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Brooks Wilson's Economics Blog: Implementing Britain's Renewable Energy Policy

Thursday, September 3, 2009

Implementing Britain's Renewable Energy Policy

(HT Drudge)  Andrew Porter, the political editor of the Telegraph, writes about Britain facing impending blackouts due to mismanaged energy policy in "Britain facing blackouts for first time since 1970s," dated August 31, 2009.  In the talk of creating a green economy and jobs elected officials seem to miss an important point: most policies designed to foster the development of clean energy do so by driving up the cost of nonrenewable relative to renewable fuels.  That is the objective of carbon taxes, fuel taxes, and restrictions on building nonrenewable fueled power plants.  These policies are justifiable economically up to the point that the marginal benefits from a cleaner environment exceed or are equal to the marginal costs of implementing the green policies.  If the marginal costs exceed the marginal benefits, the policy should not be implemented. 

Rationing of economic goods can be accomplished in many ways.  Economists generally prefer rationing through price.  Those who desire to pay the market price can buy the good and those who believe the price is too high will not; the quantity supplied to the market will equal the quantity demanded.  Britain seems to be on a path to ration electricity through blackouts.  Blackouts can be avoided by increasing price.  Apparently, British policy makers would rather hide increases in cost by rationing through blackouts rather than acknowledge that their policy increases energy prices.

Porter describes the problem and how it came to light.
Demand for power from homes and businesses will exceed supply from the national grid within eight years, according to official figures...
The gap between Britain’s energy needs and demand throws fresh doubt on the Government’s assertion that renewable energy can make up for dwindling nuclear and coal capabilities.

The admission that Britain will face power-cuts is contained in a document that accompanied the Government’s Low Carbon Transition Plan, which was launched in July...

Under the plan, 40 per cent of the UK’s electricity will need to come from low-carbon energy sources including clean coal, nuclear and renewables...

Greg Clark, the shadow climate and energy change secretary, said:..."The next government has an urgent task to accelerate the deployment of a new generating capacity, and to take steps to ensure that as a matter of national security there is enough capacity to provide a robust margin of safety.”

Mr Clark also pointed out that the scale of the blackouts could in fact be three times worse than the Government predictions. He said some of the modelling used was “optimistic” as it assumes little or no change in electricity demand up until to 2020.

It also assumes a rapid increase in wind farm capacity. There is also the assumption that existing nuclear power stations will be granted extensions to their “lifetimes"...
Our citizens and policy makers should closely study Britain's problems in implementing a clean energy policy as we attempt to replace fossil fuels with renewable fuels. 

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