Energy Crunch: the next five years

NOTE: Images in this archived article have been removed.

 

 

Energy and climate policy was scarcely mentioned during the UK election campaign. With a new government in place much sooner than expected, what do the next five years hold?

 

The appointment of Amber Rudd as the new Energy Secretary waswelcomed by environmentalists, with the Renewable Energy Association hailing her as “a champion of renewables and low-carbon economy”. But then, as her predecessor Ed Davey found, policy in this critical area is not exclusively controlled by the Secretary of State.

 

On low-carbon policy the Conservative manifesto is mixed: it pledges to support value for money renewables while simultaneously promising to abolish financial support for new onshore wind farms – one of the cheapest low carbon energy options. The new government is also a staunch supporter of fracking – but those hoping to replicate US expansion would be wise to notice the tide is turning (see our chart of the week).

 

Whether the fall in US shale output is temporary or terminal remains to be seen, but at least one prominent financier is scathing about the industry’s prospects. Shares in drilling companies plunged after hedge fund manager David Einhorn, famous for predicting the collapse of Lehman Brothers in 2008, likened the industry’s business model to “using $50 bills to counterfeit $20s”. Others predict output will recover if the oil price continues to rise – recently recovering to around $67 per barrel. But geologist David Hughes points to longer term output decline, since output per well is falling in key areas where the best parts have been tapped first. Either way, as the International Energy Agency noted, the fall in production brings a multiyear winning streak to a close.

 

Betting on cheap fossil fuels in the long-term is always risky. The New Climate Economy’s latest report makes this point clearly: fluctuations in production and price hurt investment, growth and jobs. Of course if you factor in climate change then there’s no such thing as cheap fossil fuels full stop. In the UK, we can only hope that our new Energy Secretary can build and defend sensible policies, putting us on the track to a low-carbon economy.