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  1. Business
3 August 2011

Miliband’s new energy policy could be a vote winner

A greener and cheaper approach would have significant appeal.

By Guy Newey

A Hackgate-galvanised Ed Miliband has picked a new Goliath to aim his slingshot at. In a little-noticed newspaper interview, the Labour leader pledged to demolish the Big Six energy suppliers’ control of the domestic electricity and gas market: “Six energy companies control 99.9 per cent of the consumer market. This cannot be right and we must take action to open up the market over the coming months,” he said. Household bills will fall as result, he claimed.

The phone-hacking scandal has provided Team Miliband with some traction. His story of the powerful-versus-the-powerless is gaining momentum. Attacking what he sees as the unfettered interests of the over-powerful started with banks, and flourished with newspaper proprietors. The energy companies are now firmly in his sights.

It was a carefully-chosen political target. A recent poll by Populus found that 63 per cent of 2,000 respondents were “very concerned” about rising gas and electricity prices. The issue is nearly twice as important to the British public as the state of the NHS, unemployment rates and public sector cuts, which have all received far greater media attention. Miliband, reacting quickly to recent energy price rises, has grabbed a topic that wouldn’t normally attract attention until the autumn, when the weather turns colder.

In his zeal to keep bills down, Labour’s leader must not ignore the cost of green policies in higher energy prices. Currently climate policies add around 14 per cent on to household electricity prices (and 4 per cent on gas prices), according to government figures. By 2020, policies will increase electricity prices by more than 30 per cent. For businesses, the percentage rise is around 40 per cent.

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This is tricky political territory for Miliband, who ran the Department for Energy and Climate Change before last year’s election. However, his new focus on protecting people’s pockets should lead to a fresh look at wasteful policies.

Top of the list should be the EU’s 2020 Renewable Energy Directive, which needlessly commits the UK to meeting 15 per cent of its total energy needs from renewable sources by 2020. This move was driven by a desire for a catchy European green slogan rather than hard-headed economics. By forcing the UK to decarbonise by installing expensive offshore wind rather than cheaper alternatives like improving energy efficiency and more nuclear power, this sloganeering will cost UK bill-payers at least £12.5 billion. In addition, the Coalition’s proposed overhaul of the electricity market will unpick a major public policy success of the last 30 years, and risks further unnecessary price rises. The confusing jumble of carbon prices that the current policy mish-mash has created should also be overhauled (Policy Exchange has called for the CRC Energy Efficiency Scheme to be scrapped as part of a much-needed tidy up and replaced with mandatory carbon reporting).

A clearer carbon price, backed by contracts, will ensure the cheapest possible emissions cuts are made first. At the same time, finding long-term, low carbon technologies that are cheaper than coal and gas requires a smarter focus on research and development.

Reaching carbon targets will increase household and business energy prices. Politicians must be up front about that. However, the government — and Miliband — should maintain an unrelenting focus on ensuring that any move to becoming greener is as done as cheaply as possible.

Guy Newey is a senior research fellow for environment and energy at Policy Exchange.

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