(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON, Sept 27 With his promise to freeze
utility bills if his party wins the next parliamentary election,
Labour leader Ed Miliband has lobbed a metaphorical grenade into
the heart of the country's delicate political consensus on
energy and climate change.
Despite fierce disagreements over some details, such as the
siting of wind farms and how to finance new nuclear power
stations, there is a high degree of consensus among Britain's
three big political parties, at least at leadership level, as
well as business groups and environmental campaigners over the
broad outlines of energy and climate policy.
The only groups not part of this consensus are utility-bill
payers and voters. Surveys show the public is more worried about
the affordability of energy than the risk of climate change.
By trying to turn those concerns into electoral advantage by
putting the rising cost of gas and electricity at the centre of
the political debate, Miliband risks shattering the consensus
that has been gradually transforming Britain's energy system,
making it substantially cleaner and greener.
The Climate Change Act 2008, which sets binding targets for
reducing emissions of greenhouse gases, is the centrepiece of
Britain's energy and climate policy.
Piloted through parliament when Miliband was responsible for
energy and climate policy in a Labour government, the act has
been embraced by his successors in the ruling Conservative and
Liberal Democrat coalition elected in 2010.
Emissions reduction now underpins every aspect of UK energy
strategy. The principal elements are a reduction in wasteful
energy consumption, gradual electrification of the energy
system, and the replacement of fossil fuels, especially coal, in
power generation with cleaner alternatives like wind and solar.
Delivering a more efficient and lower-carbon energy system
is enormously expensive. But there has been a consensus that the
costs will be met through increases in utility bills rather than
Politicians from all three main parties find the strategy
attractive because it allows them to claim they are doing
something to avert global warming. Big business likes the profit
opportunities associated with major capital investment,
especially since returns are guaranteed in many cases. And
environmental groups like the emissions reductions.
Energy and climate strategy has therefore been largely taken
out of the political and policy debate. But it is about to
re-enter with a vengeance.
The strategy's weak link has always been the resulting rise
in customer bills. Increasing prices for gas and electricity are
an important mechanism for persuading homeowners and businesses
to use energy more efficiently. But they were always going to
test bill payers' patience eventually.
For the decade between 2002 and 2012, the worldwide rise in
oil and gas prices helped quell concerns about the rise in
utility bills. Politicians stressed the risk of oil and gas
supplies running out, prices continuing to rise, and the country
becoming increasingly dependent on expensive energy imports from
unreliable sources abroad.
Bill increases could be blamed on factors beyond their
control in international energy markets. Expensive investment in
renewables was presented as a solution to the problem of
dependence on expensive fossil fuels as well as climate change.
Bill payers were warned price rises would be even worse if
the country did nothing and continued to depend on oil, gas and
coal. But like so much else, the prolonged recession since 2008
and shale revolution in the United States have transformed the
The shale revolution has removed the threat of future energy
shortages. The squeeze in real incomes has made customers and
voters much more sensitive to the impact of rising utility
bills. And bills have risen so much for so long that increases
are starting to spark public resistance.
Britain already has some of the most expensive electricity
in Europe for residential customers. Only the unusually low
level of taxes and levies on gas and electricity has kept
overall consumer prices close to the EU average (Charts 1-6).
And prices are rising much faster than the EU average (Chart 7).
Charts 1-6: link.reuters.com/dyv43v
Chart 7: link.reuters.com/gyv43v
In a large public opinion survey conducted by researchers
from Cardiff University in August 2012, keeping bills affordable
was the most important priority for respondents (cited by 40
percent) followed by making sure the United Kingdom has enough
energy to prevent blackouts and fuel shortages (32 percent).
Tackling climate change came a distant third (27 percent).
In a poll published this week, in the wake of Miliband's
price freeze promise, conducted by YouGov, rising energy prices
were identified "as the biggest threat to the economy by UK
Rising energy prices were cited as a major threat (22
percent) by far more respondents than unemployment (14 percent),
the level of welfare payments (10 percent), inflation (10
percent) or taxes (8 percent).
As customers have started to rebel, the consensus between
politicians and the energy industry has begun to fray.
Politicians have tried to deflect the blame by complaining about
"profiteering." Energy suppliers complain about "policy costs".
So far the energy price war has been limited to low-level
skirmishing. Neither side has risked an all-out battle over who
is responsible for energy prices that could call into question
the entire energy and climate strategy.
Now Miliband has done just that with his decision to pin the
blame for rising prices on excess profits among the energy
suppliers and promise to freeze prices between May 2015 and
January 2017 if the opposition Labour Party wins the next
Miliband's argument seems to be that energy suppliers are
padding their margins, even after allowing for all the policy
costs, and that a price freeze can remove excessive margins
without harming expenditure on climate-related goals.
But putting policy costs onto bills and blaming rising
international energy prices kept the question of how much the
strategy was costing away from the limelight. Now it threatens
to become a central element in the next election campaign.
By focusing public attention on rising bills, Miliband has
invited a much broader debate about just what is driving the
Opinion surveys suggest support for policies to avert
climate change is broad but not deep. Voters and bill payers
want their elected representatives to take action, but only if
it does not cost too much.
The scale of the energy transformation will require huge and
expensive capital investment. Miliband's decision to put gas and
electricity bills at the heart of a "cost of living" election
campaign will test the public's willingness to pay.
(Editing by Keiron Henderson)