My Lords, it is a great privilege to open this debate, especially with the high calibre of people proposing to participate in it.
The basic science of global warming is rock solid, but we have been told fairy tales about its economics ever since the Climate Change Act 2008. We all love fairy stories. The essence of most of them is the same: the country faces enormous challenge that can be overcome only at huge cost and sacrifice. Then our hero, through determination, clear-sightedness and a magic wand, finds a way to defeat that challenge which, far from involving cost and sacrifice, makes everyone better off and they all live happily ever after. The climate change version of this fairy tale is that, to avoid human extinction, we must eliminate wicked fossil fuels. This looked as if it would involve daunting costs and sacrifices, but along came Prince Miliband who announced that his magic wand—renewables—would not merely banish emissions but give us cheaper, reliable energy and green growth so that we can all live happily ever after.
The United Kingdom has been one of the first countries to embark on the quest for renewables. We have gone further and faster than most other countries. Our emissions are back at the level they were at in 1879. Two decades on, we have the highest electricity prices in Europe, and Europe has the highest electricity prices in the developed world. Far from enjoying green growth, we have seen our energy-using industries decimated, a third of our refineries closed, chemicals and fertilisers thrashed, aluminium and steel shattered, ceramics, bricks and cement rendered uncompetitive.
We are all told that these high electricity costs are a temporary phenomenon, entirely caused by the wars in Ukraine and Iran and our reliance on gas. High gas prices have exacerbated our problems, but even in 2019, before those wars and the pandemic, when gas prices were at the fairly typical level of the previous two decades, our electricity prices were the third highest in the OECD. Why is this? Surely sun and wind are free. That is true but, unfortunately, they are intermittent and capital intensive. Solar is now a competitive source in sunny countries because the main variable demand there is for air conditioning, which is perfectly correlated with the sun shining. Alas, in the UK the sun does not shine when we need the power most: in winter, in the evenings and at night.
That leaves us with wind. In 2024 Prince Miliband, newly reinstated in his palace—I mean his office—as Secretary of State, assured us that new offshore wind was now cheaper than new gas. Unfortunately, that year’s offshore wind auction set the CfD price for wind at £80 per megawatt-hour in 2021 pounds. His own department’s estimate for the levelised cost of new gas was £55 per megawatt-hour, pre-tax.
There is a respectable case for imposing a tax on fossil fuels to pay for the external costs that global warming will impose on the world. Unfortunately, DESNZ has stopped estimating the social cost of carbon because the conventional estimate, used by the Americans and others, of $20 per megawatt-hour was insufficient to make gas appear uncompetitive. Now DESNZ, in assessing the relative costs of different modes of generation, imposes a theoretical policy cost on fossil fuels, which is calculated as the tax necessary to render fossil fuels less competitive than renewables. I kid you not—that is the methodology. Even then, it is on a levelised cost basis, which takes no account of intermittency. Since the wind often does not blow for quite long periods over the whole UK and much of Europe, we need back-up capacity roughly equal to the wind capacity. At present, that can be only gas. If we then have to eliminate emissions from that gas, we will need an equivalent capacity of carbon capture and storage. That is a threefold investment in capital expenditure for one lot of electricity.