbon economy, and a manufacturing revival.
Prime Minister David Cameron describes the UK’s ambitious wind programme as a triple win, securing our energy supplies, protecting the planet and creating 70,000 jobs from offshore wind projects alone.
The press regularly carries optimistic articles about green economic potential, and indeed several international engineering firms are showing interest in constructing wind turbines in the UK.
Green economic growth sounds wonderful but is it just too good to be true? Certainly, there are good reasons to be cautious.
The main reason for concern is that the renewables sector is entirely dependent on subsidies drawn from the national electricity bill, so the jobs created are artificial and will have knock-on effects elsewhere in the economy.
It is well known that creating jobs with public money is not difficult, but comes with the risk that the taxes to pay for these jobs may make it impossible for other businesses to survive, and will destroy jobs elsewhere in the economy, perhaps more jobs than were created with the subsidies.
This certainly seems likely to be the case for green energy. Even the EU’s own studies of our low-carbon prospects are discouraging.
In little publicised work released in 2009, the EU Commission revealed that the macroeconomic effects of the 2020 renewables targets entailed net job losses for the UK in all but one of its scenarios. This was true even on the assumption that the EU retains the lion’s share of the international market in renewables, which is a tall order given the comparative advantages of China, India and the US.
To understand the magnitude of the risk we need to appreciate the scale of the costs of the current renewables policies, which in my opinion put us on course to have the most expensive electricity in the developed world.
Even the Government concedes that by 2020, 31 per cent of the average domestic electricity bill will consist of green charges imposed by law, while business will be hit even harder, with environmental charges for the average medium-sized commercial user accounting for 33 per cent.
These cost increases have already begun. Between 2002 and 2010 the UK electricity consumer paid a premium of £5bn over and above the wholesale price of electricity in order to subsidise renewable generators.
IN 2010, this indirect tax amounted to £1.1bn, with about half going to wind power. Such subsidies form about half the total income of a typical onshore wind farm.
Admittedly that money has created jobs in the renewable sector, and about 9,000 people now work in the wind industry, but the cost is high.
In the year 2009-10 subsidies to wind power amounted to £54,000 per wind industry worker, which is almost double the median wage in either the public or private sector.
Obviously, the potential for net job losses in the wider economy is real.
According to our calculations, based on Government data, if the current policies are not changed, the subsidy will amount to a still increasing £6bn a year in 2020, with the majority going to offshore and onshore wind farms.
From 2002 to 2020 we predict that the scheme will cost about £35bn, more than the annual budget of the Ministry of Defence, and that even if the programme was cancelled in 2020 the legal obligation to continue support for the renewables already built would add a further £65bn of costs in the following decade.
These very large sums would be levied invisibly on the electricity bills of businesses and private households regardless of total income.
At the domestic level they are regressive in their consequences, having a disproportionate effect on those with lower incomes, with obvious implications for the fuel poor, particularly those who heat their homes with electricity.
For industry, particularly energy-intensive industries such as steel making, the news is also bad, since their input costs rise, making it difficult for them compete in the international markets, particularly with countries whose energy policies are less expensive from those in the UK.
But the economic effects are not confined to large businesses, and the EU’s own study makes the interesting and important point that many service activities such as trade, retail, and hospitality are also harmed by increasing energy prices, not least because sharp rises in energy costs also mean that households have less disposable income.
All told, it is impossible to avoid the conclusion that until renewables are fundamentally better and cheaper they are not a sound basis for a green economy.
Indeed, it seems all but certain that current attempts to make a green economy through subsidies will put the brakes on recovery, and destroy more jobs than are created.
• The Renewable Energy Foundation is a UK charity publishing data and analysis on the energy sector. Dr Constable is the author of The Green Mirage: Why a low carbon economy may further off than we think. For more information, visit ref.org.uk
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