The Government Cannot Leave Energy Policy to the Market
The directors of Centrica have been wise to stay in hiding since the energy giant's British Gas subsidiary announced a 500 per cent leap in profits to [pounds sterling]571m, after inflicting a 15 per cent price rise on customers. But the shareholder bonanza found plenty of apologists.
Britain is no longer self-sufficient in energy and must get used to being buffeted by global events, they argued; Britain is subject to wild price fluctuations because of its deregulated energy market; Britain's more regulated European energy partners do not always play fair (they put their own needs first). All of which is a way of saying that, when it comes to domestic energy needs, the market rules, a view more or less explicitly shared by government.
Such explanations leave the important questions unanswered: why British Gas passes its trading windfalls upwards to Centrica rather than downwards to customers and how a small, populous island can plan a rational energy future while at the mercy of Europe's volatile relations with Moscow and Gazprom (lucidly analysed by Misha Glenny on page 24).
In truth, for incontestable reasons, the government cannot leave energy policy at the mercy of the market. It has clear legal obligations on two fronts. First, it has commitments to vulnerable energy users under the Warm Homes and Energy Conservation Act 2000, reinforced by subsequent strategies to tackle fuel poverty. Second, it has binding international obligations to reduce greenhouse-gas emissions. Both require urgent action. Both have to be forced to work together in a rational energy policy. Cheaper fuel is not conducive to lowering carbon emissions.
The government's hopes of ending fuel poverty--defined as spending more than 10 per cent of income on heat and power--by 2016 are on course to be dashed if fuel prices stay high. The number of households now categorised as being in fuel poverty is increasing year by year. Since 2002 it has doubled from two million to roughly four million despite investment of between [pounds sterling]4bn and [pounds sterling]5bn. Meanwhile, its hopes of achieving carbon-emission targets depend on substantially decreasing household emissions, which currently account for 27 per cent of the UK's total. …