Imagine your neighbour buys a car, a new model which has not been tested yet. Over the next few months, you realise that he has nothing but trouble with it. The car is unreliable, inefficient and constantly needs costly repairs. Others advise him to give it up, and the only reason that stops him from doing so is that despite everything, he has developed a strange sentimental attachment to it. A few years later, you realise that you need a new car yourself. Would you repeat your neighbour’s costly mistake and buy the same model?
In climate policies, we do precisely that. The UK’s scheme for promoting renewable energy through feed-in tariffs looks a lot like the German Renewable Energies Act (EEG), which has been in place for twelve years now and which has been a failure on every measurable account. With this in mind, it should not be a big headline that 106 MPs have now called for a reduction in onshore wind farm subsidies. The headline should be that 544 MPs are still not questioning the waste of their constituents’ tax money despite all the damning evidence.
Firstly, the EEG has proven far more costly than originally anticipated. Subsidies were sold to the electorate as an initial push, after which the industry would quickly become self-supporting. It never did. Subsidies have risen to 7.5% of an average household’s electricity bill, and no end is yet in sight. There is no reason why this should be different in the UK, because that is the way subsidies work everywhere: they create a politicised industry in which success does not depend on consumer satisfaction, but on political clout.
Secondly, the EEG has not reduced carbon emissions (assuming, for the sake of the argument, that this was desirable), and neither could its British equivalent. Apologies if you have read this a million times already, but as long as the total amount of carbon emissions in Europe is capped through the Emissions Trading Scheme (EMT), selective subsidies for low-carbon technologies cannot reduce them any further. Overall caps and selective subsidies are two entirely different instruments which cannot meaningfully be employed together. It is like imposing an overall annual cap on the amount of alcohol that can be consumed, and then subsidising the production of low-alcohol beers and wines: these subsidies would not reduce total consumption below the overall cap, but taxpayers’ money would be squandered, and consumers would end up with flabby drinks they would never have bought at market prices.
Thirdly, the EEG has not reduced energy dependency. Renewable energy sources are notoriously unreliable, so they have to be backed up by natural gas, most of which is imported from Russia.
Fourthly, there is the inevitable ‘Green Jobs’ argument, the reason why the TUC is so upset about the MPs’ criticism: ‘Recession looms, unemployment touches a 17-year high. But 101 Tory MPs want David Cameron to shackle the UK’s wind industry, which now employs over 10,000 people.’ Well, so what? In Germany, the renewable energy sector employs nearly 300,000 people. This is what is seen, as Bastiat would explain to us if he was around today. What are not seen are the jobs that were destroyed elsewhere, or prevented from being created, by the act of sucking resources out of non-subsidised sectors. The reverse also holds: if the EEG was scrapped, the resulting fall in the cost of energy would permit other sectors to expand, which could then accommodate the 300,000 people.
The 106 MPs should go a lot further and demand the abolition of all feed-in tariffs. The other 544 MPs should take a train ride from the North Sea to the Alps, to witness the only thing wind energy does relatively cost-effectively: ruining landscapes.
One way that renewables such as wind could become viable (in certain areas) in the absence of state support is if infrastructure subsidies to users in remote rural areas were ended. There is a strong economic case for shutting down the grid in such locations, particularly when expensive renewals are required. Small-scale wind generation could then prove attractive for isolated homes or local communities (which typically don't have mains gas). However, the intermittent nature of wind power means it would have to be backed up by other sources such as diesel generators or hydro.
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