Looking Forward

Published as a podcast at susbiz.biz on Friday 1st April 2016

Here is the news

The government today has announced a radical redesign of its energy policy following its decision to abandon the planned nuclear power station which EDF had intended to build at Hinkley Point in Somerset.

Amber Rudd, Energy Secretary, said that construction would immediately start on the Swansea Bay tidal power project in order to make Wales self-sufficient in energy.

Feed-in tariffs for new solar panels, wind turbines and small hydro schemes will be restored to the January 2015 levels, and will apply to all installations completed since that date. To emphasise the government’s new commitment to renewable energy, the plans for the refurbishment of the Houses of Parliament will now include a 1GW wind turbine to be installed at the top of Big Ben.

The minister went on to say that the new policies would significantly reduce energy costs for hard-working families, although they, and work-shy families, should expect to spend more time in the dark.

The chancellor, in an amendment to his recent budget statement, said that in order to pay for these changes the annual winter fuel allowance for pensioners would have to be scrapped. Instead there would be a distribution each December of woolly jumpers, with bed-socks for the over-75s, knitted by the BBC.

A government spokesman said that anyone listening to these announcements after 12 noon on Friday should disregard them completely.

Welcome to the Sustainable Futures Report  for Friday 1st April, (yes 1st April),  2016

Hello this is Anthony Day. Have you booked for the Sustainable Best Practice Exchange yet? Still some places left and bookings must close on Friday 8th April. Go to sbpe.co.uk for more information and contact me for a deal you can’t refuse. 

In this latest episode of the Sustainable Futures Report; notes on fuel duty and VAT after the Chancellor’s budget. Good news from Queen Street Mill. I ask “Is sustainability killing our steel industry?” And most of our electricity still comes from coal. Do you care where the coal comes from?  I can’t avoid the fact that Hinkley C is in the news again. No, it hasn’t been cancelled.

Fuel Duty

James Spencer of Portland Analytics wrote to me this week. (That’s portland-analytics.co.uk) He says:

“Such was this year’s pre-Budget conviction that the Chancellor would increase UK fuel duty, many motoring campaign groups had already started their publicity to denounce the rises. This sentiment was also reflected in the UK fuel market, with many of the big diesel buyers frantically increasing their orders in the hope that they could “get-ahead” of the expected rise in costs. Therefore there was genuine surprise on March 16^th, when the Chancellor announced that for the 6^th consecutive year, there would be a duty freeze and that there would no fuel duty increases for another year at least.

Fuel duty in Britain was first introduced in 1908, was scrapped after the First World War but by 2010 the UK comfortably had the highest fuel duty rates in Europe. The duty freeze since 2010 has enabled some of our European neighbours to “catch-up”, and the Dutch have overtaken us.

For the moment bus operators still receive a hefty 34ppl rebate as part of the Bus Service Operators Grant (BSOG), but generous treatment by the Treasury is rare indeed, such is the importance of fuel duty revenue. On current fuel consumption, duty rates generate revenue for the UK of £28bn per annum and if you add VAT (just on the duty element), a further £6bn is added. For a Government trying to balance the books, you would have thought that this kind of revenue is impossible to forgo. Moreover, it does beg the question why the Chancellor did not take the opportunity this time around, to impose a duty increase on a fully expectant population. A 1ppl tax rise would have generated an extra £0.5bn revenue per annum and for motorists now paying 30ppl less for their fuel than 18 months ago, it is difficult to see that public opposition would have been anything other than fairly muted.

My own view is that any increase would have reduced demand to some extent,  and therefore reduced carbon emissions and reduced the atmospheric pollution which kills 40,000 people in the UK each year. The extra revenue would have saved the chancellor from making some of his cuts.

Energy-saving Taxes

An article in the New Statesman of 23rd March co-authored by Lisa Nandy, shadow energy minister, recounts how the government accepted an opposition amendment to the Finance Act. http://www.newstatesman.com/politics/energy/2016/03/george-osborne-made-big-u-turn-nobody-talking-about-it The government’s original intention was to raise the VAT on solar panels and insulation materials from 5% to the standard 20%, thus adding an extra £1,000 to the cost of an average domestic  solar installation. Eurosceptic Tories and the Greens united behind Labour and the government caved in (or should that be U-turned?) and a Downing Street spokesman claimed, “It is an existing government position to reduce VAT on solar.” Apparently that came as a surprise to the solar industry and came too late for a local solar company near here which went into liquidation last month after 40 years in the energy-saving industry. 

The Energy Secretary recently conceded that her policies on solar were already expected to lead to up to 18,700 job losses and this tax raid would have caused even further damage to the industry.

As Friends of the Earth highlighted, the solar tax would also have created the perverse situation whereby people ended up paying more tax on solar panels and energy conservation than on energy from polluting sources like oil and coal who would have their low tax rates retained, which would skew the energy market away from clean energy and send Britain’s energy policy in precisely the wrong direction.

Dirty Coal

Where does the coal come from to fuel our power stations, and do we care? According to Andrea Leadsom, minister of state at DECC, in the first 9 months of 2015 (January to September) 32% of imported steam coal, which is predominately used by power stations, came from Colombia. Labour’s David Anderson (Blaydon) asked her:“Are you happy that, at a time when coalfield communities are still struggling, that your Government’s long-term economic plan is being fuelled on the back of child and slave labour?” 

According to reports from the US Department of Labor and others, some 1m children work in Colombia, often coerced by armed gangs. 5,000 of these are believed to work in mines. 

The minister’s answer concentrated on the government’s support for the managed closure of the UK’s deep mines and pointed out that imported coal was so much cheaper.

Dennis Skinner, MP for Bolsover and a former miner himself, pressed Ms Leadsom further, asking: “Are you admitting today, as it apparently seems to be, that this Government is more concerned about bringing in cheap coal from Colombia because it’s cheap even though it’s produced by child slave labour?

Ms Leadsom replied: “Well, what I can say to you is that private companies in the UK choose their suppliers. It’s not Government bringing in coal, you must understand that.”

So that’s all right then.

Heritage News

Good news from Queen Street Mill. I told you previously about this mill, the last working steam-powered textile mill in the world which was expected to close for good yesterday. Listener to the Sustainable Futures Report Richard Farr visited before Easter and found out that the mill - and four other museums also under threat, will now stay open least until September. Lancashire County Council are talking to people, as yet unidentified, about a long term solution.

The Steel Story

Bad news from Port Talbot and many other sites around the UK. The board of Tata Steel, owners of what was Corus and what was British Steel before that, decided this week to withdraw from the UK and sell all their assets. In Port Talbot alone 4,000 jobs are at risk in a plant which is said to be losing £1m per day. Unsurprisingly there’s been uproar. Labour has demanded the recall of Parliament from its Easter recess and the government has had a crisis meeting and promised urgent action but ruled out nationalisation. British-made steel is expensive and uncompetitive. Part of the expense is energy cost, with high prices because of taxes designed to reduce carbon emissions. 

Are we letting sustainability dogma kill one of our strategic industries? Writing in the i newspaper, Hamish McRae says that our high prices are driving customers to buy from China where emission controls are looser and manufacturing can be less efficient. Ironically our climate change policies could be said to be  indirectly leading to increased global emissions. It’s not just a question of price, although to be competitive prices are being depressed below the cost of production even in China. There is a global oversupply of steel. Everyone quotes China. China the major steel producer, shipping steel at way below cost. China the fastest growing economy, now growing not quite so fast and not needing all the steel it can produce. The global demand for steel - and other commodities - is also depressed by the increasingly efficient use of materials. The Report from the Office of National Statistics, which I mentioned in the episode of 11th March, recorded a clear decline in the material content of consumer goods. Why pay the cost of more material if you can do with less? Why pay the cost of distributing a heavy product if you can do with less? Maybe health, safety and strength considerations limit the amount you can reduce structural steel in buildings and infrastructure, but it’s not only possible to reduce the amount of metal in consumer products but metals have been displaced by plastics and other materials for years and the process is likely to continue. 3D printing is in its infancy, but it’s a whole new way of using materials, including metals, and only just as much material as you need - no scrap. The truth is that the world is changing, and as business journalist Russell Lynch said this week, “If I were a shareholder in Tata Steel, my one brutal question to the board would be: what took you so long?”

So what can we do? Probably not a lot at this late stage. If there’s a buyer out there who can afford  losses of £1m per day until the business can be turned around then the government should do everything it can to help close the deal. But is there really such a buyer? Industry experts can probably identify the likely players with sufficient resources and number them on the fingers of one hand. It shouldn’t take long to determine whether a bid is likely. Tata Steel have made no commitment as to how much longer they will keep the plants running while they wait for a buyer. It’s been suggested that they would prefer to close it all quickly rather than sell it to a company which would simply help to maintain the global oversupply and compete with Tata plants elsewhere in the world.

Is nationalisation the answer? It would keep 4,000 people in work in Wales and several thousand in other parts of the UK. It would continue to support suppliers and communities and small businesses. But it would still be a loss-making business. If steel industry professionals cannot turn it round then governments certainly cannot. Over time it would have to be slimmed down and closed down. Better for the government to let Tata take the blame for putting people out of work than bring it upon itself. One thing the government must do, and something it has failed to do successfully in the former mining areas for example, is invest to regenerate the steel-working communities. It won’t be easy and should have been planned long ago, but the government is the government of all the people and this time it must be done.

More about Hinkley C

And so to this week’s update on the planned nuclear power station at Hinkley C. http://www.theguardian.com/business/2016/mar/30/edf-hinkley-point-nuclear-power-station-on-track-engineers-reportedly-request-delay  You know, the one where there’s no actual commitment to start the project, although contractors EDF have already spent £2 billion and continue to spend £50 million per month on it. This week one of the EDF board directors has stated that he would vote against any decision to start construction at Hinkley C. Others have claimed that the reactor should be re-designed before going ahead and there should be a delay of two years to get all this sorted out before making a commitment. Ill-informed comment in the press has been saying that Hinkley C will produce 7% of the UK’s electricity, is a fundamental part of the government’s energy strategy and is due to start production in 2025. Well, partly right. The original target date for production to start was 2017. Yes, next year. EDF have said that the plant will take 10 years to build, so given that it’s not started yet that gives a completion date of 2026. That’s without taking into account delays which have affected EDF’s other similar plants, still not completed and running up to 8 years late. A fundamental part of the government’s energy strategy? It was intended to replace the worn-out power stations that we are now beginning to decommission, but it won’t be ready for 10 years at the earliest. You could argue that it’s already 9 years behind schedule. And of course it’s going to be the most expensive power station in the world and the government has guaranteed to pay nearly three times the current rate - index-linked - for the power produced. This will filter through to the energy bills of hard-working families. Hinkley C is planned to produce 7% of the nation’s electricity. A fundamental part of the strategy, but another 93% will have to come from somewhere else. Maybe fracking will be on stream by 2025, although the Royal Academy of Engineering doesn’t think so. Let’s leave that for another day.

Looking Forward

Both Hinkley C and the British steel industry show the need for long-term planning. I can’t believe that the government didn’t see the steel industry problems coming. Parts of the British steel industry, not part of Tata Steel, have developed special steels and are operating profitably. If I’m correct, the Port Talbot plant and the works at Redcar produced commodity steel - the basic steel from smelting iron ore. Commodity markets are volatile. It should not have come as a surprise to the government that these plants could cease to pay their way. I hope, but doubt, there is a Plan B. I hope, but doubt, that when Tata Steel took over Corus the government of the day imposed conditions over what should happen if they ever decided to pull out.

Strategic planning and scenario planning are very difficult. They cannot eliminate uncertainty, but anything that reduces uncertainty is worth doing insofar as it can help to avoid losses or identify opportunities. The government certainly needs urgently to create a strategic plan for the nation’s energy supplies. The risks of blackouts can only grow as our older power stations are retired between now and 2020. The government might take a moment to identify industries at risk as well, and to draw up plans to soften the blow when things go wrong.

And that’s it for another week.

Before I go, news just in: We are getting reports of the reaction of the French president to the news that Hinkley C will not now go ahead. He is believed to have said: Merde!

This is Anthony Day, that was the Sustainable Futures Report and there will be another one next week. Remember, 8th April is the deadline for booking the Sustainable Best Practice Exchange. Have a look now at sbpe.co.uk and see the great range of speakers that we’ve lined up for you.

Until next week.