Why governments' attempts to pick winners produce more losers than winners.
One thing leads to another. The APPGOPO report covered in the previous post refers to the first report by the UK Industry Taskforce on Peak Oil & Energy Security (ITPOES) on "The Oil Crunch: Securing the UK's Energy Future", which has been out for half a year, but I hadn't come across before.
The impact of peak oil isn't hard to anticipate. It's not a volume constriction, it's a price constriction (putting aside for the moment complications like EROEI and carbon impacts). We are more than halfway through the "easy oil". If demand exceeds supply of easy oil, as it will soon once economies start to grow again, the marginal supplies will come from increasingly expensive producers, which will drive up prices dramatically. Costs of carbon and the recursive effect on prices of low EROEI from more marginal production will exacerbate the price-impact. The threat is that we won't be able to afford to do many of the things that were fundamental to our economy, not that the oil couldn't be made available for a while longer if we could afford it. But it may feel like an insufficiency of oil, there not being much difference in practice between "not enough" and "not enough that we can afford".
What won't we be able to afford? Simple: road and air transport.* These two forms of transport are almost completely dependent (99%) on oil, and conversely, the vast majority of our oil consumption (75%) goes to transport (12% goes to non-energy uses like petrochemicals and plastics, less than 0.5% goes to electricity production, and the rest goes to heat). We could relatively easily replace oil in the other energy sectors, but on the road and in the air, we are not remotely ready for the dislocation of high oil prices.
So what do this small group of corporations, who have appointed themselves our spokesmen on this issue, have to say? Their assessment of the risk is well done, but (as usual when a handful of corporations get together on a mission) the solutions they favour are not.
"Peak oil is about much more than transport" (p.28). What a surprise. A group that contains a VILE company, a solar-panel supplier, two businesses in the construction sector, a search-engine provider (???), and three public-transport operators think that peak oil means we need more government intervention in lots of areas that have little to do with peak oil. For instance, they think we need much more solar power (and support to deliver it). They think we need much more (subsidy for) wind and nuclear power (coincidentally, Scottish & Southern Energy, their VILE-company member, has substantial plans for wind and nuclear). We need massive efforts to encourage (read: support) energy-efficient construction. And, on the transport front, we need greater emphasis on (support for) bus and rail public-transport options. The latter is not unreasonable (if self-interested and marginal), and they also promote some more obvious and sensible solutions for the long-run, like increased use of electric transport options, but they have a wilful determination to ignore the technical challenges, they have no suggestion for something as key as international air transport (other than that we shouldn't have any more of it), and they have lots of suggestions for stuff that is marginal at best but which happens to be of interest to their members.
Their wilful ignorance of technical challenges, blind optimism, and enthusiasm for the irrelevant (if not downright unhelpful) reaches its peak with their espousal of a 100% renewable-energy objective (p.6).
"The renewables industry is confident that 100% renewables energy supply is possible in 20-40 years, according to the overwhelming consensus of participants at the Tenth Forum on Sustainable Energy, held in Barcelona in April. They should be given the opportunity to prove it."
This is backed up later (p.39) by reference to a number of studies (by renewables enthusiasts) claiming to show that 100% renewables is feasible.
A virtue of The Economist's focus this week on the vulnerability of our energy systems, regardless of whether they have got everything right (and there's plenty that's good as well as some that's bad) is that it has brought attention to the issue. Unfortunately, for every sensible comment, there are usually several from people who have picked their magic bullet and just trot out their usual unthinking platitudes without considering the complexities.
The favourite magic bullets are usually one form or another of renewable electricity, or nuclear power. For example, several nuclear freaks gave us the benefit of their opinions in response to a perfectly sensible post on Raedwald's blog.
I provided some information on there to explain why nuclear won't be a magic bullet, but I want to provide a bit of supporting analysis here.
The nuclear lobby often points to our import of power from France as illustration that the French nuclear-based system is more reliable than our mixture of generating technologies. They like to paint the story as though we are reliant on French nuclear power. Let's see how well that holds up to scrutiny.
I have looked at half-hourly system-demand data for the current year to end of May, available from National Grid/Elexon. The total or average volume of the flow over the French interconnector doesn't tell us much. We are net importers of a relatively small volume of our power (partly constrained by the capacity of the interconnector). But the more interesting question is when that power flows.
Looking first at how it varies by time of day:
It's a mixed bag. System demand is (not surprisingly) higher during the day than at night, and has two peaks during the day, morning and evening. The French send the most power during our evening peak, so that is definitely them responding to our demand. But they send more over at night (when we don't need it) than they do in the morning and early afternoon, suggesting that we are providing an outlet to dump the inflexible output from their nuclear plant at night time. That's a fairly 50:50 relationship, then. They give it to us when we most need it, but we take it from them when they most need to dump it even though we don't need it then.
That is an average of winter and spring performance. Our needs are greater in winter (i.e. we are getting closer to using the full capacity available in order to meet demand), so let's see how they help us out at that time. Taking just the first three months of the year:
Our system demand is higher over a 3-month winter average than over a 5-month winter/spring average. But the French send us significantly less power during the winter than they do for the 5-month period. In fact, during most of our morning peak of demand, they are taking power from us (negative flows), rather than the other way round. They are still helping us out during the evening peak, but to a lesser extent. And they are still dumping their power on us at night, though again to a lesser extent. That's not 50:50. At the time of the year when supplies are tightest, they are using us more than we are using them.
We can see that picture more clearly if we look at the weekly averages:
As average system demand decreases, as the weather improves and the days get longer, the French send us more of their power. That's back to front, if French nuclear is helping to meet our needs, but consistent with the UK acting as a dumping ground for excess French nuclear production. Most noticeably, in the week with the highest demand so far this year (week 2), they were actually net importers from the UK. How very helpful of them.
If nuclear is not subsidised and the safety and environmental factors are rigorously controlled, then it is a useful part of our electricity mix. But it is an inflexible part of the mix, which is why France pushes her power out to her neighbours when demand is lower at home, and pulls it in when demand is higher. We can't all do that. We can use hydro to store the power to some extent, but it depends on the geographic and political constraints (the UK's potential is very limited), and even France, with massive hydro investment, cannot fully balance supply and demand in this way. To the extent that nuclear output cannot be matched to demand through stored hydro-power, there is a limit to how much of our electricity can be supplied by nuclear. In the UK, with limited hydro, but grand plans for inflexible, intermittent wind power, the practical limit is probably in the region of 10-12 GW, operating at fairly constant output to provide around 20-25% of our electricity. As electricity is only a minority of our total energy consumption, that equates to around 4% of our final energy consumption, or 8% of our primary energy supply.
As I said, nuclear can be a useful part of our systems, but it's no magic bullet for our broader energy issues.
This week's Spectator includes an article by Elliot Wilson about nuclear power and Barbara Judge, one of the great-and-the-good, chair of the UK Atomic Energy Authority (amongst many senior roles), and wife of Sir Paul Judge (he of The Jury Team). The article contains the following passage:
"If there's a model to follow, it is the French one... In the wake of the first global energy crisis, the goal was to find ways to wean France off Arab oil... the plan work[ed] blindingly well - four fifths of French energy needs are now provided by 59 nuclear plants..."
I have written to The Spectator, quoting this passage, and pointing out that this is yet another repetition of the nuclear lobby's lies on this subject.
According to the International Energy Agency, nuclear energy provides 43 per cent of France's Primary Energy Supply, and 17 per cent of their Final Energy Consumption. Oil provides 33 per cent of their Primary Energy Supply and 49 per cent of their Final Energy Consumption. Their consumption of oil has reduced by 3 per cent since 1970. Over the same period, consumption of oil in the UK has reduced by 17 per cent.
France's lips are still wrapped firmly round the petroleum teat. Nuclear energy is not a substitute for oil. But when have the nuclear lobby ever let the facts get in the way of their propaganda?
Mr Wilson has made the classic mistake, on which various rent-seekers in the energy sector rely (including the wind and solar lobbies, as well as the nuclear crowd), of failing to distinguish between electricity and energy. It's not the first time this fundamental error has appeared in The Spectator, as in many other parts of the media. It's a particular favourite of Michael Portillo and Bernard Ingham. But journalists who are not aware of this basic distinction ought not to be writing on the subject.
Coincidentally, Sir Paul also has a track record of "economy with the truth" on this sort of subject - in his case, providing misleading claims about BA's carbon-offsetting facility. Perhaps it's a conjugal thing.
Government consultation are a bit like the old Saturday afternoon wrestling, with the government playing the role of Big Daddy and the rest of us the enormous, yet hopeless, Giant Haystacks. Everyone knows who is going to win, but we have to go through all that nonsense before hand before Big Daddy is, once again, declared the winner. And so with the nuclear consultation - the government clearly wants pro-nuclear to come out favourite, everyone knows it will be the favoured option, but we have to go through all the nonsense before hand to make it look like there was some sort of contest.
Of course this is the second time the government has "consulted" on nuclear new build in the past 12 months. This is because, last time the audience were watching the big fight between Big Daddy and Giant Haystacks they smelt a rat. They started to realise that it was a bit odd, given that Giant Haystacks was twice the size of Big Daddy, he kept losing. Now far be it from me to suggest that the old Sunday afternoon wrestling was a fix, but something was up there wasn't it? And something was up with the last nuclear consultation too - so the courts ruled that we needed a rematch!
The government of the cash-strapped Indonesian island of Sulawesi, which is prone to earthquakes, volcanic eruptions, floods and storms, is considering buying - from a "former fertiliser exporter and vodka salesman" - "floating nuclear power plants", produced at a state-run programme in northern Russia, in order to provide power to remote regions, Asian Power magazine reports. Sounds foolproof. What could possibly go wrong?
UPDATE: Forgot to mention the terrorists. Just a small wrinkle.
Tim Montgomery at ConservativeHome thinks "support for nuclear power" should be a core Tory value. I think, if picking a technological winner like that is a core Tory value, that contempt for Tories should be one of my core values. I am quite prepared to see a new round of new nuclear power stations built if suitable guarantees of safety can be obtained and if they are the most economic option, including fairly-valued externalities, but without provision of subsidy, underwriting of cost, railroading of local opinion, or watering-down of competition. Are the Tories (and the Government) prepared also to recognise that our electricity system is no longer run by the CEGB, and that the only way that they can deliver nuclear, if removing obstacles and internalising externalities are not sufficient, is to subsidise it?
More news has come out today about recent nuclear problems, on which we have been reporting in the absence of press coverage. The Times has now picked up on the significance of the damage to the nuclear reactor at Kashiwazaki in Japan. They report that it is now being admitted, contrary to earlier claims that any escapes were minor and brief, that radioactive particles were being released into the air for three days following the earthquake.
Meanwhile, our own ageing reactors are suffering similar difficulties to those in Germany. British Energy announced today that they were having trouble bringing back on-line their Hinkley Point and Hunterston reactors, which had been closed after the discovery of cracks. BE's shares fell by more than 1% on the news.
Did you know that:
Lord Jones of Birmingham (try not to laugh) made his maiden speech in the House of Lords today, on the subject of the Energy White Paper. In a largely unremarkable spiel, most of which simply restated government position, the only comments that went beyond that position were the following:
"In the UK, we are used to being largely self-sufficient in terms of our electricity generation: the people are used to it. But times are changing, and they are changing at a time of rising demand and prices and at a time when energy supplies are becoming increasingly politicised. This is not a position anyone in this country will be comfortable with."
"If nuclear is not available to the energy market as an option, it is likely that in its place much of the new investment will be in gas or coal generation, which, of course, emits higher levels of carbon and leaves us increasingly dependent upon imports for this nation’s electricity generation."
So the argument is being warmed-up that nuclear power somehow reduces our dependence on imports and therefore increases our energy security. Let's have a look at that.
Firstly, nuclear power, as part of the portfolio alongside gas, coal and renewables, does contribute to the diversity of our electricity supplies. Diversity, it is widely recognised amongst energy-policy experts, is the key to security. I am not disputing that point.
But Lord Jones is going beyond that. He is slipping into the realms of autarky - the false economic notion that we are more secure if we are self-sufficient. Though it is a view that is slipping out increasingly often nowadays (I heard a Merrill Lynch energy analyst make the same error recently, before quickly retreating from it when challenged), it is a view that carries little weight amongst serious analysts. We were never more self-sufficient than when we produced most of our electricity from British coal. And our electricity supplies were never less secure, thanks to the dominant position in which this put the mining unions.
But even if it were a valid position, are Lord Jones's claims true? Are we "used to being largely self-sufficient"? And will we be less dependent on imports if we have nuclear rather than gas or coal?
The answer is "no" to both these questions. We import all our uranium for the nuclear power stations, and we have been importing a large proportion of the coal for our coal-fired power stations since the mid-1980s. We are not used to being self-sufficient, and importing uranium will not make us less dependent on imports than importing other fuels. And if it is "rising demand and prices" that Digby is worried about, he should have a look at uranium prices - a tenfold increase in the last few years makes the increases in fossil-fuel prices look insignificant.
This is not an argument against nuclear. This is only one small part of the issue. But it is an unfounded appeal to economic nationalism that ought not to be part of the debate. It makes one suspicious about the merits of the case for nuclear, if these are the tactics that Lord Jones and his political masters have decided to resort to.
It was probably no more than a happy coincidence (for the Government) that the Planning and Energy White Papers were published on consecutive days. Nevertheless, as most people have noticed, the two are intimately linked by the need for a change to planning policy to enable the development of new nuclear power stations within the ten-year period that would be necessary for them to fill the threatened "capacity gap" in our power generation. Let's not worry here whether that capacity gap is inevitable (it is not) and whether the nuclear power stations will be ready in time, even with the Government's proposed measures, to replace much of the closing capacity (unlikely for much of it). What I want to consider here is the price that is to be paid in terms of the undermining of communities' rights to decide what they are prepared to tolerate in their area.
The Government's consultation paper on nuclear power proposes that, if they decide to enable a new generation of new nuclear stations, they will not intervene financially to support the technology, but they will introduce measures that are almost all focused on reducing the planning obstacles. They should be congratulated on their resistance to providing any direct form of financial leg-up for nuclear, and there is no denying that the Sizewell B enquiry was a circus that environmental groups used to filibuster the process. But are their proposed changes to the planning regime proportionate and consistent with our respect for the rights of individuals and communities not to have developments foisted on them?
The proposals, as listed on p.176 of the nuclear consultation document, are (in modestly truncated form, with emphasis added):
• improving the energy planning system for nuclear power stations by ensuring it gives full weight to national, strategic and regulatory issues that have already been the subject of discussion and consultation, rather than reopening them.
• running a process of Justification to test whether the economic, social and other benefits of specific new nuclear power technologies proposed outweigh the health detriments;
• running a Strategic Siting Assessment process to develop criteria for determining the suitability of sites for new nuclear power stations. This would limit the need to discuss in detail the suitability of alternative sites for nuclear proposals during the planning process;
• taking further our consideration of the high-level environmental impacts through a formal Strategic Environmental Assessment (SEA). This would limit the need to consider such highlevel environmental impacts of nuclear power stations during the planning process;
• assisting the nuclear regulators, to pursue a process of Generic Design Assessment of industry preferred designs of nuclear power stations. This would limit the need to discuss these issues such as the safety, security and environmental impact of power station designs, including waste arisings and radioactive discharges in depth during the site-specific planning process; and
• introducing arrangements to protect the taxpayer by ensuring that private sector operators of nuclear power stations securely accumulate the funds needed to meet the full costs of decommissioning and full share of waste management costs. This would avoid the need to discuss in depth during the planning process whether the taxpayer will be exposed to the waste and decommissioning costs of any new nuclear power stations that might be constructed.
That's an awful lot of subjects that need not (read, may not) be discussed in detail during the planning process. If locals fear for their health, or the impact on the environment, or the risk of accident or attack, or believe there are reasons why the location is unsuitable, or the economic risk-prevention is less than adequate, they are to keep their thoughts to themselves. The Government will decide for them and us what is in our best interests. It is inconceivable that anyone other than those involved in determining national policy could have a valid alternative perspective or come up with an aspect that has not already been considered. Truly, our national policy-makers are omniscient. Has history not proved their infallibility time and again?
The most chilling of those proposals is the Justification process. The name has an Orwellian tinge. The process is worse than the name sounds:
"It is an internationally accepted principle of radiological protection that no practice involving exposure to ionising radiation should be adopted unless it produces sufficient benefits to the exposed individuals or to society in general to offset the health detriment it may cause" (para 13.14, p.179). "It is not necessary to show that the class or type of practice is the best of all available options, but instead that there is a net benefit" (para 13.16)
Calculating the "net benefit" to society sounds superficially reasonable if one accepts (to use economists' lingo) the neo-classical fallacy that you can somehow aggregate interpersonal utility. But think what that means in practice. If you have something whose loss would be less important to you than its gain would be to me, there would be a "net benefit" if I stole it from you. Does that justify theft? Or, to use the example of which Murray Rothbard was fond, if 99% of the population can benefit from enslaving the other 1% of the population, does the excess of beneficiaries over victims justify the act? The "greater good" of "society" or "the people" has been used to justify appalling predations and impositions on minorities throughout history.
This is an excellent case in point. A reasonable person might judge that, whatever the benefit to him and to others, he is not entitled to do something that may inflict harm on someone else without their agreement. Some might add the caveat that there may be limited circumstances, where failure to inflict harm on some may cause harm to many others and where there is no alternative that avoids harm to all, where it may be reasonable to inflict that harm (for instance, where the only means to prevent a terrorist atrocity is to shoot dead the terrorist). But it takes a sociopath to argue that one is entitled to inflict harm on people even where there is an alternative that causes harm to none, or simply because there is a compensating benefit to others.
It seems, then, that we have a sociopathic government. If it is found that there is a risk to people's health, that would not rule out development. Instead, those people may be forced to accept that risk and even actual damage to health, if there is sufficient benefit to others. This is authoritarianism of the worst variety, and it does not belong in Britain.
Everyone in the energy industry knew that last year's Energy Review was a fix. Now a judge has recognised it too, and told the Government to consult properly on the nuclear issue. Labour have such contempt for the public that they couldn't even pretend to be listening.
What is really revealing is Tony Blair's response to the decision. "This won't affect the policy at all", he says. So what exactly is the point of consultation, if the Prime Minister rules out the possibility that any submissions will present any argument or evidence that might affect his thinking?
Back in the 70s, government picked a real winner: nuclear power. It was going to produce, they promised, power "too cheap to meter".
We know how that turned out. Rather than being too cheap to meter, nuclear turned out to be first too risky to privatise, and subsequently too expensive to run. Post-liberalisation, British Energy had to be baled out when it was revealed that they couldn't even cover their running costs, let alone their vast capital, risk, waste disposal and decommissioning costs at the prices delivered in a competitive market.
With higher fossil-fuel prices (and a large slug of taxpayers' money), nuclear can once again cover its running costs at market prices. Don't ask about waste disposal, risk and decommissioning, though, at least not if you want to be friends with our nuclear-convert Prime Minister.
"For it was an elegant and true reply that was made to Alexander the Great by a certain pirate whom he had captured. When the king asked him what he was thinking of, that he should molest the sea, he said with defiant independence: 'The same as you when you molest the world! Since I do this with a little ship I am called a pirate. You do it with a great fleet and are called emperor'."