Energy and Emissions: Taxation or Technology?

Energy prices are in the news. The recent actions of some of the energy companies can plausibly be described as provocative, no matter how well founded their decisions might be. They run the risk of provoking the ire of both the Opposition and the Government.

One interesting aspect of the debate is that it has become even clearer that decisions taken by Ed Miliband himself in the Brown government are partly to blame for our high energy bills. The plethora of green taxes and subsidies has become very expensive for consumers.

But how effective have such policies been? Not very much, seems to be the answer.

Max Luke of the Breakthrough Institute in California has looked at the global numbers very carefully. Since 1950, he finds that natural gas and nuclear technology together prevented 36 times more carbon emissions than wind, solar, and geothermal. Nuclear avoided the creation of 28 billion tons of carbon dioxide, natural gas 26 billion, and geothermal, wind, and solar just 1.5 billion.

The Breakthrough Institute has an interesting bunch of people, with an eclectic mix of views which are neither dogmatically Right or Left, pro- or anti-market oriented solutions. So, for example, they point to the crucial role of the public sector in enabling innovative technologies such as fracking to be developed in the first place.

But then they go on to show that tracking in the United States has been incredibly effective in cutting energy consumption and greenhouse gas emissions. Between 2007 and 2012, for example, the share of electricity generated from natural gas in America increased from 21.6 to 30.4 percent, while electricity from coal declined from 50 to 38 percent. Changes which they describe as taking place at 'light-speed in a notoriously slow-moving, conservative sector'. In contrast, both the use of coal and carbon emissions continues to rise inexorably in Germany, a country lauded by environmentalists for its commitment to renewable energy.

Green taxes and higher prices caused by allowing huge subsidies for green technologies do reduce energy consumption and carbon emissions. But even the current levels which we see in the UK and much of the rest of the EU have not been sufficient to cut the absolute level of such emissions. In order to achieve this, prices would have to rise so much that it is hard to see any government getting re-elected which allowed this to happen.

Investment in innovation and new technologies seems to be by far the most effective way of dealing with the problem of climate change. France and Sweden have done so over the past 40 years by investment in nuclear technology and hydro-electric power. And, to the rage of environmentalists, it is America which is leading the world in reducing emissions.

Al Gore starred in the film An Inconvenient Truth about climate change. It is an inconvenient truth for progressives like Gore that on this topic, the Right seems to have the best tunes. Natural gas and nuclear are the best ways to save the planet.

Obama and Cap and Trade

With President Barack Obama this month proposing the historic step of regulating carbon dioxide emissions from US power plants for the first time, FT US industry editor Ed Crooks explains what you need to know about the cap and trade -- in 60 seconds

Background reading:

Guardian - articles on energy policy and energy economics - click here