Energy and Environment

The CF Industries bailout is a terrible folly

In 2009, Liz Truss, then Deputy Director of the Reform think tank, now Foreign Secretary, wrote about green technology: “Vast amounts of taxpayers’ money are being spent subsidising uneconomic activity”. In 2013 she told BBC Question Time: “We need to make sure shale gas is being exploited in this country, which will benefit local communities”. In 2013, 101 Conservative MPs – including MPs who are now members of the Cabinet – wrote to the then Prime Minster David Cameron, calling for cuts to wasteful subsidies on onshore wind.

None of these were anti-environmental campaigns, but evidence-based and pragmatic responses to four issues. Firstly, that the Government’s approach to a low carbon transition was expensive and wasteful, expending treasure on ‘green cr*p’ that was unreliable, inefficient and costly. Secondly, that there were no paths to decarbonisation that did not require substantial amounts of fossil fuels to remain in operation while renewables technology matured. Most of all gas, the least polluting of the options available. Thirdly, that the UK was not doing this alone, we did not have to solve climate change in one country. We could move cautiously, learning from the experience of others as we developed, ensuring then our investments were targeted, tested and good value. Fourthly, that to do otherwise would cause existential damage to the economy, rendering swathes of energy intensive industry uncompetitive, poisoning investment, rendering us unable to respond to shocks. This, in turn, would cause a cost-of-living crisis by making one of life’s essentials artificially expensive. It was an error that would cascade throughout all major supply chains as well as hitting domestic bills.

The Johnson government’s tacky climate evangelism has made fools of them all. Perfectly sensible free-market and conservative MPs are now making statements they know to be untrue, to support decisions they know to be wrong, to deliver outcomes that they know to be superficial. Having created a policy environment that poisons business activity, they have decided it is now their job to bail out the consequences rather than deal with the poison. The result of this, in 2021, is the madness of offering a solvent private company, CF Industries, a multi-million-pound taxpayer-funded bribe to produce CO2 (indirectly, their core business is fertilisers), while hosting a global conference demanding stronger targets for CO2 reduction. This is apparently an essential move to secure supplies of CO2 for domestic food industries under cascade threat of shut-downs from the rise in the underlying cost of gas.

But the threat is a phantom. This is mainly a price issue. The shortage of gas is real, but short term, a result of mismatches in supply and demand as the pandemic ends. Rising prices mean new supply will come on stream, and prices will again fall. The same is true for supplies of CO2 and food. More expensive food, or food imports as the result of a mini-energy crisis, is not an outrage, it is part of the necessary process for correcting the problem efficiently. It is letting markets work. There are clearly social consequences to that, more targeted relief may be required at the margins, but that is the proper role of welfare policy, not a good reason to tinker with functioning markets let alone supplant them. The Government has instead chosen this week to cancel the pandemic uplift of £20 to Universal Credit. Quite a coup, simultaneously both terrible capitalists and terrible socialists at the same time.

The underlying issues are policies that prevent markets from working efficiently. The Energy Price Cap masks the impact of commodity prices on domestic bills. The fracking moratorium limits domestic alternatives to gas imports. Various technology-specific subsidies create rent-seeking lobbies that regard any reprieve for gas a threat to their margins. Bailouts in turn create new dependents. Their use creates the perception they will be used again in future, and they become the default demand of struggling industry. The Government, having been warned for years about the risks of a ‘low carbon industrial complex’, or an all too cosy relationship between Big Government and corporations at the expense of the public, has decided to turbo-charge the problem. Johnson appears to be a lobbyist’s dream, one merely needs to cry green tears and beg him to think of the shareholders, for him to write a cheque with other people’s money.

We can only hope this is temporary. COP26 has become like the Olympics for Johnson, an immovable hard deadline set piece event that puts Britain on the world stage, requiring a war economy response of central planning, rationing and self-delusion to paper over the embarrassing failure of the UK’s domestic climate policies to deliver on their claims of affordable secure decarbonisation. Once that has passed and whatever communique produced declared historic, we might hope for some pause for reflection. The UK otherwise is risking quite a lot of harm for that feeble prize.


Andy Mayer is Chief Operating Officer, Company Secretary and Energy Analyst at the IEA. Andy is responsible for developing our people, all operations, and managing the reputation of the IEA, including for example over-turning the Charity Commission’s unlawful attempt to ban one of the IEA’s publications, and dealing with failed attempt to smear the organisation by activists at the same time. When not leading operations, Andy writes and comments on free market issues around energy and climate change, and occasionally general commentary. He was previously the Head of UK public affairs for the world’s largest chemical company and green energy advisor to the UK’s largest company. He has over 25 years of experience in strategic communications and the operations that support them in the business and think tank worlds.

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