An object lesson in how not to make law

Solvency II debate reflects a frustration with EU politics.

Solvency II, the forthcoming regulatory directive for Europe, has been labelled as “an object lesson in how not to make law”.

Steve Webb, UK’s Minister for Pensions, turned up the heat on the insurance space last month when he called the European Union to abandon the new changes that are being proposed by Solvency II, the ever-delayed package of regulatory guidelines that will shape the insurance business in the EU in the next few years.

His concern had particularly to do with the effect of Solvency II on benefit pension schemes. According to a working paper by the European Insurance and Occupational Pensions Authority (EIOPA), the new regulatory changes could add a cost of £450bn to pension schemes.

Leaving no room for doubt he added: "any such new rules would harm businesses’ ability to invest, grow and create jobs, and many more schemes could be forced to close. I continue to urge the Commission to abandon these reckless plans".

Other heavy weights in the British government have expressed their concerns too. Andrew Tyrie, chairman of the Treasury Committee, has revealed his ill-feeling on Solvency II, following a lengthy debate with the chief of the new Prudential Regulation Authority (PRA) Andrew Bailey.

Days before Webb’s statement, Tyrie said “Strengthening and harmonising the prudential regulation of the insurance sector across the EU could bring significant benefits. But we haven’t seen any yet. Even now, no one can be sure what it will add”.

Andrew Bailey had labelled the process the EU has followed on Solvency II as “shocking” and the costs arising from the delay in its implementation as “staggering”. The UK insurance industry is the third largest in the world and a key activity of the UK economy. So it is only reasonable that the local watchdog, and other involved government officials, will express their concerns on any changes that are likely to affect consumers and hinder the development of the business locally.

However, the criticism is also reminiscent of the current mood with the way a relevant part of Britain feels policies are being carried out in the EU. The sentiment is that well intentioned and necessary reforms, drag indefinitely under the hand of the EU and become so cumbersome that can make the problem it came to address worse.

Britain will hold a referendum to decide whether it remains a member of the EU by the end of 2017, that is in four years time. The deadline of Solvency II has consistently been postponed from November 2010, to November 2012, then January 2013 and January 2014. Now, it is not likely to happen before January 2016. The chance of a sharp u-turn on the envisioned Solvency II regime seems unlikely, considering how EU’s policymakers have acted in recent years. By the time it comes into place, the UK might feel comfortable enough with its Individual Capital Adequacy Standards regime, just when it needs to decide how convenient it is to remain in the EU.

Photograph: Getty Images

Carlos Pallordet is a writer for Timetric

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North Yorkshire has approved the UK’s first fracking tests in five years. What does this mean?

Is fracking the answer to the UK's energy future? Or a serious risk to the environment?

Shale gas operation has been approved in North Yorkshire, the first since a ban introduced after two minor earthquakes in 2011 were shown to be caused by fracking in the area. On Tuesday night, after two days of heated debate, North Yorkshire councillors finally granted an application to frack in the North York Moors National Park.

The vote by the Tory-dominated council was passed by seven votes to four, and sets an important precedent for the scores of other applications still awaiting decision across the country. It also gives a much-needed boost to David Cameron’s 2014 promise to “go all out for shale”. But with regional authorities pitted against local communities, and national government in dispute with global NGOs, what is the wider verdict on the industry?

What is fracking?

Fracking, or “hydraulic fracturing”, is the extraction of shale gas from deep underground. A mixture of water, sand and chemicals is pumped into the earth at such high pressure that it literally fractures the rocks and releases the gas trapped inside.

Opponents claim that the side effects include earthquakes, polluted ground water, and noise and traffic pollution. The image the industry would least like you to associate with the process is this clip of a man setting fire to a running tap, from the 2010 US documentary Gasland

Advocates dispute the above criticisms, and instead argue that shale gas extraction will create jobs, help the UK transition to a carbon-neutral world, reduce reliance on imports and boost tax revenues.

So do these claims stands up? Let’s take each in turn...

Will it create jobs? Yes, but mostly in the short-term.

Industry experts imply that job creation in the UK could reflect that seen in the US, while the medium-sized production company Cuadrilla claims that shale gas production would create 1,700 jobs in Lancashire alone.

But claims about employment may be exaggerated. A US study overseen by Penn State University showed that only one in seven of the jobs projected in an industry forecast actually materialised. In the UK, a Friends of the Earth report contends that the majority of jobs to be created by fracking in Lancashire would only be short-term – with under 200 surviving the initial construction burst.

Environmentalists, in contrast, point to evidence that green energy creates more jobs than similar-sized fossil fuel investments.  And it’s not just climate campaigners who don’t buy the employment promise. Trade union members also have their doubts. Ian Gallagher, Secretary of Blackburn and District Trade Unions Council, told Friends of the Earth that: “Investment in the areas identified by the Million Climate Jobs Campaign [...] is a far more certain way of addressing both climate change and economic growth than drilling for shale gas.”

Will it deliver cleaner energy? Not as completely as renewables would.

America’s “shale revolution” has been credited with reversing the country’s reliance on dirty coal and helping them lead the world in carbon-emissions reduction. Thanks to the relatively low carbon dioxide content of natural gas (emitting half the amount of coal to generate the same amount of electricity), fracking helped the US reduce its annual emissions of carbon dioxide by 556 million metric tons between 2007 and 2014. Banning it, advocates argue, would “immediately increase the use of coal”.

Yet a new report from the Royal Society for the Protection of Birds (previously known for its opposition to wind farm applications), has laid out a number of ways that the UK government can meet its target of 80 per cent emissions reduction by 2050 without necessarily introducing fracking and without harming the natural world. Renewable, home-produced, energy, they argue, could in theory cover the UK’s energy needs three times over. They’ve even included some handy maps:


Map of UK land available for renewable technologies. Source: RSPB’s 2050 Energy Vision.

Will it deliver secure energy? Yes, up to a point.

For energy to be “sustainable” it also has to be secure; it has to be available on demand and not threatened by international upheaval. Gas-fired “peaking” plants can be used to even-out input into the electricity grid when the sun doesn’t shine or the wind is not so blowy. The government thus claims that natural gas is an essential part of the UK’s future “energy mix”, which, if produced domestically through fracking, will also free us from reliance on imports tarnished by volatile Russian politics.

But, time is running out. Recent analysis by Carbon Brief suggests that we only have five years left of current CO2 emission levels before we blow the carbon budget and risk breaching the climate’s crucial 1.5°C tipping point. Whichever energy choices we make now need to starting brining down the carbon over-spend immediately.

Will it help stablise the wider economy? Yes, but not forever.

With so many “Yes, buts...” in the above list, you might wonder why the government is still pressing so hard for fracking’s expansion? Part of the answer may lie in their vested interest in supporting the wider industry.

Tax revenues from UK oil and gas generate a large portion of the government’s income. In 2013-14, the revenue from license fees, petroleum revenue tax, corporation tax and the supplementary charge accounted for nearly £5bn of UK exchequer receipts. The Treasury cannot afford to lose these, as evidenced in the last budget when George Osborne further subsidied North Sea oil operations through increased tax breaks.

The more that the Conservatives support the industry, the more they can tax it. In 2012 DECC said it wanted to “guarantee... every last economic drop of oil and gas is produced for the benefit of the UK”. This sentiment was repeated yesterday by energy minister Andrea Leadsom, when she welcomed the North Yorkshire decision and described fracking as a “fantastic opportunity”.

Dependence on finite domestic fuel reserves, however, is not a long-term economic solution. Not least because they will either run out or force us to exceed international emissions treaties: “Pensions already have enough stranded assets as they are,” says Danielle Pafford from 350.org.

Is it worth it? Most European countries have decided it’s not.

There is currently no commercial shale-gas drilling in Europe. Sustained protests against the industry in Romania, combined with poor exploration results, have already caused energy giant Chevron to pull out of the country. Total has also abandonned explorations in Denmark, Poland is being referred to the European Court of Justice for failing to adequately assess fracking’s impact, and, in Germany, brewers have launched special bottle-caps with the slogan “Nein! Zu Fracking” to warn against the threat to their water supply.

Back in the UK, the government's latest survey of public attitudes to fracking found that 44 per cent neither supported nor opposed the practice, but also that opinion is gradually shifting out of favour. If the government doesn't come up with arguments that hold water soon, it seems likely that the UK's fracking future could still be blasted apart.

India Bourke is the New Statesman's editorial assistant.