Politics 9 November 2012 Volatility is the next big debate in energy policy Unstable prices, cultures, and companies all breed uncertainty in an area of our lives where we need reliability. Print HTML Yesterday, the New Statesman, in association with Shell, held an event called Fuel for Thought: Rethinking Energy. The focus of the event was on three "myths" about renewable energy: that more people means more demand, and only by reducing usage can we reduce carbon output; that investment in fossil fuels means reduced investment in renewables; and that, due to our reliance on importing fuel from unstable sources, we need to become self-sufficient. If those myths were the stated focus, though, there was an undercurrent to the event, which was the idea of volatility. It was explicitly addressed in the final "myth", but came up throughout the session. There was general agreement throughout the session on a number of compromise positions where there is frequently heated debate. We need investment, in the medium term, in both renewable technologies and transitional fossil fuels. We need to both reduce usage and reduce carbon produced per kWh. And we need to increase our domestic generation without cutting ourselves off from the wider market. But the point about self-sufficiency opened wider disagreement. The key argument, provided from the floor, is that "instability" affects the market far more widely than one would think. Most of our fossil fuels come from or through the Middle East and Central Asia and Russia, and this fact has been used by many to argue for decarbonisation. Surely it is better not to buy from nations which abuse their citizens, and which use their status as energy provider to silence criticism? Quite aside from the fact that, as well as North Sea oil, we get a huge amount of gas from Norway – hardly likely to cause any diplomatic problems anytime soon – it takes more than self-sufficiency to isolate yourself from volatility caused by instability. It would take total autarky. The problem is that even nations which are self-sufficient in energy provision still tend to be engaged in the international market, but exporting, not importing energy. Generating all our energy internally would mean that the country spent less on importing energy, but it wouldn't prevent internal prices from rising when events rocked a world-wide energy exporter – because if they did rise, our domestic energy companies would start exporting more, and prices would rise here too. This type of instability is the first that comes to mind when talking about volatility in the energy world (well, unless you're a chemist), but it's not the only one. Jeremy Bentham, VP Global Business Environment at Shell, was careful to point out that, for energy companies, even "stable" nations can be rather volatile when it comes to the investment culture they encourage. Energy, after all, is an extremely capital-intensive business to be in. As Bentham pointed out, the infrastructure turns over on the scale of decades, not months or years, and so for any real investment to happen, there has to be stability for at least that long. Unfortunately, in countries like Britain, that simply isn't the case. Ministers like John Hayes will always exist, battling against what were thought to be settled questions – such is the price of democracy. That investment volatility is thus an argument against trying to build a self-sufficient energy system: to do so without the political structures in place to guarantee stability would be prohibitively expensive. There was one source of uncertainty which went unmentioned by the panel – possibly because its root lies, not with politicians or foreign nations, but the business and investor communities in Britain. As a paper from the Carbon Tracker think tank argued in March this year, much of the world's carbon is "unburnable". We have in the order of five or six times as many fossil fuel reserves as can be safely burned without raising the global temperature too high. In fact, even the fossil fuel reserves held by just the top listed oil, gas and coal companies bring us above that limit. What this means is that nearly every company specialising in fossil fuels faces the chance of a bubble bursting when the value of their reserves is reassessed to take the unburnable nature of most of their assets into account. That bust would make the volatility introduced by rebellious ministers look tame in comparison. Perhaps the best hope for the holders of unburnable carbon is widespread adoption of CCS. But until that happens, those in the industry fearing volatility would do best to start warning their own investors that there's a tumble ahead. › Acid attacks in Pakistan: A sorry litany of male egotism Oil flares from a refinery. Photograph: Getty Images Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter. Subscribe More Related articles No economy is an island: why Britain's finances now depend on Europe Cabinet audit: what does the appointment of Philip Hammond as Chancellor mean for policy? Cabinet audit: what does the appointment of Greg Clark as Business Secretary mean for policy?