Energy policy in both Britain and Germany is failing. The question which should be on today’s agenda for David Cameron and Angela Merkel is whether both countries can learn from failure and find a better way forward.
Failure in this case means not meeting the set objectives. In both countries those objectives are expressed in terms of security of supply, cost and the reduction in emissions necessary to limit global warming. The detailed position in the two countries is different but both are failing against all three objectives. Costs are rising – in Germany a recent McKinsey study found energy costs to be 48 per cent above the European average; in the UK the government is close to signing a deal for new nuclear which will index-link the price for 35 years at a level 100 per cent above the current wholesale price. In both countries coal use is rising, as are emissions. And in both countries security of supply is at risk because the utilities lack either the revenue or the confidence in the market structure to invest in much-needed new capacity. Both countries, in common with Europe as a whole, face the risk of deindustrialisation, especially in energy-intensive sectors. That will reduce local emissions but will do nothing to meet the challenge of climate change if, in the absence of a global deal, the activities are simply relocated to areas where emissions are unregulated. In both India and China the development of coal-powered electricity generation continues at a rapid pace.
Is there a sensible alternative approach? I would suggest three steps which could make a difference.
First, use less energy. Efficiency is the easiest way to limit costs and emissions, but the UK in particular has become the neglected Cinderella in the energy policy mix. Governments should use every means, including the tax system, to encourage businesses and households to cut their energy use. A 10 per cent reduction in final energy consumption would save around 30 mtoe of final consumption in Germany, and 20 mtoe in the UK. Both countries should set that as a target to be achieved by the end of 2015.
Second, build a strong grid. Merkel has talked about this in the past, but nothing has happened. The challenge of renewables comes down to cost and the fact that supplies are interruptible. A strong grid, ideally Europe-wide, but starting in north Europe and including the wind farms of the North Sea, would make the renewable supplies more economic and would reduce the problems of variable supply.
Third, invest in science. Britain and Germany are probably the only two countries in Europe with the intellectual and industrial capacity to produce breakthroughs which could transform the energy sector. A joint programme of work, combining public resources, frontier academic work and private investment would be a great outcome from this week’s summit. To make this effective we need priorities – perhaps energy storage, including advanced battery technology; advanced materials which can radically improve the way energy is used in buildings; and smart meters, which, combined with smart grids, could allow every user to manage what they are consuming with precision.
The failure of the old policies should not be a cause for despair. There is much that can be done and, working together, Britain and Germany could create a different and realistic approach which would set a new agenda for Europe as a whole.
Nick Butler is a visiting professor of King’s College London and a co-founder of the Centre for European Reform. He tweets @nickb2211
Progressive centre-ground Labour politics does not come for free.
Our work depends on you.