We can’t subsidise or incentivise away the pain of a transition to renewable energy

The Scottish Nationalist Party has become notorious for their inconsistency. The latest example is its hapless health minister, Michael Matheson, who submitted a bill for £11,000 for the use of his iPad whilst on a family holiday in Morocco. 

He first claimed it was all incurred on official business between Christmas and the New Year. Next, it appeared that his teenage sons had live streamed football games unbeknown to Matheson. Despite being a well-known attender at Celtic games, he claims he didn’t watch a single second of the iconic New Year clash with Rangers.  

But the SNP had at least seemed to be consistent on energy policy. They fervently promoted a green agenda even before they formed a pact with the Green party to stay in power.  

We might have thought they would have welcomed the closure of Ineos’ giant oil refinery at Grangemouth. The plant supplies around two-thirds of the petrol and diesel for Scotland’s forecourts, as well as much of the North of England.

On the contrary, nationalist politicians and green pressure groups have been falling over themselves to vehemently denounce the closure. The company should keep it open and have a “just transition” instead.

No one seems to know exactly what this phrase means, except that Ineos should continue to refine oil and add to the hundreds of millions of pounds in losses which the plant has cost them in the past few years. The inconsistency of politicians on the green agenda was, of course, witnessed world wide when energy prices rose sharply during 2021 and 2022.

Governments across the West continue to embrace the concept of limiting carbon emissions. In theory then, they should have welcomed the sharp rises in energy prices. At least then consumers would have had a big incentive to use less energy. Perhaps even more importantly, the shift in relative prices potentially created incentives for firms to move to less energy intensive processes.

The latter point is exactly what happened following the quadrupling of oil prices in 1973/74. Energy had previously been incredibly cheap, but the huge increases in costs incentivised companies to innovate.

Yet rather than welcoming the energy price increases, governments went out of their way to mitigate the impact on both consumers and companies.

Massive subsidies were introduced, with the intention that people should be able to continue to consume just as much energy as before the market prices rose.

Politicians are clearly reluctant to allow their electorates to incur any substantial costs in the transition towards net zero.

And no matter what people tell the pollsters, their behaviour shows us that they are not at all keen either. In March of this year, for example, the Office for Budget Responsibility (OBR) expected electric vehicles to make up 67 per cent of all new sales by 2027. In the space of not much more than six months they have revised this down to 38 per cent. As the OBR put it “drivers need more incentives to make the switch – they need more affordable cars, and confidence in charging points and running costs”.

A key concept in economic theory is that of revealed preference. Preferences are revealed not in responses to surveys or in statements but in actions. 

The actions of both governments and electors alike show that they are not yet ready to embrace the move to net zero with anything like the enthusiasm they display in their pronouncements.

As published in City AM Tuesday 28th November 2023
Image: Wikimedia
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