Imagine your neighbour buys a car, a new model which has not been tested yet. Over the next few months, you realise that he has nothing but trouble with it. The car is unreliable, inefficient and constantly needs costly repairs. Others advise him to give it up, and the only reason that stops him from doing so is that despite everything, he has developed a strange sentimental attachment to it. A few years later, you realise that you need a new car yourself. Would you repeat your neighbour’s costly mistake and buy the same model?

In climate policies, we do precisely that. The UK’s scheme for promoting renewable energy through feed-in tariffs looks a lot like the German Renewable Energies Act (EEG), which has been in place for twelve years now and which has been a failure on every measurable account. With this in mind, it should not be a big headline that 106 MPs have now called for a reduction in onshore wind farm subsidies. The headline should be that 544 MPs are still not questioning the waste of their constituents’ tax money despite all the damning evidence.

Firstly, the EEG has proven far more costly than originally anticipated. Subsidies were sold to the electorate as an initial push, after which the industry would quickly become self-supporting. It never did. Subsidies have risen to 7.5% of an average household’s electricity bill, and no end is yet in sight. There is no reason why this should be different in the UK, because that is the way subsidies work everywhere: they create a politicised industry in which success does not depend on consumer satisfaction, but on political clout.

Secondly, the EEG has not reduced carbon emissions (assuming, for the sake of the argument, that this was desirable), and neither could its British equivalent. Apologies if you have read this a million times already, but as long as the total amount of carbon emissions in Europe is capped through the Emissions Trading Scheme (EMT), selective subsidies for low-carbon technologies cannot reduce them any further. Overall caps and selective subsidies are two entirely different instruments which cannot meaningfully be employed together. It is like imposing an overall annual cap on the amount of alcohol that can be consumed, and then subsidising the production of low-alcohol beers and wines: these subsidies would not reduce total consumption below the overall cap, but taxpayers’ money would be squandered, and consumers would end up with flabby drinks they would never have bought at market prices.

Thirdly, the EEG has not reduced energy dependency. Renewable energy sources are notoriously unreliable, so they have to be backed up by natural gas, most of which is imported from Russia.

Fourthly, there is the inevitable ‘Green Jobs’ argument, the reason why the TUC is so upset about the MPs’ criticism: ‘Recession looms, unemployment touches a 17-year high. But 101 Tory MPs want David Cameron to shackle the UK’s wind industry, which now employs over 10,000 people.’  Well, so what? In Germany, the renewable energy sector employs nearly 300,000 people. This is what is seen, as Bastiat would explain to us if he was around today. What are not seen are the jobs that were destroyed elsewhere, or prevented from being created, by the act of sucking resources out of non-subsidised sectors. The reverse also holds: if the EEG was scrapped, the resulting fall in the cost of energy would permit other sectors to expand, which could then accommodate the 300,000 people.

The 106 MPs should go a lot further and demand the abolition of all feed-in tariffs. The other 544 MPs should take a train ride from the North Sea to the Alps, to witness the only thing wind energy does relatively cost-effectively: ruining landscapes.

Dr Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow, becoming its Senior Research Fellow in 2013 and Head of Health and Welfare in 2015. Kristian is also a Fellow of the Age Endeavour Fellowship. He studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). In 2013, he completed a PhD in Political Economy at King’s College London. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and at King's College London, where he taught Economics throughout his postgraduate studies. He is a regular contributor to various journals in the UK, Germany and Switzerland.

6 thoughts on “Scandal in Westminster: 544 MPs want to continue wasting your money”

  1. Posted 10/02/2012 at 11:49 | Permalink

    An interesting article, Kristian. I have a couple of issues, however.

    “as long as the total amount of carbon emissions in Europe is capped through the Emissions Trading Scheme (EMT), selective subsidies for low-carbon technologies cannot reduce them any further”

    Why is that? I would have thought selective subsidies could push carbon emissions to below the level of the cap. I could understand if you were saying that in practice selective subsidies displace other activity that would have been undertaken to meet the cap, but I don’t see why they could not in principle result in a level of carbon emissions below the cap.

    “the only thing wind energy does relatively cost-effectively: ruining landscapes”

    Personally, I find them quite attractive. Which is not to say that they should be subsidised.

    “Scandal”? I always thought that scandal implied a sense of surprise as well as disapproval. The only surprise would be if 660 MPs weren’t wasting our money.

  2. Posted 10/02/2012 at 14:21 | Permalink

    Tom, you’re right, the subsidy policy could override the cap in principle, but that would require extreme circumstances. You would have to have a cap just below the emissions level that would have resulted anyway, and a subsidy policy big enough to push emissions below the cap. There would then be unused permits left at the end of the period.
    Regarding the attractiveness of wind turbines, I don’t want to impose my own asthetic judgements, but I’d like to have a planning system where you have to buy the right to develop from local residents. If they find wind farms attractive, buying the right to build one would be cheap; if they find them as ugly as I do, it would be very costly, perhaps prohibitively.
    And I wasn’t too serious about the use of the term ‘scandal’.

  3. Posted 10/02/2012 at 15:11 | Permalink

    Kris, Tom – if the subsidy programme is that effective, then you do not need the cap. One or the other, surely.

  4. Posted 10/02/2012 at 16:39 | Permalink

    One way that renewables such as wind could become viable (in certain areas) in the absence of state support is if infrastructure subsidies to users in remote rural areas were ended. There is a strong economic case for shutting down the grid in such locations, particularly when expensive renewals are required. Small-scale wind generation could then prove attractive for isolated homes or local communities (which typically don’t have mains gas). However, the intermittent nature of wind power means it would have to be backed up by other sources such as diesel generators or hydro.

  5. Posted 10/02/2012 at 16:43 | Permalink

    Indeed, to give an extreme example, road signs in remote areas are often lit by mini wind turbines or solar lights

  6. Posted 10/02/2012 at 17:52 | Permalink

    Energy storage is the ‘holy grail’ of electricity generation/ distribution. Have a look at which provides energy storage solutions for both grid connected and remote area power schemes.

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