The reduction in fuel duty announced in the Chancellor’s spring statement highlights that in the short to medium term he will have to wrestle with the re-emergence of the energy trilemma: simply put, how does the government address the competing demands of energy affordability, energy security and sustainability?
One policy initially favoured to help drive sustainability is the annually escalating rate of fuel duty which would force behavioural change in consumers. This has long fallen by the wayside in the face of rising fuel prices and the impact of austerity measures on lower earners. But the Chancellor went a step further this week by reducing the rate of duty in the face of the significant increase in fuel prices caused by the soaring oil price.
Does that mean, as some have suggested, that net zero is a pipe dream with affordability and security now more of a priority? Clearly the answer to that has to be no.
Fossil fuels have, in the round, provided a highly effective source of energy that has caused rapid economic development and lifted many in society out of poverty. However, fossil fuels carry hidden costs that politicians have only begun to try and factor into their price through duties, carbon pricing and other regulatory measures. Whilst the current economic stress may require such measures to be modified that cannot be the long-term solution as these policies or viable alternatives, will continue to be necessary to bring about changes in consumer behaviour.
Can we solve the problem by a different means? The answer isn’t straightforward.
More investment in renewable generation capacity is required and the recent offshore wind leasing rounds in England and Scotland are evidence of the government’s commitment to producing more of the country’s electricity from renewables. However, it isn’t simply a case of trying to accelerate the investment in the generation capacity afforded by these offshore leases. Global geopolitical uncertainty has triggered a substantial increase in the cost of materials, and there may well be a shortage of certain key components. It’s likely that the underlying economics of investing in the additional renewable capacity becomes more challenging.
In any case, additional capacity is only beneficial if it can be connected to the onshore grid. The grid requires significant investment to make the required modifications to handle an increasing number of variable supplies and, also needs an effective means of dealing with intermittency of supply. The solution may lie in batteries or hydrogen – or both – but these remain emerging solutions in relation to efficient long term storage of energy to balance surplus supply against deficits caused by intermittency.
Advancing a solution for electricity, which already has a significant renewables component in the UK, is a long way from solving two of the other primary demands for energy in the UK economy: transportation and domestic heating.
Whilst the adoption of EVs continues to gather momentum, the lack of widespread charging stations, particularly in rural areas, and the affordability and range of many EVs continue to be challenges to widespread use. The government’s plan to prohibit the sale of internal combustion cars in 2035 remains a challenging target and not one that could be easily accelerated. There remains no existing affordable solution for heavy transport.
Domestic heating has been in the “too difficult” box for some time. The government has plans for widespread replacement of gas boilers with heat pumps but there remains questions over heat pump performance and resilience, and the government’s attempts to promote their use hasn’t been successful.
That leaves us is with some uncomfortable truths. Whilst we must continue to focus our efforts on reducing the demand for fossil fuels in our economy, and take bolder steps in that direction, it will be extremely difficult to pass the costs of the necessary investment onto the consumer.
Escalating costs may also make private sector investment more challenging. There may well be supply chain constraints on key components even if there is political will and available investment funds, which will delay development. There also needs to be action taken to enhance the country’s transmission infrastructure, making it capable of functioning efficiently with a more diverse range of generation capacity.
The harsh reality is we simply aren’t able to switch off our ongoing reliance on fossil fuels overnight, and it isn’t possible to remove them from our transportation and domestic heating demands at the present time.
For some, it’s an unpalatable truth that our economy continues to demand fossil fuels. In the case of gas where almost all of our offshore production is consumed in the UK, it seems foolish to contemplate stopping future development only to import gas from other countries.
In the case of oil, the argument is more nuanced. Much of the oil from the North Sea is used in the feedstock of overseas refineries rather than being directly utilised in the UK. However, there is huge demand for refined oil products, currently imported into the UK.
Perhaps the relevant question for oil development is why we would not embrace the economic benefits of our remaining UKCS oil reserves when the demand for oil remains? We should take every step we can to reduce the demand for oil, and we should do everything we can to ensure we decarbonise the production of our oil, rather than engage in gesture politics which have no global impact on emissions.
The Chancellor’s action on fuel duty yesterday was an expedient response to the escalating costs of fuel. Moving to net zero whilst preserving the affordability of energy and the security of supply requires careful thought and the development of a long-term low carbon energy strategy. Accelerating the development of renewable resources, reducing energy demand, and continuing to develop our own natural resources with a clear focus on reducing the carbon footprint of existing and new production, are complementary rather than contradictory strategies.
