Blow Away the Accountants

“If we are concerned about the cost, then renewables have no part in reducing greenhouse gas emissions by 80% by 2050.”

So writes Clare Spottiswoode, chair of the nuclear energy company Magnox, according to yesterday’s Sunday Times. The words are purported to be contained in the foreword to a report to be published today which shows that it would be cheaper to invest in gas-fired power stations and nuclear than to offer subsidies to wind turbines. This would seem to be a deeply flawed report but I hope it is widely read so people understand that economics can be misused and remind everyone that economics has to be kept in its place as a tool of policy to be used intelligently with full knowledge of the underlying assumptions.

The accountants have done the sums and the numbers ‘prove’ that it would be cheaper to build gas-fired and nuclear power stations for the UK to meet its CO2 reduction targets by 2020 and 2050. The economic advice is to stop investing in wind turbines, a message that opponents of wind like to hear.

Concurrently with this breaking story, I was participating in a seminar on environmental economics and a number of the economists were adamant that every decision could be boiled down to a cost/benefit analysis. The attraction seems to be that the answer is clear cut and expressed in numbers, with the least-cost option the preferred option. The economists would like us to accept the result and act upon it; but policy makers need to reflect about what is really going on.

The number crunching of a cost/benefit analysis may be impressive but the process is simply computation. The answer is entirely dependent on the input assumptions. Intelligent policy makers use the tool of cost/benefit analysis but focus the intellectual effort on the real issues and key factors. In this case, key factors include security of energy supply, long-term liabilities and the risks of climate change. Diligently working out the numbers for investment options to hit a certain target date can hide these issues and obscure the real picture.

Policy makers in the Department for Energy and Climate Change (DECC) will not give this report much credence. Putting up wind turbines may not be liked by some people but once the site is established it will generate energy into perpetuity with maintenance and equipment renewals as required. This is clean energy to underpin a secure energy future without the long-term liabilities that come with nuclear power – for which accountants have a tendency to discount the calculation to shove the problem outside the reference frame of the calculation.

The authors of this report may yet see sense and pull it, but I would like to see it widely read, countered and then filed where it deserves to be filed ...