Growth debate 3: Way ahead retrofitting not fracking

Calvin Jones and Martin M. Jones argue that our future relies on learning to live with the sunshine that comes today

Arbed fuel-poverty

The past few weeks’ news of massive flooding throughout Wales and other parts of the UK has dominated news channels. The rain has hardly been biblical, but coming off the back of one of the wettest summers on record, and preceded by a spring almost shockingly characterized by widespread hosepipe ban, the notion of 2012 as a poster-boy year for an increasingly volatile climate is hard to escape.

Whilst we cannot say with certainty that any individual extreme weather event is a result of climate change, the increasing frequency of droughts, floods and storms leads inexorably to the notion of a hydrological cycle made more powerful and capricious by increased energy reserves – energy reserves placed there by our centuries-long emission of planet warming ‘greenhouse gases’.

As the years advance, the task of ‘adaptation’ – adjusting to the effects of climate change already rendered inevitable as a result of past emissions – will be a great challenge. But of course, as long as we continue to pump greenhouse gases into the atmosphere, the result of an economy and society underpinned by non-renewable fossil fuels, the challenge of adaptation is set to grow exponentially in future years.

The issue poses significant ethical and moral issues as climate ‘weirding’ affects poor populations in stark and unpleasant ways. However, climate change is also a matter of hard-nosed economics. Fossil fuels, by their very nature are inelastic in supply. We have long ago used the ‘easy’ oil and gas, and are scrabbling now for hard to access, lower energy and scattered deposits in remote or environmentally sensitive areas. As a result, prices will in the long term only continue to rise.

This is a powerful argument for massive investment in renewable energy, whose prices will be far more stable in the long-term and where economies of scale are often yet to be tapped. Recent discussion about the merits of the Severn Barrage or other renewable energy infrastructure investment across Wales are welcome as the public become increasingly ready to discuss the need for renewable energy projects and to debate exactly how we are to meet these targets.

The construction of the large-option Severn Barrage would contribute 5 per cent to the UK’s electricity needs, but this is based on (pun intended) current demand. If we need to (renewably) electrify transport in response to climate change and fossil fuel concern, we will need to double the capacity of the UK energy supply and distribution grid. Meanwhile, typically two thirds of every kilowatt generated is wasted in system losses before it is used as light, heat or power. This suggests the first canard of any energy policy should be reduce, reduce, reduce!

Now into its second phase, the Welsh Government’s Arbed scheme (Welsh for ‘save’, by the way), is a leading example of this. With a budget of £68 million, phase one invested in retro-fitting existing homes with energy-efficient measures from demand-reducing cavity and external-wall insulation, reducing a home’s need for energy, to Air Source Heat Pumps and Solar Thermal technology which allow homes to reduce their reliance on the Energy Grid for the remaining energy that they do need. This has huge benefits for some of the most vulnerable in society, literally insulating them from the perils of future rises.

Meanwhile, we have all read with similar sighs of resignation the astonishing increases in energy prices of the ‘Big Six’ energy firms in the past month, all the while claiming that the energy market is competitive.  That several utility companies should raise their tariffs almost simultaneously, and by comparable inflation-shattering rates, is not the hallmark of a well-functioning, competitive market. Rather, it rather suggests dysfunction and oligopoly pricing. We are running out of coal, oil and gas and people should not be misled into thinking that nuclear power is a clean, low-carbon and renewable energy source. Construction of plants take years (often massively over-budget), disposal of the waste millennia and the fuel, uranium and plutonium, will soon run out if the world starts to adopt the technology en masse.

So long as our economy continues to be underpinned by an anti-competitive utilities market that is overwhelmingly reliant on energy sources that are increasingly scarce, it is unrealistic to expect energy prices to go any other way than up. This is basic economics. The future success of our economy is thus reliant on a wholesale shift from fossil fuels to more price-stable renewable energy; along with reform of the utilities sector that runs it.

Imagine what would be possible if the sums being discussed for investing in the Severn Barrage – some estimates put it at £30billion – were instead spent on schemes similar to Arbed, designed to reduce our need for energy rather than providing a short-term fix for our energy habit. A report commissioned by WWF Cymru has estimated that tackling energy inefficiency by retrofitting properties in Wales to bring all properties up to a minimum ‘D’ rating would remove 40 per cent of fuel-poor households in Wales from fuel poverty and cut housing-sector carbon emissions by a quarter.

Of course, this does not sit well with an energy market that currently, and astonishingly still charges profligate energy users a lower price per unit than those that use less. But how can we finance such an industrial-scale move to protect homeowners and tenants across the country from inevitably rising energy prices? In his Autumn Statement George Osborne has just announced new measures to promote the carbon-heavy shale gas and environmentally destructive ‘fracking’ process, thereby continuing to nurture our ongoing addiction to dirty energy with a short-term fix.  But instead, given the recent Guardian revelations on energy market price fixing by the big players, he could have used this as an opportunity to announce a justified windfall tax on the energy companies to kick-start a country-wide roll-out of Arbed-style retro-fitting of domestic properties in the UK.

The move from a fossil-fuel based ‘carboniferous’ economy to one based on renewable energy would undoubtedly increase the price of energy in the short term from its current level. However, combined with a country-wide efficiency drive, its effect in the long term would be to massively reduce household costs, minimise uncertainty and provide for a truly sustainable basis for long-term prosperity.  People forget that we currently benefit from an economy underpinned and subsidised by a million years of [fossilised] sunshine. Our future relies on learning to live with the sunshine that comes to us today.

Calvin Jones is Professor of Economics at Cardiff Business School and has recently released a short-film entitled A Million Years of Sunshine which looks at our relationship with global energy markets. Martin M. Jones is the former head of the Cameroon-based Belo Carbon Offsetting Programme and holds an MScEcon in International Relations in which he specialised in Climate Change.