Energy politics

1 June 2007

Energy has always been a political market and with the clamour amongst governments to provide a climate legacy the politicisation of energy markets is increasing at a pace. The next round of the political debate on energy and climate change will follow the UK’s latest Energy White Paper and this month’s G8 summit in Germany where climate change is once again at the top of the agenda for the third summit running, even though since the first G8 summit that led on climate at Gleneagles in 2005 there has been palpably little international progress. Few will be holding their breath that the German summit will be any more successful.

There appears to be no limit to the lengths some politicians will go to shame nations into embracing action on climate change. The chief mover in this respect has to be the UK. At the UN last month, UK foreign secretary Margaret Beckett warned nations that if climate change was not addressed it would lead to global conflict. Unfortunately for Beckett, there are more than enough conflicts in the world that are not caused by climate change to worry about potential future conflicts that might be due to the climate. Indeed the only conflicts caused by climate are between governments discussing mitigation approaches.

It used to be the case that governments in waiting campaigned on law and order, public services and the economy. Today, the buzzword in campaigns is climate change. On being elected France’s new president last month Nicolas Sarkozy said his priority would be climate change, with these sentiments being echoed by UK prime minister in waiting Gordon Brown. Indeed such is the political momentum behind the climate that the Scottish Greens have agreed a quasi coalition with the Scottish National Party to shore up the minority Scottish government and may be given the Holyrood environment committee, while at the more local level the Greens are now optimistically predicting they will gain their first Westminster MP at the next general election.

The greening of politicians has been one of the most significant political developments of the past decade, yet sceptics are right to question whether this conversion to the Green Gospel is due to a sincere desire to tackle climate change or whether it is driven more by the desire to accumulate political power. In all probability it is bit of both.

What is equally notable is that as the politicisation of climate change and energy has accelerated there has seemingly been a consequent erosion of the role of free markets. Competition is rarely mentioned these days. Ordinarily with just a month until the July deadline for full EU gas and electricity market competition there would be hundreds of column inches on market competition, yet a quick media search shows this topic has barely registered this year. January’s European Commission report into the failings of EU energy market competition is now a distant memory.

There is nothing wrong with the politicisation of energy and climate markets providing it achieves the desired results. But for all the political rhetoric and chest thumping the simple truth is that emissions have not reduced and energy supply is no more secure. Politicians are neither energy nor climate experts, but the markets are. Yet politicians continue to dictate how energy and climate markets should operate and leave the markets to make these policies work. Is it any wonder that these big policy ideas rarely correlate with big market results?

This month two new heads of government will join the political energy circus – Nicolas Sarkozy and Gordon Brown. As with all newly elected heads of government the honeymoon period will be short-lived and therefore Messrs Sarkozy and Brown will seek to stamp their mark in the first hundred days. While Sarkozy has identified with the need for climate action his main policy test will come with the domestic energy market. The decision on the agreed merger of Suez and GDF was deferred until after the presidential election and Sarkozy now has to decide whether he still supports the more protectionist policy of his predecessor or whether he will be true to his right-of-centre political views and be more supportive of a competitive French energy market. If Sarkozy wants to be seen as a moderniser he would surely abandon the merger, but then it could be political suicide to effectively unravel France’s social model. Equally important is what he does with EDF. It was somewhat interesting that almost immediately following his election there were rumours of EDF considering a bid for Germany’s RWE, particularly as Sarkozy’s presidential rival, the socialist Segolene Royal, favoured an empowered EDF through a merger with GDF rather than a merger of GDF and Suez.

Whatever the importance attached by Sarkozy to climate change France will always place energy security first. The UK, and Brown, could learn a valuable lesson from France. With all its prioritisation of climate change the UK has tended to lose sight of supply security over the past decade. Brown, with his ten years at the Treasury, should know better than most that a strong secure energy market underpins the economy. Yet his policy actions for his first hundred days in power appear likely to pander more to climate change than supply security. Accepted, he has given his unqualified support to a new nuclear build programme but as Chancellor he only sanctioned a single full-scale carbon capture and storage demonstration project. Yet analysis by the Washington-based Pew Center says that at least ten CCS demonstration projects are required to assess the feasibility of CCS technology and three times this number are required to determine the technology’s commercial viability in the US. A single UK CCS project simply does not convey the level of government support required by a market that, since December, has outlined no fewer than four supercritical coal plant projects each designed to incorporate CCS technology.

But perhaps the greatest concern with respect to Brown’s potential energy policy is his dumbing down of energy within government by signalling he will remove the energy portfolio from the Department of Trade and Industry and place it in an enlarged environment department under the leadership of the environment secretary. The increasing politicisation of energy is not being reflected in a greater voice for energy in government. Ever since Thatcher’s Conservative UK government closed the department of energy in 1983 and placed energy within the DTI the value of energy has been subordinated with no real voice in cabinet. For all his conviction that a combined environment-energy department will give energy a more prominent voice in government, the reality is that such a department, if led by the environment secretary, merely further diminishes the government voice of energy and makes it more climate-led than it currently is.

Energy politics is, and will continue to be, important. But for it to be of real value requires devolving political responsibility for energy to a dedicated energy department. If Brown wants a positive energy legacy he has to substantially empower the role of energy within government.

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