Was the UK’s Clean Energy Shift of the 1990s Killed by EU Policies?

  • Date: 21/02/16
  • Dr John Constable: GWPF Energy Editor

In the last decade of the 20th Century the UK seemed to be moving firmly towards a cleaner energy sector, with higher consumption of gas for electricity and heating, and an increasing levels of electrification, but this very positive transition appears to have stalled in last two decades, partly as the result of market distortions arising from EU Directives.

The Prime Minister’s negotiations for the reform of the United Kingdom’s treaties with the European Union did not include an attempt to retrieve powers relating to energy and climate policy. The history of UK energy use in the last thirty years suggests that this omission was a mistake.

In 1988 the UK’s Total Primary Energy supply was dominated by coal (31%, largely for electricity generation), oil (38%, mostly for transport), and natural gas (23%, for heating and electricity). Primary electricity, nuclear and hydro, supplied about 8%. But by 1998, while total consumption had increased by 9%, as would be expected with some economic growth, the consumption of coal had fallen by about 40%, with the slack being taken up by natural gas, consumption of which increased by a remarkable 71%. (All data in this article is derived from the Department of Energy and Climate Change’s, Digest of United Kingdom Energy Statistics, 2015, or other historical data on the DECC website).

This is a positive story of an energy transition delivering all the benefits obvious from a shift towards a clean burning, high density gaseous fuel that can be simply delivered through a network of pipes, a story that is echoed in the changes in Final Energy Consumption, i.e. the fuel used at the point of final consumption, say in a domestic appliance. In the period 1988 to 1998, final consumption of coal fell by 67%, largely due to the use of gas in domestic heating, while gas itself rose by 17%. Final consumption of electricity also rose significantly, by 16%. Indeed, natural gas and electricity together accounted for nearly 54% of final energy consumption in 1998, up from 47% in 1988, and such a transition, particularly that towards increased electrification, indicates an economy that was becoming both more sophisticated and also very much cleaner at home and in the workplace, a key indicator of societal progress since it results directly in improvements to health and quality of life.

In the eighteen years subsequent to that time, various EU policies have driven UK legislation and market regulation, with major effects on investment patterns and consumer behavior. Prominent amongst these policies have been the Large Combustion Plant Directive (LCPD) of 2001, which forced Europe’s coal stations to either close or fit systems to reduce the emissions of sulphur dioxide and oxides of nitrogen; the Emissions Trading Scheme (ETS) of 2005, intended to reduce emissions of carbon dioxide; and the Renewables Directive of 2009, which requires that some 20% of Final Energy Consumption across all sectors in the EU should be from renewable sources by 2020.

It is worth noting with emphasis that in the period 1988 to 1998 the United Kingdom had already made real progress towards the goals implicit in these EU policies, largely by reducing coal use both at primary and final consumption levels, and this had occurred not because of regulation but because consumers spontaneously adopted superior fuels.

Because of the shared goals, it might naively be supposed that EU legislation would have accelerated the pre-existing trend, but in fact the transition appears to have stalled. Final consumption of natural gas actually fell by 27% in the period 1998 to 2014 and is now at levels not seen since the late 1970s. Final consumption of electricity peaked in 2005, at 349 TWh, but has since fallen to 303 TWh, a level not seen since the late 1990s.

Of course, these trends are part of a larger phenomenon. Both Total Primary Energy and Final Energy Consumption peaked at around the year 2000, and have been falling ever since. It is possible to interpret this in a positive light, and both Government and the EU might attribute these falls to improvements in energy efficiency, to drive which the EU naturally has a Directive, and a move away from manufacturing towards the service sector. However, this is only doubtfully persuasive, partly because such effects do not seem likely to explain the scale of the trends (2014 primary energy consumption is 20% down on 1998 levels) when taken in conjunction with the UK’s rising population, up from 59m in 2000 to 64m in 2013. Some deeper economic malaise may be suspected. Moreover, if the efficiency claims are correct, then such improvements should make electrification more attractive, but that does not seem to be the case.

In conclusion, it appears that the promising energy transition of the 1980s and 1990s has been interrupted, with adoption of gas stalled, and a particularly worrying decline in electrification. It would be unfair to blame these trends entirely on the EU energy policies; the global economic turbulence of the early 2000s is certainly relevant, and the Chancellor’s decision to reinforce the ETS with a Low Carbon Price Floor is a self-inflicted wound. But it is equally evident that EU regulations have not helped. Market distortions such as the ETS and those needed to meet the Renewables Directive have combined to misallocate capital and all but destroy investment signals in Combined Cycle Gas Turbines and nuclear generators, both of which now require their own subsidies. Furthermore, electricity prices in the UK are significantly higher than they would be in the absence of policies, most EU related (DECC itself grants that prices in 2014 were about 17% higher for households, and for a medium sized business about 39% higher) inevitably inhibiting electrification.

It is not too late for government to rectify these problems, but if that is to occur the UK will need to be liberated from EU energy and climate legislation, and in all probability much other EU legislation besides. It is more than just regrettable that the Prime Minister did not raise these matters in his renegotiation.

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