January 27, 2008

 Muddling through I

This side of the water, British energy policy offers a nice reminder that while incompetence, corruption and fanaticism are bound to deliver bad policy, the converse does not hold: rational and well-intentioned policymakers can get into a mess if they lack method, vision and courage.

Gordon Brown made a major speech on climate change in November. It had more than its share of Big Statements:

The climate change crisis is the product of many generations, but overcoming it must be the great project of this generation.
- and characteristically Gordonian microdetails on standby consumption of consumer appliances. (The average daily summer temperature in Edinburgh does not exceed 18°C so Scottish TVs left on overnight are just providing needed space heating. Standby consumption is the sort of issue a genuine leader leaves to underlings.) The good point was that he rejected a ploy by mandarins aligned with the nuclear energy lobby to sabotage the EU's ambitious targets for renewables. But it fell pretty flat. The media and Parliament soon had more exciting trivia to deal with.

There was besides nothing really surprising in the speech.

The greatest-challenge, global-community, renewables-and-conservation, Britain/France/Ruritania-can- lead-the-way line is the only one a sensible European politician of right or left can now take. Mariano Rajoy, leader of the Spanish conservative opposition, has toyed with denialism but being the Spanish signatory to the Kyoto Protocol, he only shot himself in the foot. His party now has no discernible climate change policy and is vulnerable on the issue.

New Labour - Blair's and Brown's joint creation - is good at grand statements, not so good on painful choices. Its energy policy has lots of words but still lacks conviction. Take nuclear power. The government issued a preliminary policy statement in saying it was in favour of nuclear power in principle. After a long public consultation, it issued another White Paper saying, well, it is still in principle in favour of nuclear power (pages 4 and 6, italics mine):

We have therefore decided that the electricity industry should, from now on be allowed to build and operate new nuclear power stations, subject to meeting the normal planning and regulatory requirements. ...
.. new legislative provisions ... that require operators of new nuclear power stations to make sufficient and secure financial provision to cover their full costs of decommissioning and their full share of costs of waste management.
For years, nothing has stopped any British utility from applying to build a nuclear power station: but none has done so. Why? One, the planning system guarantees years of expensive inquiries and appeals, against a regular background of media-savvy protests. Two, the long-term waste management that operators are being asked to pay for does not exist, and a long-term solution is years away. In a reversal of the usual problem, there's a very visible pig and no poke to put it (or rather its manure) in. The British government has therefore failed to do the two things needed to get a nuclear power station programme going: reduce the planning system to French levels of opposability, and assume the risk of long-term waste management. If it won't invest political capital, there won't be any new nuclear power stations. Why bother with a White Paper?

Another example is the latest overall energy policy statement, another immensely long (343 pages) White Paper also full of good intentions and widgetry, from carbon capture to microgeneration and banding of subsidies for different renewable technologies. But its core projection on renewables - (here, page 154) is that these will represent 15% of UK electricity generation by 2020; while the government has signed up to an EU target of 20% of all energy from renewables by the same date - implying a much bigger shift in electricity. It's incoherent, except on the assumption of an opt-out to the EU commitment. For a more professional argument in the same direction, hear the experts at Cambridge Econometrics:

Our forecasts show that the government is set to miss not only its 20% carbon reduction goal by 2010, but also its declared target of obtaining
10% of UK electricity supply from renewable sources.
What I can't find is a simple, comprehensible and internally consistent set of targets: a commitment to achieve a definite scenario. Without these, the policy amounts to saying "we're from the government, you can trust us". The EU's management style has many vices, but it did inherit from Jean Monnet, the first French Commissaire au Plan, an understanding that what mobilises action by bureaucracies is numerical targets. You may disagree with the EU's targets - I think 20% of energy from renewables by 2020 is about right, 10% of transport fuel from biofuels is wrong: but you can't say the policy isn't clear.

I speculate that what's gone wrong here is a misconception in the British political élite about markets. Whitehall accepts that competitive supply normally works better than state direction, especially direction by the innumerate generalists and lawyers that populate itself. So if you get the price signals and incentive structure right, you are on the True Path to Nirvana, right? Wrong. A genuine market price sums social information about scarcities and prospects. It may be mistaken, but it deserves respect. An administered price like that for carbon emissions has no such informational social content: it is simply the result of a politically chosen target, hopefully within the range indicated by science. It does not represent all that scientific knowledge in any meaningful way, only the somewhat arbitrary political decision. The target is logically prior to the price. Any carbon policy other than neglect is necessarily and fundamentally dirigiste - that's why conservative true believers have to deny the need for one.

You don't generate such coherent targets from first principles (which New Labour by design has not got) or by picking acceptable-looking numbers out of a hat for different parts of the equation. You start with a feasible baseline scenario that meets your main goal. From there, you can slide about on the surface of the production frontier, looking at feasible alternatives until you find the least-bad sweet spot, known in the trade as the Pareto optimum. In a follow-up post, I'll have a go at such a scenario. I'll chicken out though on the skating part..

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