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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Leader: The angry middle

As a sense of victimhood extends even to the middle classes, it makes Western democracies much more difficult to govern.

Two months after the United Kingdom’s vote to leave the European Union, it remains conventional wisdom that the referendum result was largely a revolt by the so-called left behind. Yet this is not the full picture. Many of the 52 per cent who voted Leave were relatively prosperous and well educated, yet still angry and determined to deliver a shock to the political system. We should ask ourselves why the English middle class, for so long presumed to be placid and risk-averse, was prepared to gamble on Brexit.

Populism has long appealed to those excluded from political systems, or from a share in prosperity. In recent years, however, its appeal has broadened to young graduates and those on above-average incomes who also feel that they have not benefited from globalisation. The sense of middle-class victimhood has become a major strand in Western politics.

In the United States, middle-class anger has powered support for Bernie Sanders and Donald Trump. The former drew his activist base mostly from young liberals. And while Mr Trump’s success in the Republican primaries was often attributed to a working-class insurrection against “the elites”, exit poll data showed that the median yearly income of a Trump voter was $72,000, compared with a national average of $56,000. (For supporters of Hillary Clinton, the figure was roughly $61,000.) It is not the have-nots who have powered Mr Trump’s rise, but the have-a-bits.

In the UK, similar forces can be seen in the rise of Jeremy Corbyn. Indeed, research shows that three-quarters of Labour Party members are from the top social grades, known as ABC1. About 57 per cent have a degree.

Mr Sanders, Mr Trump and Mr Corbyn have very different policies, ideologies and strategies, but they are united by an ability to tap into middle-class dissatisfaction with the present order. Some of that anger flows from politicians’ failure to convey the ways in which society has improved in recent years, or to speak truthfully to electorates. In the UK and much of the West, there have been huge gains – life expectancy has risen, absolute poverty has decreased, teenage pregnancy has fallen to a record low, crime rates have fallen, and huge strides have been made in curbing gender, sexual and racial discrimination. Yet we hear too little of these successes.

Perhaps that is why so many who are doing comparatively well seem the most keen to upset the status quo. For instance, pensioners voted strongly to leave the EU and are the demographic from which Ukip attracts most support. Yet the over-65s are enjoying an era of unprecedented growth in their real incomes. Since 2010, the basic state pension has risen by over four times the increase in average earnings. 

Among young people, much of their anger is directed towards tuition fees and the iniquities of the housing market. Yet, by definition, tuition fees are paid only by those who go into higher education – and these people receive a “graduate bonus” for the rest of their lives. Half of school-leavers do not attend university and, in a globalised world, it is their wages that are most likely to be undercut by immigration.

However, we should not be complacent about the concerns of the “angry middle”. The resentment exploited by Donald Trump is the result of 40 years of stagnant median wages in the United States. In Japan and Germany, median wages have not increased in the past two decades. In the UK, meanwhile, the median income for those aged 31-59 is no greater than it was in 2007, and those aged 22-30 are 7 per cent worse off, according to the Institute for Fiscal Studies.

To compound the problem, the wealthy keep getting wealthier. In 1980, American CEOs were paid 42 times the wage of the average worker. They are now paid 400 times as much. In the UK, the share of household income going to the top 1 per cent has more than doubled since 1979. Because of our hyperconnected, globalised media culture, we see more of the super-rich, fuelling feelings of resentment.

As a sense of victimhood extends even to the middle classes, it makes Western democracies much more difficult to govern, with voters oscillating between populists of the left and the right. The political centre is hollowing out. Rather than pander to the populists, we must do more to quell the politics of victimhood by addressing the root of this corrosive sense of grievance: entrenched inequality. 

This article first appeared in the 25 August 2016 issue of the New Statesman, Cameron: the legacy of a loser