The Mentally-Deficient Efficiency Drive

Posted by Ben Pile on November 10, 2012
Nov 102012

One of the most persistent and peculiar ideas that has been given life by environmental thinking is its conception of ‘efficiency’. Environmentalists like to believe that nobody has ever thought of efficiency before, and that it cannot be found without them. One problem with ‘efficiency’ is of course that once you reach a certain level of it, there are no more gains to be had. Greens discover that something is only X% efficient, and imagine that it had never occurred to anybody — least of all engineers and designers — to make X as close to 100% as possible. ‘Look!’, they urge,’we can reduce the energy use of this object by 100-X%’. But there’s efficiency and there’s efficiency. Efficiency is determined by our priorities. ‘Efficiency’ appears to be a straightforward and objective idea, but it turns out that our priorities are ideologically loaded. Environmentalism takes common sense, and by a sleight of hand, produces a nonsense.

Consumer Focus, says their website,  ’is the statutory consumer champion for England, Wales, Scotland and (for postal consumers) Northern Ireland. We were formed by The Consumers, Estate Agents and Redress (CEAR) Act 2007.’ Which is to say they are a QUANGO: they look like an independent organisation, but they are doing a job the state wants them to do. In the case of Consumer Focus, their remit is to ‘operate across the whole of the economy, persuading businesses, public services and policy makers to put consumers at the heart of what they do’. Well, we’ll see about that.

Consumer Focus (CF) have just published a report, in which they say ‘Energy efficiency investment is one of best ways to boost the economy – new research reveals‘.

 A new report from Consumer Focus shows that investing money raised through carbon taxes in a major energy efficiency programme is one of the best ways to create jobs and boost the economy, while also tackling fuel poverty.1 The report2 – ‘Jobs, growth and warmer homes’ – is published today (Friday 9 Nov).

The research shows that significant Government energy efficiency infrastructure investment could:

  • Generate up to 71,000 jobs and boost GDP by 0.2 per cent3 by 2015 and create up to 130,000 jobs by 2027.
  • Lift up to nine out of ten households out of fuel poverty, reducing energy bills in all treated homes by at least £200 per year
  • Cut household energy consumption by 5.4 per cent by 2027 and quadruple the impact of the government’s energy savings schemes – Green Deal and Energy Company Obligation
  • Cut overall carbon emissions by 1.1 per cent, including household emissions reduced by around 5.6% by 2027

You can download the entire report here. It expands on these claims about CF’s research:

  • Economic benefits: Investing the money in improving the homes of fuel poor households has a better outcome on growth and employment than the alternative options modelled.
  • Social benefits: Between 75% and 87% of the households that would have otherwise been in fuel poverty are removed from fuel poverty, improving the quality of millions of lives of some of the most vulnerable members of society and reducing health care costs.
  •  Environmental benefits: UK CO2 emissions fall by more than 5% compared to baseline by 2027, contributing to the UK’s legal commitment to reduce GHG emissions by 2050.

These are some big claims. 130,000 is a lot of jobs. And £200 is a lot of money to the 9.1 million households that CF believe will be living in fuel poverty in the near future thanks to rising bills. CF’s solution — this miracle — is to take the increasing carbon taxes that will be paid on top of bills, to subsidise the improvement of those 9.1 million households with 95% of this revenue. This is the preferred scenario of three considered by the CF’s report. 

We are interested in the EE-All scenario. Here are the projections for 2015:

And here are the projections for 2027:

So far, this is all seems fairly innocuous… You take a little bit of money from the consumer at the point of purchase — the polluter pays, after all — and you give it to the people who can’t afford the commodity that the consumer purchased, to make their lives a bit nicer. What could possibly be wrong with that?

Let’s take the easiest claim to deal with first — that the fuel poor  will be £200 a year better off as a result of their homes being made more efficient. As you can see from the above tables, the revenue taken from carbon taxes rises from £2.8 billion in 2015 to £6.8 billion by 2027. Interpolating between these points gives us the following result.

So the Treasury will be taking £57.4 billion in carbon taxes between 2015 and 2027, and CF want to spend 95% of that (£54.9 billion) on doing up poor people’s houses, to save them £200 a year on bills.

Not all the homes are treated at once. This is a 13 year programme, as you can see in table 3.8 above. This is shown in the following graph:

So totting up the million or so households that save £200 in 2015, 2016… 2027, all the way up to the 9.1 million households who don’t get to enjoy their £200/saving until 2027, we get the following:

So as we can see, the £55 billion that CF want to spend between now and 2027 is only worth £12 billion over the same time. The remainder is £42.9 billion.

Of course, the likely response here is that the efficiencies created will persist. This is true, but those 9.1 million households saving £200 a year each, or £1.8 between them won’t have realised the benefit of the remaining £42.9 billion for another 23 and a half years — 2050. This doesn’t seem like a good deal to me, if the intention is to improve people’s living conditions and make their money go further. More to the point, energy bills have risen substantially more than £200 in the last decade, as they are predicted to continue. Should they double again — as seems to be a possibility — a £200 benefit may not be sufficient to take people out of ‘fuel poverty’.

But CF claim that their idea will bring other benefits, such as jobs. A whopping 130,000 jobs. These 130,000 jobs grow as follows:

Over the course of the 13 years, 1.3 million full time years are worked. So the benefits are equivalent to 100,200 full time positions over 13 years. At a cost of £424, 390 per job. Or, if we take the 13 year equivalent jobs, £548,064 per job, or £42,159 per year. Each job treats 90.8 homes over the period, or 7 homes per year — one home per job every 52 days.

Although the Christmas of 2027 will be a snug and cosy time for the 9.1 million homes who’ve had all that work done for free, with £12 billion saved up for presents, it will be a less happy time for 130,000 workers who will, just a week later, lose their jobs. Because, while it may be true that the insulation on the homes may persist (but won’t yield a net benefit for another 23 years) jobs do not last in the same way.

The green understanding of jobs is as peculiar as its understanding of ‘efficiency’. The jobs that are created are understood by CF to produce extra GDP — to produce wealth. But they don’t, they produce a big transfer of wealth, certainly. But they only marginally increase the efficiency of the UK’s energy supply by a tiny fraction for a comparatively huge workforce. These benefits are, according to CF:

  • Cut household energy consumption by 5.4 per cent by 2027 and quadruple the impact of the government’s energy savings schemes – Green Deal and Energy Company Obligation
  • Cut overall carbon emissions by 1.1 per cent, including household emissions reduced by around 5.6% by 2027

Here we see green ideology at work. Cutting household energy consumption by 5.4% by 2027 is seen as a worthwhile end — the real priority in the environmentalists’ conception of efficiency. But there is no real good served by reducing consumption for its own sake outside of the environmental perspective. As I point out on this blog, in order to take environmental imperatives like ‘reducing consumption’ at face value, you have to presuppose a great deal. Most people in the world would not regard cutting their consumption as a Good Thing. On the green view, walking is more ‘efficient’ than using a car. But if we take ourselves and our needs seriously, walking for the sake of reducing consumption is highly inefficient: I can get to where I want to be in minutes in a car, but it might take all day to walk there.

So let’s find a compromise with the greens. They will abandon their asceticism if we can find a way of reducing CO2 emissions from consumption. In other words, we have to find a way of reducing energy bills for 9.1 million people by £200 a year, and cut the UK’s carbon emissions by 1.1% for the £55 billion they want to spend on improving people’s houses. Can it be done?

Well, according to DECC, the UK emitted greenhouse gasses equivalent of 590.4 million tonnes of CO2 in 2010. So we’re looking to cut 5.9 million tonnes. This should be easy enough, because 204.3 million tonnes of the UK’s GHG emissions come from the electricity supply. If we assume a kilowatt hour (kWh) produces a kilogramme of  CO2, we would need to cut 5.9 billion kWh from our CO2-emitting energy supply, and produce it from zero-carbon generators. There are 8,760 hours in a year, so 5.9 billion divided by 8,760  equals 673,516. We’re looking to replace 673,516 kW of CO2-emitting electricity generating capacity with non CO2 emitting capacity. 673,516 kW is 0.67 GW. So we need to find a .67 GW generator. My choice is nuclear.

Prices of nuclear power stations in the UK are hard to come by. There weren’t any for sale on eBay. But the US Energy Information Administration has some info on costs. (I will not apologise for the inaccuracies that will necessarily follow from merely converting the costs of US nuclear power to £UK, because, as will become apparent, the CF took far less care in making their argument.) Clicking on Table 1 of this US EIA’s page  takes you to an Excel file, which says that the ‘overnight cost’ of a nuclear power plant is US$5,335 (2010) per kW. At today’s exchange rate, that’s £3,354.5. So .67GW of capacity would cost us £2.3 billion. But that isn’t quite enough, in fact, because no power station produces energy 100% of the time, and we need to ensure that we find 5.9 billion kWh a year. So let’s assume that our nuclear plant only produces 80% of its capacity. We need to add another 25% to the price… £2.8 billion.

The cost/benefit analysis of buying a nuclear power station vs following CF’s report is not looking good for them. But something which might tip the balance in their favour are the ongoing costs of operating the nuclear power station. Again, the US EIA has the answer. The fixed ongoing costs for nuclear are $88.75 (2010) per kWh and the variable costs were $2.04. So that’s £55.8 per kW and £1.28 per MWh. £55.8 x 841,895kW = £46,977,741. £1.28 x 842 x 24 x 365 = £9,440,000. So, the annual cost is £56,417,741.

We’re now in a position to compare the two strategies: the CF’s programme of taking carbon tax revenue from the rich, and using it to make poor peoples’ homes more efficient and produce less carbon vs my idea of building a nuclear power station.

The CF want £55 billion over 13 years, or £4.23 billion a year.

I want £2.8 billion capital cost, and £56.4 million a year thereafter.

Who wins?

Let’s make the point more clearly. In the first year, my idea costs £1.43 billion less. For the remaining 12 years, my idea costs $4.17 billion a year less. The difference over the entire 13 years is £51.5 billion. That’s enough to give those 9.1 million households £200 a year for decades. But if we’re in the business of giving stuff away, there’s a better idea. Why not spend that entire £55 billion on nuclear power stations and give the electricity away? According to the US EIA’s prices, that would buy us 16GW of nuclear generating capacity, or 140 TWh (assuming 100% load factor) — which would lower bills substantially. According to DECC In 2011, the UK consumed 365 TWh of electricity, 108 TWh of which came from coal.  So our new nuclear plants could completely replace all coal! Why aren’t CF jumping up and down for nuclear?!

There’s a catch, though. CF wanted to create 130,000 new jobs. Would 16GW of nuclear generating capacity do the same?

According to the UK’s Nuclear industry Association, there are 60,000 workers in the UK’s nuclear sector. Let’s imagine that they are all working in electricity generation. Last year they produced 69 TWh of electricity from 10.5 GW of net capacity. Assuming the same capacity factor (75%) for our new nuclear plant, that would give us 105 TWh and 91,304 jobs. (Less the jobs it took away from the other generating sectors, of course.)

So, CF might now say, ‘ahh, but Ben’s idea creates 40,000 fewer jobs than ours’. This may be true, but look at what those jobs create. The CF’s 130,000 jobs create a negative amount of electricity — 5.9 TW hours. My first plan produces the same amount of positive electricity for a fraction of the price, and the second produces nearly 20 times as much for the same price. Moreover, whereas the CF’s plan produces 130,000 low-skilled, low-paid, jobs for 13 years, my nuclear power plan creates 91,304 of the most highly skilled jobs on first-world salaries. In labour efficiency terms, then, the CF’s plan dilutes the overall efficiency of the electricity generating sector by adding 130,000 jobs. If the search for efficiency wasn’t subject to the law of diminishing returns, household electricity demand could be reduced by 100% by a workforce of 2.4 million. Meanwhile, under my plan, my 90,000 jobs, which create 105 TWh, almost supplies the entire domestic sector, which has an annual consumption of 112.8 TWh. My 90,000 jobs are infinitely more productive than the CF’s 130,000 jobs.

It gets worse for the CF now we come to examine the environmental benefits. Their plan displaces 5.6% of household emissions by making 9.1 million homes energy efficient. As you will remember, this is equivalent to 5.9 million tonnes of CO2, because a kilowatt hour produces a kilogramme of  CO2. My plan therefore reduces UK emissions by 105 million tonnes of CO2. That reduction effectively completely decarbonises the entire UK domestic electricity supply.

So how will this benefit people living in fuel poverty? Well, the ongoing plant costs under my scheme cost £1,099,180,017 — roughly a £ billion per year for the entire domestic sector. Between 25 million homes, that is about £43 per home per year, not including the cost of develiery. We’ve met the upfront capital cost of £55 billion through carbon taxes over 13 years. Now we can sit back and enjoy the cheap energy. According to OFGEM, 54% of a £470 electricity bill is ‘wholesale cost’. So that’s £253. And since we’re no longer producing any nasty CO2, we can remove the £47 charge for ‘environmental costs’ the government add to bills. The average bill now looks like this: £43 wholesale electricity cost, £84.6 for distribution, £23.5 transmission charges, £9.2 VAT, and £32.9 ‘other costs’, coming to a total of £193.2 per year. We’ve reduced the average electricity bill by £276.8 for everyone, not just the fuel poor. That’s taken many people out of fuel poverty — especially if they use electricity rather than gas to heat their homes. But if we’re still feeling generous, perhaps we could give some extra relief to the remaining fuel poor.

So, in summary, by focusing our efforts on production, rather than on the green conception of ‘efficiency’, we could substantially reduce or even eliminate fuel poverty, reduce bills for everyone, eliminate CO2 emissions from the domestic sector, produce 91 thousand very high quality permanent and productive jobs for the same money that CF want to use to reduce CO2 emissions by just 1.5%, reduce bills only for 9.1 million homes by only £200 a year, and to create 130,000 13-year full time, low-skilled jobs.

Of course, the real test of whether I win or not would depend on a much more careful treatment of more accurate numbers. I offer the above only to offer a sketch of ball-park figures from the data I have available. I would be grateful for any ideas about how to improve it. I do not offer the above as an argument for a particular choice of technique. Instead, the intention was to show how ‘efficiency’ is highly sensitive to what we focus on. ‘Efficiency’ is not always a worthwhile end in itself, and much more good might be done by other policies. What I believe the above does do, is raise a question about Consumer Focus.

Why are ‘reducing demand’ and ‘improving efficiency’ in the consumer’s interest? The argument above is that the parameters of ‘efficiency’ have been narrowed to these measures of performance at the expense of arguments that might better improve people’s conditions. These parameters of the policy discussion have been narrowed by the government, and by the party-political consensus on climate and energy policies. The idea of producing more electricity more cheaply is anathema to that consensus. Consumer Focus, being an organisation mandated to act in the consumer’s interest by statute in fact serves the interests of the government, and its preferred policy agenda. And indeed, when we look at the staff of the organisation, we see that it is filled with people who guarantee that the parameters of any research this superficially ‘autonomous’ organisation produces will remain narrow enough to prevent any criticism of government policy. Take CF Board member, Sharon Darcy, for instance…

Sharon is a Board member of the National Employment Savings Trust (NEST) and housing association The Hyde Group. She is a member of the Ofgem’s Low Carbon Network Fund Expert Panel and Consumer Challenge Group for monopoly price controls.  She is a member of the Ofwat Customer Advisory Panel and Future Regulation Advisory Panel.  Previous roles include Member of the Council of energywatch, Chair of Sutton Borough Citizens Advice Bureaux and member of the London and Southern Committee for the Consumer Council for Water. Sharon Darcy – Declaration of Interest – Feb 12 (PDF 116KB)

And it turns out that her declaration of interests include the fact that she campaigns for the Liberal Democrats, and is a consultant to other quangos. That’s not to say Darcy had any hand in this report, nor in specifying a brief in such a way as to deliberately set out to find in favour of a certain agenda. But what it does ask, is where does the CF consider the consumer’s argument for more, and for cheaper energy? It doesn’t. It can’t. The idea that there are better things in the world than ‘efficiency’ doesn’t occur to Consumer Focus, who nonetheless claim to champion the consumer’s interests — it decides them for the consumer.

This demonstrates the danger of political consensus. Not just between parties, but between all political institutions and civil society. Consumer Focus’s press release said, for instance:

Consumer Focus, and a coalition of organisations (The Energy Bill Revolution), argue that a proportion of funds generated by carbon taxes, should be used for targeted energy efficiency schemes. The new report details a range of funding options from using 35 per cent of carbon tax revenue to 95 per cent and how this could cut fuel poverty by 75 per cent to 87 per cent depending on the level of investment.

A look at the Energy Bill Revolution’s ‘who’s behind it’ page shows a vast constellation of NGOs, think tanks, companies, Quangos, and other organisations, who seem to have put their collective name behind this research in the name of ‘Warm Homes, Lower Bills’ — their slogan. Yet it would seem that through their narrow vision, they fail to consider better ways of delivering it than blowing £55 billion on a nonsense scheme with highly dubious benefits. You can guarantee that the research suits them though.

If civil society cannot challenge political consensuses and cannot interrogate the thinking behind policies, it becomes a mere echo chamber for the government. It is hard not to draw the conclusion that, indeed, rather than championing the public’s interest, statutory and independent organisations are nothing more than outsourced PR agencies for Number 10 and government departments. The consequence of this hollow political arrangement is inevitably colder homes and higher bills. There is no surprise that those are the two effects of the last two governments’ policies.

Lost Horizons

Posted by Ben Pile on November 5, 2012
Nov 052012

I’ve been a bit busy for blogging lately. It happens. One of the things I’ve been working on is this film produced for the EFD group, starring UKIP chairman, Steve Crowther.

The Lost Horizons website is here.

One of the criticisms that the film got elsewhere (amongst much more support, I should add) is that it reflected some ‘Nimby’ concerns. I have to say, I don’t recognise this criticism at all.

I’ve never been particularly moved by arguments against wind farms about protecting the countryside. I think turbines are ridiculous machines that need policy to make them ‘work’, and I think they’re unsightly. But I’m an urbanite, quite content in concrete carbuncles (though I certainly enjoy the occasional stroll and stay in the great outdoors). That’s not to say I don’t care about what happens in the countryside or to people who live there. It is a sufficient argument simply to observe that so many people don’t like turbines, and that to make any significant contribution to the energy supply, so many turbines will be needed. Of course, however, sometimes things need to be built where people don’t want them to be built. But the value of wind farms is so questionable, I don’t believe the ‘greater good’ argument counts in the wind energy debate. Few people would be over the moon about a new coal-fired power station being built near them, but as is pointed out in the film, just one such power station could do the job of all of those wind farms. A power station like Drax can produce double the amount of electricity that all of the UK’s onshore wind turbines can produce. Such are the benefits of centralised power generation and a distribution grid. It means we don’t all need to burn stuff in our houses. Clearly, the current and previous governments have been more terrified by the possibility of Greenpeace and Friends of the Earth protesting as turf is cut for a power station than they are concerned with meeting the UK’s energy needs.

The ridiculousness of wind turbines is simply the manifestation of ridiculous policies, which are in turn the product of a ridiculous form of politics. Over-emphasis on wind farms, I believed, missed the point of what happened ‘upwind’. Then I began to meet lots of wind farm campaigners a few years ago. I’ve now met many. To date, I don’t think I’ve met a single ‘Nimby’.

Nimbyism is a reactionary impulse, concerning a given development, regardless of the wider benefits that it will bring. In fact, however, each of the people I have met have asked precisely the question that is necessary to overcome selfishness — what is the greater good that wind farms are supposed to serve. People discover for themselves that the benefits are not as claimed. The depth of knowledge that wind farm campaigners demonstrate about their subject — knowledge of the law, of policy, of generating electricity and of climate science — is phenomenal. Criticism of policies and policymakers cannot be waved away with such a cack-handed pejorative as ‘nimby’. And far from protecting their own, many wind farm campaigners sacrifice a great deal of time and resources.

But what about nimbies? If we cast our mind back to the roads protests of the 1990s, it was the environmentalists who teamed up with nimbies against the development of roads. It’s a curious thing that as the environmental movement grew, the establishment absorbed it. It heeded protests not just against roads, but against power stations too. Being a nimby is good when the nimby is against a road or an airport, and bad when it’s against a wind farm. An absurd level of self-contradiction was reached a few years ago, when the then government’s plans for ‘eco-towns’ was being challenged by nimbies, their complaint being that the proposed developments weren’t sustainable enough.

Perhaps this all points to the inadequacy of the word ‘nimby’. If you don’t want to live near a road, power station or wind farm, surely that’s as good a reason as you need to challenge the argument for their construction near you — to ask why it was necessary, rather than take the claims that it is necessary at face value. And it should motivate better arguments in favour of such developments. But the debate about the UK’s energy supply has never happened. Policies were dictated at the UN and EU, and the MPs who represent us in Westminster deferred responsibility to technocrats in quangos like the Committee on Climate Change, which were stuffed full of believers. Rather than confronting opposition to wind farms, DECC ministers like Ed Miliband decided it would be better to engineer values, to make being against wind farms as ‘socially unacceptable’ as not wearing a seat belt.

Meanwhile, many anti-wind campaigners actually still share much of the green agenda. I’ve had long discussions with many of them about it, in which nobody has tried to force the point by making the other ‘socially unacceptable’. Many campaigners are concerned about climate change. But the installation of wind farms has opened their eyes to the strange politics that lies behind their construction, and to the alarmist excesses of the environmental movement. Wind energy companies are meeting a political demand, not a demand for electricity. These are the things wind farm campaigners talk about. The wind farm debate is about much more than what happens in people’s backyards. Hence, resistance to wind farm developments is portrayed as preoccupation with one’s own interests. To admit otherwise would be to admit to the debate that there is a problem with UK and EU policies, and the politics behind them. There is no such thing as a ‘nimby’ in the wind farm debate.

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