Why are we using the most expensive way of funding energy and other infrastructure?

Last night I attended an event at the Royal Society about the de-carbonisation of energy generation and how this can be done.

This reminded me that, according to the figures which are being put about, we have very little time in which to become a zero-carbon society and delays in doing so will only mean that a faster rate of reduction will be required in the not so distant future. I just doubt whether it really is going to happen.

With the removal by the UK Government of subsidies for the cheapest way of generating zero-carbon energy and the increased subsidies for the most expensive way of doing so, plus introducing  a carbontax on some zero-carbon means of generation, a number of speakers said that they just cannot fathom the UK Government’s polices and actions in trying to achieve zero-carbon.

Another speaker reminded us that we need to limit world temperature increase to 2 Degrees C, but we are on target to actually have a 4 Degree C increase.

So, taking all of this together, it seems to me that as well as investing a huge amount in zero-carbon energy generation in order to reduce temperature rises we also need to be spending large sums of money on protecting ourselves from the effects of climate change which it looks like will be happening anyway. However, are we actually spending the money on protection; are we even thinking about it, and can we even afford to do both?

A big criticism from the speakers was the way in which the UK Government is funding the low-carbon infrastructure. Professor David Newbery said that to make the long-term expensive infrastructure investment required means the need for low discount rates and this in turn means that it has to be funded by the Public Sector using the low-interest rates which Governments (in UK anyway) can get, with the costs paid off via taxes. He said that it is madness to use expensive private sector investment as they require higher returns and interest rates.

In a paper David did for the University of  Cambridge (‘Reforming UK Energy Policy to live within its means – Energy Policy Research Group Working Paper 1516’) he said ‘ Good economic policy requires not just that the Government controls its own expenditure wisely, but that it designs policies that deliver its objectives at least cost for the public as well)’.  This is a position which I have long been advocating for all sorts of infrastructure and social investment but it is not what we are getting from our Government – they are funding infrastructure and indeed services via the most expensive way not the cheapest. This is so important that I am going to repeat:

‘Good economic policy requires not just that the Government controls its own expenditure wisely, but that it designs policies that deliver its objectives at least cost for the public as well’.

And what has this got to do with Urban Regeneration or the creation of Sustainable Growth? A lot – we have to plan for and provide a massive amount of supporting and enabling infrastructure, and using the most expensive ways of paying for it means it can’t be done or there will not be enough of it. We need to face up to the fact that we are trying to do things with at least one hand tied behind our backs because of dogma which restricts us to only one stream of economic theory (and one which is not backed by the facts at that).

If the Government’s approach was copied by a board of a Corporation they could be sued for breach of fiduciary duty – perhaps it is time we treated Government Ministers the same way.

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One Response to Why are we using the most expensive way of funding energy and other infrastructure?

  1. David Cannon says:

    Using ‘people’s’ Quantative Easing for infrastructure investment???
    Contradiction of using China & France for UK energy security???
    Nuclear Power; ‘No Thanks’. Too centralised, too capital intensive, too corporate, too vulnerable to major disasters, too supportive of nuclear weapons & its radio-active by-products too dangerous!!!
    More localised renewables are our future…

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