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Falling Oil Prices Put Green Energy in UK at Risk

Falling Oil Prices Put Green Energy in UK at Risk
Falling oil prices are very good news for drivers, manufacturers and the prime minister’s re-election campaign. Dr Robert Gross, director of the Centre of Energy and Technology at Imperial College London tells us about what falling oil prices mean for the UK renewable energy industry.

As the oil price falls, the stimulus for subsidising the development of renewable energy falls away, as it becomes more economical to import oil and gas than create energy from renewable sources such as wind farms. As Dr. Gross points out that in reality, subsidies to green energy are quite small, far more significant are the subsidies paid by governments to the fossil fuel industry in the UK at least, and they should be cut.

Can we afford to keep on subsidizing renewable energy in the UK?

Dr. Robert Gross: In some respects I think it is a double-edged sword actually. When the gas prices in particular, because this is in many respects more about gas prices… because we are talking about electricity and electricity is gas, but the gas prices shadow the oil prices and those two things tend to move in lockstep together. Interestingly, when electricity prices were low, nobody made a fuss about the support for wind farms. When electricity prices became high, which was because fossil fuel prices were high, everybody started making fuss about the subsidies for the renewable energy.

And so, in some respects it could be, it is counterintuitive, but it takes the pressure off. You know, the bills come down, people feel more comfortable about it, the economy is recovering and they maybe more comfortable about spending actually a quite small fraction (because it is a small fraction of their bill at the moment) to support green stuff. Not because the prices of energy are high or we are worried about the oil running out, but because it is green and because it is going to help us to tackle some of our environmental problems.

That is speculative and that remains to be seen, but I don’t think we should paint it necessarily as all bad news and all doom and gloom for the environment. One other possibility which Lord Stern – the author of the Stern review on the economics of climate change – has suggested is that if oil and gas prices are coming down, it is an opportunity for governments around the world, not Britain so much, but any other part of the world to remove some of the subsidies for fossil fuels which are in place.

And they amount to tens of billions of dollars more, than any of the subsidies in total for renewable energy, because there are social programs to try and provide access to energy for the poorest people. If oil and gas prices come down, then those subsidies for fossil fuels could be removed, which actually, in many respects, kind of removes the kind of perverse incentive encouraging people to burn polluting fuels and could shift the ground and help us to encourage the support for renewable energy.

How low will oil prices affect Scottish-English politics?

Dr. Robert Gross: I think these are very early days, to be honest. And it is difficult to say immediately how that is going to affect the Scotland-to-England relationship. I think after the referendum whoever wins the election in May, we are going to see a great deal more independence and kind of devolution for Scotland. It is a very significant and will continue to be a significant revenue stream into the Scottish economy. Scotland has got the aspirations to more with renewable energy, as well. Of course, whether that looks less likely or less cost-effective, I think, again, that really remains to be seen. 

Is this good news for Cameron?

Dr. Robert Gross: The gods would appear to be smiling upon the Conservative Party for the next election. Falling fuel prices almost always, historically, has given a boost to the economy and created a fairly good factor. It is obviously just completely a happiness dance. It doesn’t reflect anything that they’ve actually been doingwell or otherwise for the economy, it is just one of those things that had happened.

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