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.

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.

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.

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The UK is dangerously close to breaking apart - there's one way to fix it

We must rethink our whole constitutional settlement. 

When the then-Labour leader John Smith set up a report on social justice for what would be the incoming government in 1997, he said we must stop wasting our most precious resource – "the extraordinary skills and talents of ordinary people".

It is one of our party’s greatest tragedies that he never had the chance to see that vision put into practice. 

At the time, it was clear that while our values of equality, solidarity and tolerance endured, the solutions we needed were not the same as those when Labour was last in power in the 1970s, and neither were they to be found in the policies of opposition from the 1980s. 

The Commission on Social Justice described a UK transformed by three revolutions:

  • an economic revolution brought about by increasing globalisation, innovation and a changing labour market
  • a social revolution that had seen the role of women in society transformed, the traditional family model change, inequality ingrained and relationships between people in our communities strained
  • a political revolution that challenged the centralisation of power, demanded more individual control and accepted a different role for government in society.

Two decades on, these three revolutions could equally be applied to the UK, and Scotland, today. 

Our economy, society and our politics have been transformed even further, but there is absolutely no consensus – no agreement – about the direction our country should take. 

What that has led to, in my view, is a society more dangerously divided than at any point in our recent history. 

The public reject the status quo but there is no settled will about the direction we should take. 

And instead of grappling with the complex messages that people are sending us, and trying to find the solutions in the shades of grey, politicians of all parties are attached to solutions that are black or white, dividing us further. 

Anyone in Labour, or any party, who claims that we can sit on the margins and wait for politics to “settle down” will rightly be consigned to history. 

The future shape of the UK, how we govern ourselves and how our economy and society should develop, is now the single biggest political question we face. 

Politics driven by nationalism and identity, which were for so long mostly confined to Scotland, have now taken their place firmly in the mainstream of all UK politics. 

Continuing to pull our country in these directions risks breaking the United Kingdom once and for all. 

I believe we need to reaffirm our belief in the UK for the 21st century. 

Over time, political power has become concentrated in too few hands. Power and wealth hoarded in one corner of our United Kingdom has not worked for the vast majority of people. 

That is why the time has come for the rest of the UK to follow where Scotland led in the 1980s and 1990s and establish a People’s Constitutional Convention to re-establish the UK for a new age. 

The convention should bring together groups to deliberate on the future of our country and propose a way forward that strengthens the UK and establishes a new political settlement for the whole of our country. 

After more than 300 years, it is time for a new Act of Union to safeguard our family of nations for generations to come.

This would mean a radical reshaping of our country along federal lines where every component part of the United Kingdom – Scotland, Wales, Northern Ireland and the English regions – take more responsibility for what happens in their own communities, but where we still maintain the protection of being part of a greater whole as the UK. 

The United Kingdom provides the redistribution of wealth that defines our entire Labour movement, and it provides the protection for public finance in Scotland that comes from being part of something larger, something good, and something worth fighting for. 

Kezia Dugdale is the leader of the Scottish Labour party.