Energy

The energy companies? Our central bankers and Treasury representatives? Or both groups?

In America, prices fell in April, led by reductions in the cost of fuel and other energy. From The New York Times:

"Consumer prices over all fell in April by 0.1 percent, the Labor Department said in its monthly report on Wednesday. The decline was the first since March 2009... The downturn was led by a decline in energy prices, especially for gasoline and natural gas, the report said. Energy prices fell by 1.4 percent in April, the department said."

In the UK, prices rose in April, led by increases in the cost of fuel and other energy. From The Guardian (quoting Mervyn King, explaining why he was taking no action on inflation at nearly double his target rate of 2%):

"First, the impact of higher oil prices, which on average in April were nearly 80% higher than at the beginning of 2009, pushing up on petrol price inflation; second, the restoration at the beginning of January of the standard rate of VAT to 17.5% and third the continuing effects on inflation of the sharp depreciation of sterling in 2007-8" 

The movement in the Pound/Dollar exchange rate between April 2009 and April 2010? The Pound had strengthened a little.

Some friends of mine in the energy sector have been excited by a new report by Dan Lewis on Securing Our Energy Future. This report does indeed make some excellent criticisms of current energy policy, but I'm afraid it does not follow (as they seem to have assumed, perhaps from too quick a reading) that the author's recommendations are of equal merit, nor even that the analysis is balanced or complete. Unfortunately, it is tarnished by Dan's obsession with certain electricity technologies.

These programmes¹ are examples, like the EU-ETS, where government intervention hands commercial advantage to the VILE (Vertically-Integrated Large Energy) companies, to little beneficial effect.

The VILE companies point to the fact that demand for domestic energy has fallen in the last couple of years, as evidence for their success. I have argued this was largely a response to price increases, increasing disparities between costs-of-living and disposable income, and warmer winters (until last year), and not the effect of their energy-efficiency programs. In my opinion, the timing demonstrates the point. EEC was introduced in 2002, and Warm Front in 2000, but domestic energy demand carried on rising until 2005², which coincidentally was when global wholesale gas prices spiked (consumers did not feel the full effect until Winter 06/07, but there was already concern and initial increases in 2005).

It is difficult to prove the relative significance of different factors on this basis. The VILE companies can argue that it would take time for the modifications funded by EEC and Warm Front to accumulate and their effect to be felt. But a small news item in last week's New Statesman offers a pretty clear way to assess which was the more significant factor. If efficiency improvements were the main factor, so the elderly and underprivileged (the main targets of these programs) could maintain a decent temperature whilst consuming less energy, you would expect excess winter deaths to fall. If the price rise was the main factor, so people were choosing to heat their houses less because of the cost, you would expect excess winter deaths to rise.

According to the New Statesman, "excess winter deaths rose by 49 per cent in England and Wales last year in comparison with the year before." The information appears to have come from a page on the National Statistics website.

The All Party Parliamentary Group On Peak Oil (APPGOPO) has released a report backing Tradable Energy Quotas (TEQs) as "the fairest and most productive way to deal with the oil crisis and to simultaneously guarantee reductions in fossil fuel use to meet climate change targets". This should serve as a warning to classical-liberals that (a) not everything that uses market mechanisms is a free-market or liberal concept, and (b) despite the presence of one or two saner members in their midst (such as Vince Cable and David Laws), the Liberal Democratic party (to which APPGOPO's chairman, John Hemming MP, belongs) is still fundamentally a beard-and-sandals, Fabian, Rawlsian, meddling, fiddling, egalitarian bunch of moralizing whackjobs, who would happily suck all the fun and reward out of life in the name of "fairness".

TEQs, as the name suggests, is "an energy rationing system" where each adult receives an equal quota of energy (measured in carbon terms) that they are entitled to use annually, calculated as equal shares of 40% of the total amount of energy/carbon permitted to be consumed annually under a falling profile set by the Committee on Climate Change in accordance with the national Carbon Budgets that have recently been enshrined into law. This system is allegedly designed "to prevent the intense competition for fuels that will otherwise develop, and to ensure that every energy-user can access their fair share".

So far, so student-socialist, but the cunning of the modern socialist is that he has learned to dress his communist wolf in a capitalist fleece. So the remaining 60% is bought in weekly government auctions by banks and brokers (no rent-seeking opportunities there) on the instructions of their clients in all those organizations who want to be allowed to use energy. And trading is allowed between possessors of the initially-egalitarian personal quotas and of the auctioned rights. The system thus lays claim to be a "market mechanism", combining "social justice" with the efficiency of capitalism in the approved manner of the Third Way prophets.

It is, in this way, different only in detail of implementation, from other cap-and-trade mechanisms, though the details are particularly draconian and deluded. Capitalists (of the type that we need to save capitalism from) who extol the virtues of cap-and-trade and yet look at personal rationing like this and shudder, ought to ask themselves if they haven't been fooled by the inclusion of the word "trade" in an approach that is fundamentally about overriding the efficient allocation of scarce resources by means of state-imposed rationing. Trading mechanisms within these rationed systems are no more than publicly-authorised black markets, which have the same benefits as real black markets under state-rationed systems, but do no more to eliminate the inefficiency and iniquity caused by the distortions that result from such a system.

We are already familiar with a system that distributes resources on the basis of social utility and provides incentives for people to use more or less of the resource depending on its scarcity. It is called the free market.

There are lots of good arguments for a carbon tax. Trust The Economist to come up with a bad one.

"A tax on carbon is hardly going to stop the lights going out in a few years, but it would provide a floor price for power, giving investors a clearer sense of likely profits."

Is that just a typo? Did they mean "a floor price for carbon"?

If not, they are confused. A carbon tax will only give investors a clearer sense of likely profits by removing one component of their costs that has a volatile price - the cost of carbon, particularly under the EU-ETS (if they replace these mechanisms with a carbon tax, rather than supplement them as companies like EDF would prefer). To the extent that it increased the minimum price at which power could be produced from the cheaper, fossil-fired technologies, it would increase the confidence of producers of low-carbon energy, but not the confidence of those who must pay the carbon tax, who would have to raise their prices accordingly, aiming to retain similar margins, but more exposed to competition from volatile producers like wind energy, and just as exposed to other inherently volatile components, such as fuel costs and demand.

What a carbon tax would do would be to make alternatives to fossil fuels relatively more competitive, displacing the use of fossil fuels in the most marginal applications, reducing demand, prices and dependence on imports of fossil fuels. That is all good and wise, but it is related only peripherally to a floor price for power and greater certainty about profits, other than for low-carbon producers.

Speaking of the IEA (see previous post), Richard Wellings, their excellent Deputy Editorial Director, has posted a piece on their blog, on the recent slew of climate-change policies and targets from the Government. It is mostly well-judged, but there is one point where we diverge. I need graphics to illustrate why he is mistaken, so I'm posting here rather than in the comments section on his site.

Richard rightly criticizes the impossibly ambitious targets, the delusional claims about the benefit to the economy, and the impact on what remains of our industry of increasing the costs of energy. But he overstretches when he brings domestic consumers into the picture:

"Then there is the impact on the less well off. People on benefits, for example £64 per week Jobseeker’s Allowance, may already be using around one third of their (non-housing) incomes to pay utility bills inflated by existing environmental policies."

Actually, we have the cheapest domestic energy of the EU-15 countries. Here is the comparison for gas (from European Commission, DG TREN Staff Working Document, Report on Progress in Creating the Internal Gas and Electricity Market, 11/3/1009, SEC(2009) 287):

Notice that only 6 New Accession countries had cheaper domestic gas than us (on old, unsustainable, subsidised Russian prices), so not only all the other EU-15 countries were dearer, but several of the New Accession countries as well. And notice that the reasons why domestic gas is so cheap are not only that the untaxed price is competitive, but significantly that we apply less tax to our domestic gas than any country except for Latvia. Doesn't look like domestic gas prices are too inflated by existing environmental policies, does it?

According to David Kidney, Energy Minister with responsibility for fuel poverty, the Government has "spent £20 billion helping people in fuel poverty since the year 2000" (it's near the end of the interview).

At 3.5 million, the number of homes in "fuel poverty" in 2006 was significantly higher than it was in 2000 (see graph from DEFRA's UK Fuel Poverty Strategy 6th Annual Report 2008), and that was before prices went really high.

Is it possible that the Government's strategy is not working? Have we wasted a colossal amount of money trying to encourage improvements to energy-efficiency and usage whilst keeping domestic energy prices as cheap as possible? Is fuel poverty a bogus concept that gets in the way of rational energy policy?

Or is £20 billion to make things worse a good return on investment (to use the Government's favourite word for spending)?

For connoisseurs of government tripe on energy and the environment, the last couple of days have been like a banquet. The releases of the UK Low Carbon Transition Plan, the Low Carbon Industrial Plan, the Carbon Reduction Strategy for Transport, the Renewable Energy Strategy, the Renewable Energy Financial Incentives consultation, and the announcement of the new "eco-towns" are such a smorgasbord of cant and delusion that I am struggling to digest them all. In the long-run, they should provide tasty morcels of insanity for weeks to come, but in the meantime, here are a couple of choice cuts that others have spotted, just in case you missed them:

1. The Times noticed that the claims of job-numbers currently in the green-energy industry and to be added by the Government's new measures are just slightly over-stated - including such jobs as slipper-makers, "workers in the North Sea gas industry as well as suppliers of wallpaper and animal bedding".
2. Grant Shapps, shadow minister for housing, noticed (unusually sharply for a Conservative spokesman on green issues) that the minimum standards to which houses in the new eco-towns must be built are lower than the standards that will be required of all other developers by the time the first eco-towns are expected to be built (2016).

That'll do for the starters. Now, what shall I have to follow...

There is much talk in energy circles of the "capacity gap" - the shortfall between operating capacity and demand that may arise as a result of the imminent closure (mostly within 6 years) of many of our coal-fired and nuclear power stations.

Competitive markets don't work that way. If there is a good with highly inelastic demand, and supplies of that good are expected with reasonable confidence to run short in the future, investors will step in to produce more of the good. Why wouldn't that be happening (as much as required) within the electricity industry?

Some might like to blame it on a gap between the cost of new plant and the price that customers are willing to pay. But demand is pretty inelastic, remember. You can be fairly confident that an unregulated price would rise to the level that was needed to satisfy demand.

The VILE companies like to blame it on the projected increased capacity of intermittent power (like wind and wave) and the absence of a capacity payment to accompany it. A capacity payment is a charge paid to generators simply for having their capacity available, whether or not it is used. It provided nice bunce for the big two generators in the days of the Pool, and they'd like some more. And it's true that, if we have substantially increased capacity of intermittent power, let alone if we try to use more electricity for heat (with its strong seasonality), then dispatchable generation plant will be called more intermittently to balance supply and demand. If the plant runs fewer hours, it will be unable to recover its costs at current prices. A capacity payment would be one way of dealing with that, but it is a bad one (favoured by the lazy VILEs, who like money for doing nothing). A better way would be to allow peak and balancing prices to increase to allow the generators to recover their costs over the shorter operating hours, and provide an incentive on the demand side for consumers to try to reduce their peak demand (if they were exposed to prices that reflected variation in supply and demand through the day).

But the real reason is that we do not have a liquid traded market for electricity. You cannot get forward prices for electricity beyond about 3 years. For gas, you can go beyond 10 years. And volumes in the traded market are tiny. That means that it is very difficult for an independent generator to build a power-station to fill the gap. He won't have a liquid market to sell into, and he can't mitigate his risk by contracting (or at least seeing and hedging) forward prices.

That leaves it to the VILE companies to fill the gap, and they can use their dominance and reluctance to build sufficient new capacity (on whatever pretext) to pressure the regulator for things they want, like capacity payments, which will further embed their dominance.

So we may have blackouts within 6 years (although this is probably brinksmanship and the gap will be filled in the end). And all because Callamity chose to allow vertical-integration and destroy any prospect of a competitive, liquid traded market. However difficult, and however much they scream, we have to reverse this process, not only for the sake of a competitive energy market, but to reduce the power of the big corporations to steer policy to their advantage. Disintegrate the VILE companies.

On the front page of today's FT is the headline: "Osborne warns of big spending cuts to come".

But in a speech yesterday, he announced 10 measures that should be implemented in the Budget to "kickstart a green recovery". Just his first measure alone - £6,500 energy-efficiency entitlement voucher for every home in Britain - would cost (given that there are around 25 million homes in Britain) over £160 billion. Others of the 10 announced measures would also cost billions of pounds.

That will help reduce the government deficit.

But according to George, the measures will "only" cost £30 billion, "without adding a penny to the national debt".

Three questions:

Fingers have been pointed in the direction of many different culprits for the critical condition of our economy. I am surprised that they have not been pointed more frequently at Sir Callum McCarthy. We don't need to swab him for gunshot residue; he is spattered in blood, holding a smoking gun.

Two things in particular have made life particularly difficult for people in the past 18 months: energy prices that shot up as world prices went up and then failed to come down at the same rate, and unavailability of credit because of the failure of our financial systems. Of course, Callamity was not totally responsible for either. But he was at the scene of the crime with blood on his hands for both.

The speed at which energy prices rise and sloth with which they fall is a sign of an uncompetitive market. So is massive profit-expansion when costs are rising.

There is a reason why our energy markets are uncompetitive. When electricity was privatised, the Conservative government deliberately separated the generation businesses from the supply and distribution businesses (the Regional Electricity Companies, or RECs). It was essential to creating a liquid trading market for electricity. If suppliers generate most of their own electricity, only marginal production is traded in the markets. That leaves independent generators selling at a disadvantage, when their customers are also their competitors. And the same goes for independent suppliers, who must buy electricity from their competitors.

Early regulators under the Conservative government recognised this, and protected this separation against pressure from the industry, who would like nothing more than to get back to their cozy, lazy, nationalised ways. But from 1998, the regulator began to allow acquisitions that created combined supply, generation and distribution businesses. By 2004, none of the RECs remained independent. All had been subsumed within one or other of the Big Six - the Vertically-Integrated Large Energy (VILE) companies.

In September 1998, Clare Spottiswoode and Stephen Littlechild stood down from their jobs as regulators of (respectively) gas and electricity. Callamity took over, first at Ofgas, and then at the merged regulator of gas and electricity, Ofgem. The extent of his responsibility (and ego) can be seen in the fact that, from 2000, he was acting as both Chairman and Chief Executive of Ofgem.

Efficiencies drive down costs. Competition drives down prices. The mergers allowed by McCarthy destroyed competition. Little wonder that, by 2003, the National Audit Office (under Sir John Bourne) was reporting that the market changes enacted under Labour (many of them improvements on the original design from privatisation) had driven down wholesale prices, but had had much less effect on retail prices. Through his naivety, Callamity undid the benefits of the market improvements, and created the uncompetitive oligopoly from which we suffer.

Repeated attempts since then by the regulator, the competition authorities and the government to identify collusion between the Big Six have failed, because the problem is not underhand behaviour, but the market-power provided by their vertical-integration, which allows them to lock out competitors and maintain juicy profits, without having to literally sit down in a room and parcel out the market between them. It is obvious there is a problem, but no one dares acknowledge that the only solution is to reverse McCarthy's mistake: disintegrate the VILE companies.

In September 2003, Callamity left Ofgem and became Chairman of the Financial Services Authority (FSA). What happened next is common knowledge. The financial services industry engaged increasingly in imprudent activities, prompted by various government measures, and unconstrained by any regulatory action, even as they moved more and more risk off-balance-sheet. An excellent analysis of the development of the problems - "How Not to Solve a Crisis" has been produced by Bill Stacey of the Lion Rock Institute and Julian Morris of the International Policy Network. When eventually the economy could no longer stand all the systemic imbalances that had been allowed to develop, the necessary correction revealed the extent to which Callamity had allowed short-termism and corporate interests in another industry to take priority over good governance.

Callamity's story gives the lie to Gordon's claim that Britain is a victim of global forces and American failings. Britain led the race to the bottom of regulatory supervision. What does Gordon think drove the American government to repeal Glass-Steagall, other than the inability of Wall Street to compete with the lax conditions in the City of London? Wall Street's shackles having been thus loosened in 1999, it would take a regulator of quite stupendous incompetence and lassitude to keep the City ahead in the race. In Callamity, Gordon had just the man for the job. No wonder Callamity had to be quietly shuffled out of his role, as the consequences of his reign became clearer. His continued presence would be a clearer reminder than Sir Fred Goodwin's pension of who is really to blame for our woes.

In another era, Callamity would have been left in a room with a whisky and a loaded pistol. Earlier still, his neck would be on the block. We ought to find some similar punishment for him. But what do you want to bet, if politicians are now sensible enough to keep him away from any further public-sector work, that Callamity can look forward to some well-remunerated Non-Exec positions from his corporate friends? Or would even they be too embarrassed to be seen around him?

We know that what follows is typical of how they see the world, but rarely do we see it spelt out so clearly. In the recently issued consultation on a Heat and Energy Saving Strategy, the Government details (p.13) "What we have already achieved" in this field:

• The Act on CO2 help line
• The Carbon Trust and Business Links ("supporting businesses to accelerate the move to a low carbon economy")
• The Energy Performance Certificate (EPC) on properties
• The EU-ETS (European Union Emissions Trading Scheme)
• The Climate Change Levy (CCL, and associated Climate Change Agreements)
• The Carbon Reduction Commitment (CRC)
• The Carbon Emissions Reduction Target (CERT)
• A £1 billion fuel bills package (to "help householders who are struggling to pay their fuel bills")
• £350 million for the Community Energy Saving Programme (CESP)
• £950 million on the Warm Front scheme to improve the properties of low-income households
• The Decent Homes programme for the social-housing sector, which has "generated investment" in insulation and energy-efficiency of £5.6 billion since 2001.
• Mandatory sustainability standards ("Quick Wins - Buy Sustainably") for government procurement
• Salix Finance, a public-funded company that "accelerares public sector investment in energy-efficiency technologies through invest to save schemes."
• Higher efficiency standards in the Building Regulations, moving to zero-carbon standards by 2016.
• European product standards (e.g. for labelling electrical equipment)
• Voluntary Agreements with energy suppliers to "promote energy services and savings".

Truly, a mountain of money, legislation and quangos.

But strangely, there is no reference, within this list of "achievements", to the effect that these measures have had. No quantification of how much more efficiently we heat ourselves and how much energy we have saved. Could this, in some way, be related to the fact that there has been little change in the amount of energy we use to this end?

These "achievements" are followed by a short list of estimates of how many properties have installed condensing boilers and small-scale renewable generators, and how many have had improved insulation. But there is no virtue in this spending if it has not reduced energy-consumption. If people have responded by heating their property to tropical temperatures and leaving the windows open at night, these installations are no achievement, they are a massive waste of energy and public money.

There seems to be a confusion in government circles between means and ends. Legislation is not the achievement. Nor is spending. Nor is bureaucracy. They are the means by which one hopes to achieve one's ends. Listing their policies and spending as their achievements highlights the mindset that predominates in this government.

Attention focused on the renewables component of Obama's stimulus plan today. But the Americans aren't the only ones using the credit crunch as an excuse to plough vast sums of public money into their pet projects.

The European Commission today issued a revised draft list of white elephants projects to be supported under its proposal for a Regulation "establishing a programme to aid economic recovery by granting Community financial assistance to projects in the field of energy". The programme is to cost €3.5bn. The money is to be drawn from the Common Agricultural Policy, which is obviously swimming in so much cash that several billion can be siphoned out at short notice without affecting its intended recipients.

In the  Explanatory Memorandum at the start of the Commission Communication accompanying the proposal, the budgetary implication (p.4) is described in the following words:

A financial envelope of €3,500 million is foreseen in total for the three sub-programmes, consisting of €1,500 million for 2009 and €2,000 million for 2010.

The main volume of payments will be made between 2009 and 2012 with the last payments, notably for carbon capture and storage projects, foreseen for 2014/2015.

So this is a package "to aid economic recovery" in which some of the payments will be made in 2014/15. And if we look at the draft list, we see that the share for carbon capture and storage (the money to be spent at that late date) is €1,150m, one-third of the total.

The text is a little obtuse, with the budget envelope being assigned to 2009 and 2010, but the spending parcelled out over a number of years upto 2015. The only sense I can make of that is that the money will be drawn from the 2009 and 2010 budgets, but spent over a wider number of years. So, in the name of aiding economic recovery, we are drawing money out of current budgets in order to spend them on white elephants in the future, one-third of it a full five years later. How exactly is that supposed to help ameliorate the current economic difficulties?

There may be an argument for some of these projects, particularly some of the Eastern European infrastructure projects. But why are they justified in the name of economic recovery rather than energy security? Is it because it would have been impossible to justify tacking on the CCS white elephants for Western European governments' favourite oligopolists (EDF, RWE, Eon, Centrica, Enel, & co)?

How much assessment was carried out on whether these particular projects provided the best stimulus effect or the best value for energy security and carbon reductions? If we have €1.15bn available to stimulate the economy by spending tax to reduce our carbon emissions (which is the only point of CCS), there are many other options that could be delivered sooner and would provide a better bang for the buck.

Or better still, we could return this money to taxpayers, create rational incentives that value carbon fairly and appropriately, break up the vertically-integrated utilities to create a genuinely competitive and liquid market, and leave it to the economy to work out where the money can be most effective. The market certainly wouldn't pick CCS, which is why it takes a political behemoth manned by apparatchiks whose only understanding of energy and environment comes from what they are spoon-fed by the oligopolists to blow this much money to such negative effect, at a time when we can least afford it.

For numerous reasons (some set out on other posts on this site), heat is a huge, vital, yet ignored sector of our energy systems. It is responsible for nearly half the carbon emissions from the energy sector. It is the reason we are so dependent on imported gas. Twice as much of our gas goes to producing heat as producing electricity. Europe could replace all its gas-fired electricity generation, and would still be as badly affected as this winter if there were further interruptions to one of its major gas supplies during a cold spell in winter.

Despite this, the British government has so far done almost nothing to reduce our carbon emissions and insecurity in the heat sector. Indeed, policy to date has been to keep gas heating so cheap that alternatives are not viable. As a result, we have grown steadily more dependent and inefficient (no point spending money or changing habits to conserve something so cheap).

The Government has finally proposed to consult on a possible support mechanism for green heat, but unlike the simultaneously announced policy to support largely-irrelevant micro-generation, it has refused to commit to a timetable to introduce the heat mechanism by April 2010. It will be 2011 at the earliest, they say.

The eagle-eyed may spot a slight problem with that: 2011 will be after the next election. In current circumstances, a promise by a Labour government to implement a mechanism in April 2011 should be more heavily discounted than a Ukrainian bond. It is unlikely that any new government, possibly apart from another Labour government with a big majority, will place support for green heat at the top of its legislative agenda. Most flavours of government (of the options likely to result from the next election) would not be likely to implement a green-heat mechanism in the form developed under this government. The upshot is that it is unlikely that any effective action on heat will be taken before 2012 at the earliest.

As it follows from this that Tory policy on green heat is likely to be more important, I went to see what they had to say. They have put so much effort into Energy and Climate Change that I had first to look up who their spokesman was. It is Greg Clark. (Readers may be equally surprised to learn that the LibDems' spokesman on the brief is now Simon Hughes. The Minister, Ed Miliband, has at least achieved a degree of visibility in presenting his brief to the public.)

Clark regards the DECC policy consultations on heat and energy efficiency as both "a knock-off copy" of Tory policy, and as "dithering" (which says what about Tory policy?). Instead of dithering, he wants the Government to "adopt the green policies outlined in our plan for a low carbon economy".

The only component of those plans, announced by Cameron in January, to deal with green heat are to "enable biogas, methane produced from farm and food wastes, to replace up to 50% of our residential gas heating". It looks like National Grid's bullshit has not been in vain, but has been swallowed whole by the Tories. In fact, the Tories have gone further, probably because they didn't read or understand the National Grid paper (perhaps because they only saw a pre-publication draft), which at least assumed that some of this gas would have to be ACT (advanced combustion technology) syngas, not just biogas.

Our company knows a bit about green heat and anaerobic digestion (AD, the process that produces biogas). One of our subsidiaries is the largest AD business in the country, producing more power from biogas than the rest combined (it's a big fish in a small pond). Another is a leading supplier of wood pellets for heating. I am the heat man, my brother is the AD man. What follows is my first stab to demonstrate how absurd this Tory "ambition" is. I will probably post again later with refinements based on more detailed and accurate figures from my brother, but the following figures are not unreasonable for illustrative purposes.

Don't take the following the wrong way. AD and green heat both have an important contribution to make (we wouldn't be leading the efforts to develop them if we didn't believe so). I am pointing out that they cannot contribute what the Tories think they can contribute, not arguing that a more achievable contribution from them would not be valuable. There is a strange perversion of logic in political circles, where something is only interesting if it can solve the whole or most of the problem on its own. Dismissing options that only make a partial contribution is like dismissing carrots because they only make a partial contribution to our diet. But it is an attitude regularly exhibited by politicians of all colours.

Anyway, with that said, let's proceed to the preliminary assessment of the Tory policy on biogas heating...

Residential gas consumption in the UK is around 350 TWh p.a. (more than total electricity consumption in all sectors). So the Tories' target is around 175 TWh of biogas. (1 TWh = 1,000 GWh = 1,000,000 MWh = 1,000,000,000 kWh or units.)

All the landfill gas produced and captured in the UK each year would provide around 1% of that target. Our sewage gas would provide another 0.2% or so. Just another 98.8% to find, then (and that's assuming these two sectors stop producing electricity).

If we need around 400 m³ of biogas for a MWh, 175 TWh for heating would need 70,000,000,000 m³ of biogas p.a. That's around 8,000,000 m³/hr.

A m³ of good putrescible waste @ 12.5% solids produces around 175 kWh. So to produce that much gas, we will need around 1,000,000,000 m³ p.a. of good putrescible waste.

Most waste isn't good putrescible waste of course, and one of the largest categories on which they hope to rely - agricultural slurry - produces little gas and needs a much higher ratio of waste and tank space to volume of gas produced. We could grow more, but we would need vast areas of land sacrificed to production of energy crops, which wasn't exactly a success recently even at smaller scale (proportionately) than required by the Tory policy. But for the sake of simple calculation, let's assume for a moment longer that this much waste of this quality could be found.

A m³ of digester tank can process around 13.5 m³ of waste @ 12.5% solids in a year. So we will need 74,000,000 m³ of digester tank to achieve their target. That's 9,260 Holsworthys (our AD plant in Devon - comfortably the largest plant in the UK, responsible for half of all UK biogas production outside the water industry); one for every 26 km² and every 6,480 people.

And this assumes that no biogas is consumed or lost in the process of clean-up for grid-injection, and that no biogas is used for other purposes (e.g. electricity generation). Nor does it consider what we would do with that volume of digestate (nitrate vulnerable countries, anyone?).

The upshot is that we'd better grow and eat one hell of a lot of food if the Tories get in; an utterly impossible amount, in fact. Our current obesity epidemic has nothing on what they have in mind for us.

The reason they've gone for this technological "winner", of course, is that it seems painless (as all magic bullets do, until you have to explain why you missed the target), and it is promoted by a big company (National Grid), supported by a report from a big consultancy (Ernst & Young). Plus ça change, plus c'est la même chose.

We have tried to engage with political parties on these sorts of subjects. But as we won't encourage their delusions, but will actually challenge them, they find that the best approach is to ignore us and cling to their delusions.

There is no point small companies, or others of independent mind, trying to engage directly with major political parties. They are not interested in the truth. They are blinded by money and power, and deaf to reason. It doesn't matter which flavour, they are all the same, other than in the choice of which interests to favour and lies to believe.

Prices in the EU Emissions Trading Scheme (EU-ETS) have hit new lows in Phase 2 (just over €10/tCO₂). The mechanism became worthless in Phase 1. It looks likely to do the same in Phase 2 (as some of us predicted). It is not providing sufficient incentive for anyone to invest in any carbon-reducing projects. But it is still handing nice rents and market-protection to the beneficiaries of the allocation process. Uncertainty about its value, so vulnerable to political whim and economic fortune, is a significant factor in the reluctance of power companies to invest not only in renewables, but even in new coal, gas and nuclear stations, because their relative competitiveness depends on EU-ETS prices, and any investment can therefore be made uneconomic in the tap of a legislators' pen.

Naturally, Stavros Dimas (EU Environment Commissioner) has taken this confirmation of the irrationality and harmfulness of the scheme as a signal to try to draw others, particularly America, into a global ETS.

Robert Cialdini, in his book Influence, briefly recounts a real incident that was witnessed and analysed by the social scientists Leon Festinger, Henry Riecken and Stanley Schachter, recorded in their book When Prophecy Fails. The details are hilarious and illuminating in equal measure. I highly recommend you to read Cialdini at least, if not Festinger et al. But I will try to precis here the already potted version in Cialdini. A doomsday cult formed around a man with a long interest in mysticism, the occult and flying saucers, and a woman who claimed to channel messages from extra-terrestrial spiritual beings via the device of automatic writing. These messages started to foretell a disastrous flood that would engulf the world. However, they also reassured the members of the cult that they would be rescued by flying saucers that would be sent  a few hours before the flood was due to commence. During the period leading up to the appointed date, the members of the cult retreated into themselves, making little effort to warn others of the impending disaster. Of course, the spaceships failed to materialise, as did the flood. In the immediate aftermath of the non-appearance, there was silence, then introspection and despair, then signs that the group was starting to dissipate. At this point, the woman received a message from the extra-terrestrial spirtual beings, telling the group that "the little group, sitting alone all night long, had spread so much light that God had saved the world from destruction." A second message instructed her to publicize this news. The group set about contacting newspapers and trying to persuade as many people as possible of the truth of their experience.

Festinger et al and Cialdini provide a convincing explanation for this bizarre switch from secrecy to proselytization, at precisely the moment that it had become obvious that their beliefs were unfounded. The members had invested hugely in the cult's belief-system. The psychological cost of admitting it had been for nothing was too great to contemplate. Yet the evidence clearly indicated that it had indeed been a foolish waste. To avoid the spiritual cost of facing reality, they needed another way of maintaining their belief. Their best hope was in persuading others to share their views, for, if enough people agreed with them, it must (psychologically) be true, whatever the evidence seemed to suggest. The proselytizing was not a sign that they were now more confident of the truth of their beliefs, but precisely the opposite - it was the conscious response to the subconscious awareness of their folly.

Of course, people outside the cult could see the flaw in their beliefs, and the desperation that underlay their efforts. Not a single new member was attracted. Let's hope that those in the White House and elsewhere can spot the equally obvious evidence of the failure of the EU-ETS, and the motives for Mr Dimas's promotion of the cult of carbon-trading.

I've been beating a fairly solitary path on this for a while, and in the process making myself unpopular with the major players in the electricity industry (which provides another clue to the huge rent-seeking potential of cap-and-trade) and their representatives. But, judging by this article in this weekend's Sunday Times, it looks like others may also be coming to share my view.

My policy of paying no attention to the news had been going well, and then the boss decided that we simply had to respond to an article in The Times. So it's temporarily back to banging my head against a brick wall, as you may have guessed from the appearance of this post.

The article in question was a Guest Comment by Sam Laidlaw, Chief Executive of Centrica, whose heading summarises his argument pretty well: "Put a price on carbon, but not a tax". This might seem to be a reasonable, even a liberal argument. Unless you are close to the energy industry, you would probably not realise how this was just another example of the way that energy policy has become a plaything for the energy corporates to try to gain commercial advantage. The Government's policy is practically being dictated by the positions of companies like Centrica, who are very clever in dressing up self-interested positions as plausible, apparently impartial and principled arguments. I will let the letter I sent to The Times explain how so in this case:

Sir,

Sam Laidlaw says that we must "put a price on carbon". He does not differentiate between sources of carbon, and rightly so. Our climate does not, and neither should we.

One of the many failings of cap-and-trade, unlike a carbon tax, is that it is not practical for highly-fragmented markets, such as the very large market for domestic heating. The domestic consumer of 'natural' gas (or heating-oil or LPG in remote areas) is therefore not "forced to pay", which reduces incentives for householders to act sensibly and to consider alternatives like renewables.

Mr Laidlaw opposes the intervention of government(s) in setting the price of carbon, but in fact such interventions pervade the system of cap-and-trade. In the absence of a carbon-tax, the only other levers that the Government can pull in the domestic sector are either partial, bureaucratic and poorly-funded grant-mechanisms (such as the Low-Carbon Buildings Programme, in which Centrica’s subsidiary British Gas has been given a privileged position), or regulations and obligations (such as the Energy-Efficiency Commitment, in which again only the major energy suppliers, such as Centrica, can participate).

Mr Laidlaw presumably prefers these mechanisms to a tax that is the only practical way of pricing carbon equally across all types of consumers, large and small, but he then must accept that most of his customers are insulated from the cost of carbon, an approach that he says is wrong. Policymakers and consumers ought also to be concerned that those measures embed the power of the incumbent energy suppliers, and inhibit innovation and competition from new entrants.

Yours,
etc.

It was not published, of course. I have no complaint - that is their prerogative. But more strangely, I also tried, when it wasn't published, to post this message (in two parts, because of the 1000-character limit) to their website, but it hasn't shown up there either. Another message that I posted afterwards, in response to another poster who suggested we should have a government-subsidised investment fund rather than carbon-pricing, has appeared, which makes me wonder why the earlier posts didn't show. Was this a technical hitch, or was it moderated? It seems unlikely to be a technical issue, as the later post got through fine, and it is strange for both halves of the first message to suffer a technical glitch that other messages did not experience. My guess is that it was moderated, but why?

The Institute for Paternalism, Protectionism and Regulation today published a report on Energy Security. It is, in the most part, a rehashing of received wisdom, without understanding or insight, but one phrase in the Executive Summary stood out for being more than just vacuous. It is symbolic of the way that this sort of organization, and their friends on the centre-left and centre-right, view the role of government:

"Clearly there is no one-size-fits-all solution to these challenges and undoubtedly a mix of policy measures will be required."

Sounds innocent enough, but consider if you applied the logic in other fields. What about the field from which the phrase is drawn? There is no one-size-fits-all solution for clothing, so the Government needs a mix of policy measures to ensure that the correct balance of sizes is supplied. There tends to be less demand for the smallest and largest sizes, so to reduce the risk that the market may not provide equal choice to these consumers, we will have a policy to encourage or require production of extra-small and extra-large sizes. The larger sizes use more fabric and therefore cost more to produce, so we will have a policy to subsidize outsize clothing, to avoid people being "discriminated" against for their size. There are a range of collar, bust/chest, waste, hip, inside leg and thigh sizes, so we will have policies to ensure that sufficient quantities of each size is produced. And these different measurements occur in a range of combinations. Shall we have policies to try to calculate the incidence of the various combinations, and mandate that production match these calculations? Or shall we mandate the mean or median combinations, as government is fond of doing in other fields (people's deviation from the mean being a "second-order" issue)? How shall we allocate responsibility for production of different sizes and shapes to the various design houses? Should every range have to comply with all these policies, so that no one is deprived of a choice that someone else has, in accordance with the principles of equity? How will small lines survive when they have to satisfy rules that compel them to service the whole market? How much variety will be on offer? And how will new styles, designs, and innovations occur when designers are bound tightly by rules that determine the sizes and shapes that they must offer?

It's ridiculous, of course, but it is no less ridiculous to apply this approach to the many fields, such as energy, where the Government and bodies like the IPPR believe that it is essential to intervene with a wide range of targeted measures. The truth is exactly the opposite. It is precisely because there is no one-size-fits-all solution that it is important for the Government to intervene as little as possible. We need to allow the market to function without skewing it, so we can discover the optimal balance of options.

The Government thinks that we should be using energy more efficiently. They are right. So guess which sector increased its consumption of electricity the most in Europe between 1999 and 2004. Industry? Households? No, it was the "tertiary sector" - in other words, government, state-funded services, the voluntary sector and commerce.

Industrial consumption was up by 9.5%, domestic by 10.8%, and the tertiary sector by a wapping 15.6%. Were our leaders and bureaucrats getting more wasteful, or were there just more of them? Or both?

If you find ways to save energy in your business, profits are increased and your career or business should prosper. If you find ways to save energy at home, you save money to spend on other things. If you work for the government and you find ways to save energy....you save other people (taxpayers) some money, and your budget gets cut. I wonder why government has been least successful?

One of the things that made me laugh in the BBC's typically-rigorous reporting (I think in last night's Newsnight) of the proposed EU reform treaty was the claim that the extension of Qualified Majority Voting would bring benefits such as the opportunity to force the break-up of national energy monopolies. Isn't that already required under existing agreements on deregulation of European energy markets? QMV is more likely to enable the majority of our partners who would rather protect their "national champions" at all cost to backtrack on this sort of requirement.