In defence of renewables

Huhne is right on climate sceptics and "armchair engineers".

WWF-UK yesterday launched Positive Energy, a report demonstrating that renewable technologies could provide the UK with well over 60 per cent of our electricity needs by 2030; and that we could do this without breaking the bank. The report was welcomed by a wide range of major companies, consumer associations and key commentators. Yet it comes at a time of increased anti-renewable energy sentiment in the media, to the extent that energy secretary Chris Huhne, speaking at the RenewableUK conference today, felt the need to directly rebut the "faultfinders and curmudgeons who hold forth on the impossibility of renewables".

Not only are renewables being blamed as the main reason for energy bill increases, but some outlets are increasingly arguing there is no point in the UK trying to fight climate change: the rest of the world is doing nothing anyway. "Let's focus on shale gas instead", cries the increasingly vocal anti-renewables lobby, claiming that this "wonder gas" will solve all our energy problems. These claims are inaccurate at best, downright disingenuous at worst, and should be seriously challenged.

Saying that renewables are the main driver behind people's bill increases could not be further away from the truth. The wholesale gas price, which rose by 84 per cent between 2004 and 2009, has been the main factor in increasing UK electricity bills by 63 per cent over that same period. Support for renewable technologies has, in contrast, represented only a small fraction of consumer bills to date. Furthermore, the industry is crying out for political certainty to drive costs down, belying the argument that we shouldn't support renewables until their costs drop.

By creating a low-risk environment with clear renewable targets and stable financial support schemes we can reduce the cost of capital, attract companies such as Vestas to invest in renewable energy factories in the UK, incentivise companies to mass produce renewable technologies and increase investment in R&D. All of these are critical to cost reductions -- and to job creation. Look at Germany, which already employs some 367,000 people in its renewable energy industry; something which the UK, which has seen the share of manufacturing per unit of GDP halve in the last 20 years, should surely want to emulate.

On the point that the rest of the world, especially China, is doing nothing to tackle climate change, that again is far from the truth. In terms of investment in renewable energy, the UK -- not even a top-10 world investor -- is playing catch up. According to a recent report from Pew, China is now the world's leading investor and installer of renewable energy, having ploughed over $54bn (£34bn) into renewable energy in 2010 alone;equivalent to the entire world's investment in the sector in 2004.

It's not just compared to China that the UK is lagging behind. Germany and Denmark are already heading towards a 100 per cent renewable electricity future and even Italy and France (well-known for its focus on nuclear) have substantially more renewables than the UK.

Saying that shale gas is the answer to all our energy problems is also fundamentally flawed. Leaving aside the environmental uncertainties around fracking -- such as groundwater contamination and methane gas leakage -- do we really think that relying even more heavily on a single fossil fuel (which already accounts for 80 per cent of our domestic heating and almost half our electricity) is a sensible idea?

Continuing to rely heavily on gas will take the world on a path to at least 3.5C of warming, according to the International Energy Agency. This is almost twice the temperature limit which scientific consensus says we should not exceed if we want to avoid the worst impacts of climate change.

Unfortunately, climate change seems to have completely dropped out of the current energy debate, which is a tragic oversight. Putting aside the catastrophic environmental and human consequences that climate change could trigger, the cost of adapting to a changing climate will absolutely dwarf any of the costs needed today to decarbonise our power sector.

Nick Molho is Head of Energy Policy at WWF-UK

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation