The Government is Prolonging the Cost of Living Crisis and the Climate Emergency

The Government is Prolonging the Cost of Living Crisis and the Climate Emergency

The Conservative Party’s decision to ‘cut the green crap’ has had far-reaching consequences, writes Thomas Perrett

Energy regulator Ofgem recently warned that the country faces a “significant risk” of gas shortages this winter, saying in a letter to energy producer SSE that “it is a possibility that [Britain] could enter into a gas supply emergency”.

While blackouts remain highly unlikely, this warning highlights Britain’s continued dependency on an unreliable source of energy – natural gas, which last year accounted for 42% of the country’s electricity generation and was used to heat around 80% of homes.

Price rises of natural gas have driven inflation to a four-decade peak and, according to the Energy and Climate Intelligence Unit (ECIU), are responsible for 95% of the increase in domestic energy bills. 

This has culminated in the Government considering keeping coal-fired power stations on standby. Despite having formally committed to phasing-out coal power by October 2024, Kwasi Kwarteng back in May requested that Drax and EDF, owners of coal stations, delay the closure of their plants.

Britain’s chronic energy insecurity, which has exacerbated the cost of living crisis and threatens millions with economic precarity, is a consequence of prolonged Government inaction on developing sustainable energy sources and increasing energy efficiency.

It reflects an energy market skewed heavily in favour of fossil fuel development, which means that despite their rapidly declining costs, clean energy sources are hamstrung by an electricity pricing system designed to cover the operating costs of gas. 

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North Sea Gas Won’t Lower Bills

Key members of the Government remain convinced that the development of domestic oil and gas will assuage the cost of living crisis and bring down energy bills.

Business, Energy and Industrial Strategy Secretary Jacob Rees-Mogg – who has suggested that the Government should extract “every last cubic inch of gas from the North Sea” – has welcomed the increase in new oil drilling licences, claiming that “Putin’s illegal invasion of Ukraine means it is now more important than ever that we make the most of sovereign energy resources, strengthening our energy security now and into the future”.

However, gas prices are set internationally, meaning that 80% of the gas which is extracted domestically – much of which is owned by multinational, foreign energy firms – is sold overseas to the highest bidder.

According to research by DeSmog, which analysed 142 firms holding at least partial ownership of North Sea oil and gas licences, 506 of the 1,402 areas surveyed in the North Sea are controlled by private firms or anti-democratic overseas regimes. Even during the gas crisis last year, sales of British gas to foreign buyers between September and November 2021 doubled compared to the same period for the previous year.

It takes 28 years on average to develop a North Sea gas field. Any fields licensed by the Government today would only become operational in 2050 – the same year as Britain’s net zero decarbonisation deadline.

Developing a solar photovoltaic power station can take less than a year, and a 50MW wind farm can be developed in just six months. There is also little use for domestic oil when it finally comes on stream – around 70% of the oil extracted from the North Sea is incompatible with Britain’s refineries.

It is our inability to wean ourselves off gas which is increasing energy bills and saddling households with exorbitant costs for retrofitting homes so that energy consumption and emissions can be reduced.

In the year ending March 2022, two-thirds of new homes built in Britain used gas boilers in place of heat pumps, due in part to lobbying efforts by developers. Housing firm Persimmon admitted in 2019 that, four years prior, it had encouraged the Coalition Government to scrap the ‘Zero Carbon Homes Grant’ which would have ensured that all homes built from 2016 onwards would generate as much energy on-site as they would use.

The cost of retrofitting a home has since increased from £4,800 to £26,000.

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Energy Markets Stacked Against Renewables

As the cost of renewable energy continues to decline, little has been done to ensure that it can be developed on an adequate enough scale to address soaring energy bills.

Environment Secretary Ranil Jayawardene reportedly supports blocking the development of solar panels on Britain’s farms, having asked officials to expand agricultural production on lower-quality land – which could lead to around 41% of land in England becoming unsuitable for solar power generation. 

Renewables – nine times cheaper than natural gas (in the case of offshore wind) and increasingly able to be built at scale – have been sidelined by a market system still prioritising fossil fuels.

Currently, in wholesale energy markets, prices are set by the most expensive form of energy, meaning that despite renewable power generation accounting for 43.1% of total power in 2020 – outstripping fossil fuels – the prices of all energy sources are linked to gas, as gas generators require higher prices to cover their operating costs.

UCL Professor Michael Grubb has criticised this system, noting that “the design of electricity systems has failed to catch up with the revolution in renewable energy” and that “energy markets aren’t designed to cope efficiently with sources like renewables which cost a lot to build but far less than fossil fuels to run”. 

Critics have thus argued that decoupling the prices of renewables from those of fossil fuels could reduce energy bills, enabling consumers to benefit from reduced prices.

Trade association Energy UK has recognised that, if the Government implemented contracts for difference (CfDs), which ensure that if market prices exceeded the prices offered to renewable energy firms for power generation, the firm pays the Government the difference, it would reduce bills by up to £18 billion a year.

This scheme would be “a significant first step to decoupling gas from retail electricity prices,” Adam Berman, Energy UK’s deputy director, has said, adding: “Removing the link between gas and retail electricity prices will be complex and take time, but this solution provides a quick fix for up to 40% of our generation capacity.” Households would save an estimated £150 to £250 a year as a result of the policy.

The Government has missed successive opportunities to increase energy efficiency and accelerate clean energy production.

Energy bills are approximately £2.5 billion higher than they would have been had the Coalition Government not decided to “cut the green crap” back in 2013, according to Carbon Brief. Even the recent announcement that energy bills would be frozen at an average of £2,500 per year failed to include targeted support for the most vulnerable households, as Office for National Statistics figures found that the poorest households would still spend around 32% of their budget on gas and electricity. 

Rapidly fluctuating gas prices are exposing the consequences of the Government’s long-term inaction on the development of reliable, domestic energy sources. Energy markets, structured to prioritise fossil fuels over renewable energy, have prevented the British public from accessing the benefits of lower energy prices, ensuring that bills will continue to rise this winter.

Yet, instead of fixing the markets and disentangling renewables from gas prices, the Government continues to rely on polluting energy sources – prolonging both the cost of living crisis and the climate emergency.