Green energy: How their green rush is costing us all

The Prime Minister’s number one concern now is no longer the environment, associating himself with building windmills or recycling rubbish. Instead, it is the looming general election and the cost of living.

The shift from Cameron’s green rhetoric of seven years ago can be accounted for mainly by what has been happening to household energy bills since the financial crisis triggered Britain’s worst economic downturn in seven decades. Prices have doubled in the past eight years, contributing to the squeeze on living standards.

While about two-thirds of the increase in recent years is estimated to be down to demand for gas – as emerging economies compete for resources – green subsidies are responsible for some of the remainder.

Anger in parts of the Tory heartlands about the landscape being despoiled by subsidised wind power has also played a part in the leadership rethinking its policies on the environment and energy, as have complaints from industry. At the recent Tory conference, George Osborne said that the UK should not be a leader in tackling climate change if it made industry uncompetitive. Other Tory frontbenchers, including Michael Fallon, the energy minister, have also stressed their concern. Fallon told a meeting at the conference: “We shouldn’t put British industry at a disadvantage against Europe and the US. For our manufacturers, this would be assisted suicide.”

But it was the bold declaration by Ed Miliband in his speech to the Labour conference that he would freeze energy prices for consumers if he won the next election that has really left the Conservatives scrambling to respond.

Since then, Osborne has been leading the charge. The Chancellor is at war with Ed Davey, the Liberal Democrat energy and climate change secretary, because Osborne wants to use his autumn statement at the beginning of December to show that he is on the side of families feeling the pinch. One of his targets is the package of various green measures designed to deal with climate change, measures that are the responsibility of Davey’s department.

At the centre of the latest conflict between Osborne and Davey is the Energy Companies Obligation (ECO). The scheme imposes demands on power companies, forcing them to be more energy-efficient, with the costs then passed on to the consumer. It was launched in January and replaced several other schemes pioneered by Ed Miliband when he was energy secretary. The Tories want to look at scaling it back.

Says a senior Tory: “There are seven deadly green taxes. But ECO is the biggest. Davey is dug in, but he is going to have to move. We’ve got to get these taxes down.”

There seems to be little practical room for manoeuvre on the other six of the seven. On the subsidies for renewables, many of the contracts with those building wind farms are already signed and it would be difficult legally to change the agreements.

The Energy Companies Obligation is the tax in Tory sights. Ministers are pushing for its implementation to be delayed, which could mean a delay in the costs being passed on to customers.

But Davey is determined not to be bullied by Osborne and the Tories. Last week, he responded to the Chancellor’s machinations by writing to energy firms demanding that they explain to regulators how much it costs for them to comply with the scheme. The suspicion is that the energy firms have been exaggerating the impact of it, and lobbying the Chancellor for help to boost their profits. Davey’s supporters also point out that the ECO levy is responsible for only around 5 per cent of energy bills, and that even if it was axed, which they are determined it will not be, any saving could easily be wiped out by future rises unveiled by the energy firms.

“There are no easy answers,” says a source in the Department of Energy and Climate Change. “There is no big pot of money for us to dip into that could easily reduce prices. Half of the bill is wholesale energy costs that the Government can’t control.”

Last week, Vince Cable, the Business Secretary, moved to defend Davey’s stand. “It is a continuing argument in the Coalition, because Liberal Democrats have been arguing that we need to maintain a long-term priority towards a less carbon-based and polluting economy,” he said in an interview with the BBC. “What we shouldn’t be doing is scrapping our environmental policies. That would be very short-sighted and foolish.”

The Lib Dems also ask why all this is being reopened now. Last autumn, the green initiatives for the rest of the parliament were agreed by the so-called quad that decides on policy. The quad’s members are Cameron, Nick Clegg, the Deputy Prime Minister, Osborne and Danny Alexander, Chief Secretary to the Treasury. The Treasury was concerned that the environmental subsidies were too generous, but an agreement was arrived at that Osborne and others want revised only a year later.

“They have to understand the world has changed. Bills keep going up,” says a Tory minister, by way of explanation.

The Lib Dem suspicion is that it may be Tory hot air. The Conservatives are certainly keen to give the impression they are ditching their green policies with an election in the offing, which demonstrates handily that they are prepared to do battle with the eco-friendly Lib Dems. They can then paint their Coalition partners as wedded to high taxes and obsessive greenery in the run-up to the election.

A Whitehall source says: “It’s about the politics now. You are getting to the point where the parties are thinking about what goes in their manifestos.”

Indeed, watching the three party leaders arguing shamelessly over energy bills and climate-change policies is, at points, jaw-dropping.

While Cameron mocks Miliband’s proposed energy freeze and points out that in the last Labour government he was the energy secretary who piled extra costs on to consumers, the Tory leader backed Miliband’s green policies at the time and has continued in a similar vein in office.

In 2008, on its second reading in the Commons, only five Conservative MPs voted against the Climate Change Bill. Cameron, Osborne and the entire Tory front bench trooped into the division lobby to support the bill, which had been steered through the Commons by Miliband.

There was a virtual consensus at Westminster before the financial crisis – and even long after it – that renewable power and green taxes were what mattered most when it came to energy.

That means that successive governments have been very slow to respond to warnings about Britain’s looming energy crisis.

In 2002, only the efforts of Brian Wilson, then energy minister under Tony Blair, managed to keep open the option of new nuclear power projects, to the fury of the green lobby, but there has been very little progress on building new plants since then.

Belatedly, the current Government is promising imminent progress on nuclear power. This week, Osborne is expected to sign a deal in China with the state-run energy firm to allow the Chinese a role in building a new facility at Hinkley Point in Somerset. The plant is scheduled to open in 10 years’ time. The much talked of boom in shale gas – tapping fresh deposits from rock deep below the earth’s surface – is also years away, even if the environmental objections can be overcome.

Meanwhile, as the parties squabble over what to do about the consequences of their own assorted policy failures, prices are on the up again. On Thursday, SSE (Southern Electric, Swalec, Scottish Hydro and Atlantic) announced increases of between 8.2 per cent and 9.7 per cent for its customers. The bill for consumers keeps on rising.