Energy policy in the UK 19452000

Energy policy has had an erratic career. The politics of energy have sometimes been at the top of the national political agenda and at other times virtually disappeared. In the period from 1945 to the early 1950s 'fuel and power' was a dominant policy issue. Coal was the principal fuel, and investment in the mines had been neglected for decades. After nationalisation in 1947 there was a revival of coal production, and low-price oil imports started to flow in the later 1950s and 1960s. By the late 1950s, with fuel and power supplies relatively secure, the issue faded.

Even the advent of nuclear power seemed at the time a purely technical (though exciting) development. Then, from 1973 to the mid-1980s, the issue again became critical as oil-exporting countries began to assert market power and oil prices became high and erratic. 'Fuel and power' policy became 'energy' policy, as efficient use came into the frame as well as supply (Cook and Surrey, 1977).

Meanwhile, first natural gas and then oil began to flow from the North Sea. By the mid-1980s, when oil prices fell back for a 15-year period, energy policy had disappeared again. Nigel Lawson, then Prime Minister Thatcher's Secretary of State for Energy, famously announced the death of energy policy in 1982 (Lawson, 1982). By 1992 the Department of Energy was abolished, with its remit split in two and subsumed into existing departments. The DTI (now renamed DBERR) gained energy supply responsibilities, and the Department of the Environment (now Defra) gained the demand-side mandate.

While energy policy itself was in a backwater from the mid-1980s, policies with origins in other political agendas deeply influenced energy. There were two dominant issues: the first and most important was privatisation/ liberalisation; and the second, arriving later and initially less important, was the environmental agenda. Privatisation - selling state-owned assets into wholly private hands - involved the sale of the gas, electricity and coal industries between 1986 and 1995 (Surrey, 1996). Liberalisation - the managed introduction of competition into these previously monopolistic industries - followed soon after. Effectively energy policy was a by-product of the broader political enthusiasm for private ownership and the promotion of competition. This meant a policy concentration on short-term efficiency improvements in the electricity and gas industries (coal had by then dwindled into relative insignificance). This was mostly pursued through the new industry-specific economic regulators who became effectively the executive agencies of energy policy. By 2000 there was significant competition in both electricity and gas markets.

Meanwhile environmental issues were rising in importance. Early issues were sometimes intimately bound up with energy, but it was widely assumed that there were effective technical fixes for problems such as acid rain and nuclear waste. This turned out to be right for acid rain, which was initially managed by fitting desulphurisation plants to coal-fired power stations and then, fortuitously, became less pressing with the switch to gas-fired power stations. Government believed that nuclear waste could easily be solved by geological disposal if only the right sites could be found (CoRWM, 2006, pp. 3-5), but as nuclear power was a dormant policy issue this seemed not to matter.

One environmental issue, however, rose up the agenda from the mid-1980s, and was not subject to the same kinds of technical fix -climate change. By 1989, Prime Minister Thatcher publicly declared that climate change was a major international environmental issue. While climate change began to attract some political attention, this was initially related as much to issues of deforestation in the tropics as to fossil fuel combustion at home. Then, at the 1992 Rio Earth Summit, a new international treaty on climate change, the UNFCCC, was signed by most of the world's countries.

In 1997 the landmark Kyoto Protocol was signed, and it finally became clear politically that the major issue was the curbing of CO2 emissions in the industrialised world. The logic is that CO2 is by some distance the most significant GHG, emitted in large volumes and persisting in the atmosphere for many decades. For an industrialised country like the UK, with a limited proportion of emissions from agriculture and deforestation, the vast majority of GHGs emitted were CO2, and virtually all of this was the result of the combustion of fossil fuel. The equation was clear: an effective policy to mitigate climate change had to be an energy policy; there was no other delivery vehicle.

If the UK was to play a part in mitigating climate change it would have to reverse the long historical trend to higher carbon emissions, not only stabilising but rapidly reducing them. Over the long term it was, and is, a huge challenge, and the Kyoto Protocol tried to make a real start: the UK would need to cut emissions by 12.5 per cent by 2008-12 compared to 1990 levels (DTI 2003c, p. 25) as its share of the roughly eight per cent cut agreed collectively by the EU.

Despite the scale of the challenge to reduce carbon emissions in the longer term, the initial UK commitment has turned out to be easy to fulfil. The reason is a historic accident. The privatisation of the electricity industry in 1990 meant that investment incentives changed and now favoured technologies with short construction times and low capital costs. Combined with the availability of cheap North Sea gas, the relatively new CCGT technology became the generating option of choice. Consequently, out of a total investment volume of some 25 GW between 1990 and 2003, some 22 GW was CCGT (National Grid Company, 2003, Table 3.6a).

The CCGTs largely replaced coal-fired generation, emitting only half as much CO2 per unit of electricity because of a combination of a higher efficiency of fuel conversion and the lower carbon content of natural gas (MacKerron, 2001). The motives were entirely commercial, but the results have been a once-for-all environmental benefit in terms of reducing carbon emissions. Since 2000 a dearth of new generating investment, combined with a switch in price advantage to coal over gas, has meant a swing back to coal in power generation. As a result, UK CO2 emissions started to increase after 2000 (DTI, 2003c, p. 25). Though increasing UK emissions do not threaten its 2008-12 commitment, recent attempts to cut carbon emissions elsewhere in the economy, especially via energy saving and renewable energy, have had modest success. Section 5.2 argues that this outcome was far from inevitable, and reflects a failure on the part of government to deliver on policies developed in the early years of the new century.

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