Rambling Bob Ward’s Response To Peter Lilley
By Paul Homewood
It is now two weeks since Peter Lilley’s study on the cost of the Climate Change Act was published.
As yet there has still been no pushback from the government, or their lackeys at the Committee on Climate Change.
There has, however, been a rambling, incoherent rant from the Grantham Institute’s Bob Ward in response. More on that in a moment.
First though, a quick rehash of Lilley’s findings.
On the basis of figures from the OBR, DECC and the Climate Change Committee
(CCC), the average cost of decarbonising electricity to meet Climate Change Act
targets was or will be (in 2014 prices):
& Carbon Taxes
This by no means covers all of the potential costs, and as, Lilley points out, only analyses the cost of decarbonising electricity.
His report notes:
Official figures understate the system costs of intermittent renewables, omit the
cost of biofuels in transport fuels, ignore Britain’s share of the EU budget (even
though ‘at least 20% of the entire European Union budget for 2014–2020 will
be spent on climate-related projects and policies), include nothing for DfID
(which is likely to amount to at least £25 billion by 2030) and FCO spending on
climate and exclude the mounting indirect costs such as lost job.
I could also add the potentially massive cost of decarbonising heating, as well as the added cost of purchasing electric cars.
Lilley goes on to complain about how successive governments have gone to great lengths to cover up just how much the Climate Change Act could cost the UK, and calls for much more transparency and a proper public debate.
Of course, these costs are not set in stone because nobody knows what the future holds, particularly with regard to the price of fossil fuels, and the development of new technologies. The Lilley report is perfectly clear about this.
And an added problem with trying to do this sort of analysis is the lack of information provided by the government.
Nevertheless, the study uses only official data and, with the information available, is not an unrealistic assessment.
Now step forward our friend, Bob Ward!
He wrote a commentary, titled “Muddled and inflated figures about power decarbonisation”, for the Grantham Institute. It can be read here.
He seems to be offended that the GWPF did not ask the nice people at the CCC for the answers, instead of using that well known denier, Peter Lilley.
As I say, there is a lot of rant, but Ward’s basic criticisms are:
1) According to the Committee on Climate Change, the real cost of the Act is about 0.5% of GDP by 2030. This would be equivalent to about £9bn, about a third of the Lilley figure.
However, Ward perpetuates one of the CCC’s big cons here.
They calculate renewable subsidies as the cost of renewable energy less the long run marginal cost of CCGT, which includes depreciation. (The logic is that, as we need to replace older coal and other plant, new CCGT would be the default option).
However, crucially, this cost of CCGT includes an ever rising element of carbon tax. This is estimated by the CCC to be adding £27.52/MWh to the cost of CCGT by 2030, raising the actual cost of £56.85/MWh to £84.37/MWh (at 2014 prices).
We end up with the ludicrous situation, for instance, where the CCC say that subsidies for Hinkley Point will nearly have disappeared by 2030.
Of course, this carbon pricing is purely artificial. Households are not financially worse off if more CO2 is emitted.
The overall effect of this trick is to understate the cost of subsidising renewable energy by £7.5bn in 2030. At a stroke, this nearly doubles the CCC’s projected cost.
There are as well other costs not built into the CCC calculations, but which have been taken into account by Peter Lilley. For instance, the smart meter roll out, which is expected to cost at least £10bn and bring in very little in the way of benefit.
Ward gives the impression that Lilley has made up all of these numbers. The reality is that they are all based on official data. The figures up to 2021 are derived from the OBR’s Economic and Fiscal Outlooks, whilst the ones between then and 2030 come from DECC’s Estimated Impacts of Energy & Climate Change Policies, published in 2014.
2) “Carbon taxes” are not the same thing as the “economic cost.”
In a very belaboured paragraph, he seems to be arguing that taxes do not represent an extra cost, as they are simply a redistribution from the taxpayer to government.
If so, he is quite correct here. If no carbon taxes were raised, other taxes logically would rise or public spending would fall.
Nevertheless, the impact of carbon taxes on electricity bills is undeniable, and should at least be noted in any assessment.
As a guide, the OBR estimate that, between now and 2021, carbon taxes will cost an average of £2.1bn a year.
3) It is wrong to claim that all the extra costs would ultimately fall on households.
Ward argues that households, businesses and government should be treated as three totally discrete sectors, and that higher electricity costs for the latter two would have no impact on households.
However, this claim has been totally contradicted by the Energy and Climate Change Select Committee, who stated in their report, “Energy Prices, Profits and Poverty” (page 59), published in July 2013:
Approximately two-thirds of policy costs would fall on non-domestic consumers, reflecting the share of energy consumption across these consumers. However, the majority of costs are still likely to be passed through to domestic consumers through higher prices for services and products. These extra costs could also impact on the competitiveness of UK exports.
If it was as simple as Ward claims, all of the costs of decarbonisation could be loaded onto businesses, so that domestic consumers did not have to suffer at all!
4) General taxation measures
Lilley claims that the government is understating the true cost of decarbonising by ignoring measures funded by general taxation.
According to the CCC, these amounted to £1860 million in 2014/15 (see Meeting Carbon Budgets – Progress in reducing the UK’s emissions 2015 Report to Parliament – page 38).
Ward complains that Lilley has simply assumed that costs will continue at this level up to 2030.
One of Lilley’s central complaints, however, is the lack of transparency from government. As they have not published any projections of costs, there is little alternative than to assume the continuation of the status quo.
5) System costs
These cover costs likely to be incurred in managing a system with high levels of intermittent renewable generation, for example smart grids, interconnection and storage.
Ward questions the origin of Lilley’s figures, but ought to know that they are actually derived from the CCC’s 2011 RENEWABLE ENERGY REVIEW – TECHNICAL APPENDIX.
6) Benefits v Costs
Ward also complains that Lilley’s paper lists all of the costs, but makes no allowance for the supposed benefits of decarbonisation.
These estimates excluded the benefits of avoided climate change impacts and the quantified costs or co-benefits relating to changes in welfare, such as warmer homes or changes in demand for energy services, or impacts on health due to, for instance, improved air quality. Using government valuation methods, the Committee previously estimated (PDF) the monetary value of co-benefits to be between 0.1% and 0.6% of GDP in 2030.
Ward is being disingenuous here, deliberately so I suspect. (If he is not, he clearly does not understand the subject matter).
Let’s break it down:
a) Climate change impacts
UK emissions of CO2 are so tiny from a global perspective that the cuts proposed will have no noticeable effect on the climate.
b) Warmer homes
This is a reference to the Warm Homes Discount, an annual rebate of £140 for low income customers, which is funded by energy companies.
However, since it is just a transfer from one group of customers to another, the impact on electricity bills is ignored by DECC, and therefore does not appear as a cost in the Lilley calculations.
c) Impacts on health
The impacts referred to in the CCC paper, referenced by Ward, largely refer to those associated with road traffic. Since Lilley does not consider the cost impacts of decarbonising transport, it is clearly illogical to take account of the benefits!
The only possible benefit, as far as power generation is concerned, is from the switch from coal burning. However, in calculating the cost of subsidising renewables, the default option is CCGT, and not coal.
There is no evidence I am aware of that modern CCGT power plants have any negative effect on health at all.
Nobody knows how much the Climate Change Act will end up costing the country in fifteen years time, as it will depend on so many variable factors.
But what is absolutely clear is that the figure is likely to be a very large one.
Indeed the DECC calculations, that Lilley relies on, currently understate the projected cost, since they were based on a much higher wholesale price of electricity in 2014. At the time they worked on a figure of £63/MWh, whereas the market price has been around £45/MWh this year. This means that the subsidies paid for renewables are greater than estimated two years ago.
And, as Lilley also points out, there are many other costs that his analysis does not take into account, such as:
- Decarbonising transport
- Decarbonising domestic heating
- EU expenditure on climate related projects
- Overseas aid
- Lost jobs and international competitiveness
Whether you agree with every number and assumption in Lilley’s paper, his central argument is indisputable.
The government needs to be much more transparent about how much the Climate Change Act is costing, and is likely to cost.
And when we have that information, it is time for a proper, grown up debate.