The week of October 3, 2022: Britain’s self-inflicted energy woes, inflation, cities and much, much more.
The week of October 3, 2022: Britain’s self-inflicted energy woes, inflation, cities and much, much more.
B oris Johnson was an enormously effective political campaigner. Much of the credit for Conservatives’ surprisingly convincing general election victory in 2019 was due to him. But when it came to governing, Johnson was, with few exceptions, unimpressive. Unfortunately, Britain’s energy policy was not one of those exceptions.
This speech, given by Johnson to the UN General Assembly on September 23, 2021 — less than six months before the Russian invasion of Ukraine — gives an idea of the message he was delivering. At that time, natural gas prices were partly because of the post-pandemic surge, partly because Russia was already monkeying around with the gas supply, and partly because the blades of the North Sea wind turbines — on which the U.K. depends for much of its energy — were not turning at the expected speed.
When I was a kid, we produced almost 80% of our electricity from coal; that is now down to 2% or less and will be gone altogether by 2024. We have put in great forests of beautiful wind turbines on the drowned prairies of Doggerland beneath the North Sea. In fact, we produce so much offshore wind that I am thinking of changing my name to Boreas Johnson in honour of the North Wind.
There is something perversely amusing about a blowhard unwilling to mention the embarrassing fact that his turbines were out of puff.
One of the achievements of modernity has been enabling humanity to break ever more completely from the shackles that bound it to “mother” nature. And so in the developed world, extreme exceptions aside, we can (or we could), go about our business without having to worry too much about what the weather is doing. But our growing reliance on renewables (mainly wind and solar) has made us reliant on the natural world once again, too reliant for our own good. The sun doesn’t always shine on schedule, after all, and as Britain was reminded that September, the wind cannot be trusted to blow when it’s expected to.
The unreliability of wind and solar energy cannot be confined to one month. Writing in the Spectator, Michael Simmons highlighted this extract from a report by the U.K.’s Department for Business, Energy and Industrial Strategy:
Generation from renewable sources decreased 9.3 per cent to 122.2 TWh in 2021. This was driven by less favourable weather conditions for wind, hydro and solar generation. In particular, wind generation dropped to 64.7 TWh in 2021, down 14 per cent despite increased capacity. This was because of unusually low average wind speeds across most of 2021.
In some ways Johnson’s words can be compared with a speech that a French general might have made praising the effectiveness of the Maginot Line — if he had given it at the exact moment when the line was being bypassed by the Wehrmacht.
One of the Maginot Line’s flaws, of course, was the false sense of security it gave the French. Something similar can be said about Johnson’s “forest.” He brags that only 2 percent of British electricity is generated by coal, and seems to celebrate that even that would be gone by 2024.
That’s just fine when everything works out, but the intermittency of renewables means that they need a fully integrated backup system based on technologies that do not depend on the weather. That means either nuclear power or fossil fuels. Today, around 15 percent of the UK’s electricity comes from nuclear energy. But now, after years of decline (Britain’s installed nuclear capacity peaked in 1995), most of the remaining plants are due to be retired by the end of the decade. Or they were, at least, until Johnson finally began realizing the scale of the energy problems that were headed Britain’s way.
Currently, new nuclear plants are under construction, and more are supposedly on the way. The good news? “Up to” 25 percent of Britain’s electricity will be generated by the country’s nuclear reactors. The bad news? This happy moment is not due to occur until 2050. That mainly leaves gas, which accounts for about 40 percent of Britain’s electricity generation (and heats about 80 percent of British homes) to fill much of the gap.
But half of that gas is imported: much of it from Norway (let’s hope that nothing “happens” to any North Sea pipelines), and, fortunately, only a little (around 4 percent) from Russia. Some comes in via LNG (liquified natural gas) tankers (which works so long as it is not bid away by rival customers). On the home front, Britain’s own production of North Sea gas has been dwindling for years as reserves gradually ran dry. And efforts in recent years to find more gas under those waters have been directly or indirectly discouraged by Britain’s commitment to net-zero greenhouse gas emissions by 2050. Although Johnson signaled his openness to increasing U.K. North Sea production, he only did so after the Russian invasion of Ukraine. Too little, too late, some might say, but then again, he did have a planet to save.
By contrast, new prime minister Liz Truss has said that she wants to see increased British production in the North Sea. Indeed, there is talk of licenses for as many as 100 potential new oil and gas fields. But, Truss’s own uncertain hold on power will mean that companies may hesitate to get involved. Needless to say, Putin or no Putin, climate campaigners are fretting that these new initiatives will see the U.K. fail to adhere to its carbon budget for 2023-2037, but that is unlikely to bother Truss very much (to her credit).
Meanwhile, the fracking ban introduced in 2019 has also been lifted. Merely allowing fracking does not mean that it will go ahead — not least thanks to strong local opposition and, once again, developers’ fears that a future government will once again prohibit it. Only time will tell if fracking is even given a chance. And even so, the extent to which fracking might make a difference to resolving Britain’s energy needs is highly disputed. All that said, Truss’s approach is a welcome contrast from that of her predecessors. However, even if production continues to be ramped up and new reserves are found, such measures will only make a difference at the margin and will not alleviate the current energy crunch.
The problems run deeper with the U.K.’s energy supply. With gas so important to the country, for example, it would be reasonable to expect that there are plenty of good storage facilities. It would be reasonable, but it would be wrong. In 2017 the government agreed with the operator of the country’s largest storage facility that it was not worth spending the money on repairs needed to keep it open. In hindsight, that was a catastrophically stupid decision, and it has now been reversed, but not by enough to make a difference this winter.
Another part of the equation is electricity imported from Europe via undersea interconnectors (high voltage cables), which accounts for about 8-9 percent of the U.K.’s electricity supply. Quite a bit of this comes from France, which is grappling with problems regarding its own aging nuclear capacity, about half of which is offline. France intends for capacity to be fully restored during the winter. We’ll see.
In conclusion, Brexit Britain is heavily reliant on imported energy at a time when Europeans may be scrambling to secure their own supply. Adding to worries about the approaching winter is the inconvenient fact that colder days tend to be less windy (although this is less of a worry for offshore facilities in the North Sea). Likewise solar, for reasons understandable to anyone familiar with the British weather, will not be chipping in with much electricity over the winter months.
Under the circumstances, it’s no great surprise that Britain’s National Grid is warning that businesses and households could see their electricity cut off for three hours a day at times this winter.
From The Daily Telegraph:
National Grid . . . describes that scenario as “unlikely” and its base case expectation for winter is that there will be enough electricity to meet demand.
However, it explores the “extreme” possibility as part of its preparations for a winter with Britain in limited control over its energy supplies, and amid international turmoil in the market triggered by cuts in Russian gas supplies to Europe.
The U.K.’s remaining coal-fired power stations (the capacity that Johnson was so proud of eliminating) have been given a stay of execution and will be kept on standby.
The Telegraph quotes the executive director of National Grid’s electricity system operator, as being “cautiously confident” there would be adequate supplies this winter.
That doesn’t sound particularly reassuring. And it’s worth noting that, according to the National Grid models, between November 30 and mid-January, Britain will repeatedly not have the electricity it needs, presumably giving rise to a need for top-ups — if they are there.
Liz Truss has refused to rule out blackouts.
But the Spectator’s Collins reckons that the concerns about blackouts are somewhat overdone:
In the scenario considered most likely, we’ll be left with a small margin of six per cent – or just under four gigawatts (GW) of unused capacity. Crucially, that’s about the level we’ve had to spare in winters gone by.
The Daily Telegraph’s Ben Marlow, however, argues that the government is failing to prepare the country for what may lie ahead. He worries that Truss is not doing enough to encourage people to cut back their use voluntarily (something, incidentally, that contrasts — and it pains me to write this — with the more prudent course taken by the EU). I’m no fan of the nanny state, a monstrosity that the Tories have, since David Cameron’s time, enabled and empowered, but in this instance, Truss may be pushing too far in the opposite direction, revealing — not for the first time during her brief period in office — that her political instincts may not be the sharpest.
From The Daily Telegraph:
Liz Truss is facing a backlash from Tory MPs over her “simply wrong” decision to veto a campaign to encourage Britons to use less energy this winter. Senior backbenchers expressed dismay after it emerged the Prime Minister had blocked a £15 million publicity blitz drawn up by Jacob Rees-Mogg.
The Business Secretary had already signed off on the plans, which were described as “light touch” and designed to help households save £300 a year.
The campaign would have advised people to lower the temperature of boilers, turn off radiators in empty rooms and switch off the heating when they go out.
Mr. Rees-Mogg had planned to promote the energy-saving changes with an advertising campaign on TV and radio, newspapers and social media. But the Prime Minister was “ideologically opposed” to what she saw as too interventionist an approach and blocked the proposal, according to The Times…
That said, Brits may be getting the message anyway.
From The Daily Telegraph:
Households are stockpiling thermal underwear to avoid turning on the heating this winter as energy bills spiral.
John Lewis, Britain’s biggest department store chain, said shoppers had rushed to buy warmer clothes in recent weeks, with sales of winter thermals having doubled last week compared to a week earlier. Sales of dressing gowns are up 76pc compared to last year.
This tale would be bad enough if it only concerned the U.K. Unfortunately, it does not. Britain’s energy policy over the last decade or so has led it to this point thanks to a mix of fanaticism, poor planning, self-importance, and complacency. The exact details may vary from country to country, but too many European states have embraced variants of the same toxic mix.
The fanaticism lies, of course, in the embrace of climate fundamentalism, a millenarian cult of a type that has become all too familiar over the centuries. And like many such cults, it has been used by those who do not necessarily share its beliefs both as a pathway to power and, in this case, as a device to fashion a society favoring people with a fondness for central planning, a disdain for anything smacking of consumerism, and a contempt for the idea that people are generally capable of thinking for themselves.
Fanaticism and smart planning rarely go hand in hand. The current “race to net zero” is a race to the bottom resembling the planned recklessness (albeit in an infinitely less draconian form) of Soviet five-year plans, the rush to collectivization, and so on. While human activity may indeed affect the climate, the extent to which it does may be less certain than is sometimes suggested. If so, a great deal of the capital being deployed in a (quite possibly ineffective) attempt to pare back the global temperature would be better spent on improving our resilience (for example, by improving the sea defenses for low-lying coastal cities). By planning to deal with whatever the climate might bring, such investment would, in many cases, pay for itself even if the climate were to remain broadly unchanged.
That doesn’t shut out renewables. Sort out the energy storage problem and they show immense promise, even though they will probably always need backup, preferably from nuclear power. This will take years. Instead, billions have been spent installing renewables that are not yet ready for prime time, even as we have removed or neglected the necessary back-ups because they were powered by the sorts of energy that climate warriors abhor.
The self-importance of these activists lies in the conviction that the rest of the world would be inspired by the example that the Brits and other Europeans were setting. Well, they may be, but perhaps not in the way that London or Brussels were hoping.
In truth, many people thought that there would always be plenty of gas around. Their complacency led to the reliance on a smoothly functioning delivery system, the cavalier attitude toward storage, the willingness to let nuclear power dry up, and, well, the list goes on and on.
Well, at least nothing like that could happen here, could it?
One final point is that although decarbonization had support right across the British political spectrum (the “net zero order” was essentially waved through towards the end of Theresa May’s disastrous premiership), the blame for any power cuts this winter will fall on the party now in charge: the Tories. This is especially ironic given that Liz Truss, their new leader, is evidently no fan of net-zero, at least as it is now structured. The Tories are currently around 25 percentage points behind Labour in the polls, and the most likely date for the next election is barely two years away. Given that Britain’s energy crunch will likely return again in the winter of 2023/24, the Conservatives’ chances of reelection look, to use an appropriate adjective, dim.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and NRI trustee David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 87th episode David is joined again on the podcast by former chair of the Council of Economic Advisers, Kevin Hassett, who was the first ever guest on this show. They talk through the state of the economy and opine on the dangers of promoting false economic narratives, regardless of the motivation. Listen in to hear a clear, cogent, and honest discussion with one of the great economic thinkers of our day…
The Capital Matters week that was . . .
Cities
We seem to be at the beginning of a new epoch, much as occurred during the rise of mercantile cities after the Middle Ages and the emergence of industrial cities in the 19th century. Now we are seeing the fading of what Jean Gottman described four decades ago as the “transactional city,” an economy based on finance, high-end business services, and information. In this city, urban grandeur has been defined not by great cathedrals or palaces but soaring office towers. That made sense at the time, but now these ultra-tall buildings are becoming as anachronistic as the old factories that once drove urban economies. For one thing, notes one analyst, firms that once needed a whole floor just to tap their computing power can now perform most of their technical tasks remotely.
Energy
This may be only a coincidence, but the new Italian government looks as if it will be led by Giorgia Meloni of the “post-fascist” (a misleading description: Their post-fascism is more a matter of political genealogy than ideology) Brothers of Italy in a coalition with Matteo Salvini’s League and Silvio Berlusconi’s Forza Italia. While Meloni has thrown some bouquets Putin’s way in the past, she has condemned the Russian invasion of Ukraine…
Climate policy-makers can argue as much as they want about how the answer to this sort of pressure is to pour money into renewables. But these are technologies that, at least in the case of solar and wind, are not yet ready for prime time. (The problem posed by intermittency — the sun doesn’t always shine, and the wind does not always blow — has yet to be resolved.) Moreover, building more solar facilities and wind farms is going to take time. Equally, building new nuclear power plants (something that is clearly part of the longer-term solution) will take years.
The quickest way to undercut the OPEC+ cartel continues to be for American, Canadian, and other Western oil producers to boost production…
None of this is to say that renewables cannot play a part in a properly diversified energy-supply network. Obviously they can. But they cannot do all the work by themselves. The sun does not always shine, and the wind does not always blow. Until we have dependable and scalable storage capacity, there will be no getting around that problem, and reliable backup will be required. Nuclear power can go a long way to providing that backup, but we will not be able to build it out at the speed that is required.
To return to the point I made in my previous post, the answer lies with developing new fossil-fuel projects, preferably natural gas (something the EU, incidentally, has recognized as a “transitional” fuel for climate purposes). But that will require sufficiently reassuring the fossil-fuel companies concerned that they are not going to be asked to invest large sums to fund new projects only to find that those new investments are being held against them by legislators, regulators, litigation lawyers, and the ESG squad. In today’s climate, they’re going to need quite a bit of reassurance…
The sabotage of the Nord Stream 1 and 2 pipelines (perhaps interestingly, one of the two Nord Stream 2 pipelines — both Nord Stream 1 and 2 are twin-pipeline systems — was not damaged) has left Europeans wondering about the security of other pipelines and, for that matter, that of other undersea networks.
The attacks have stirred not so remote memories in Norway…
Much as climate activists might dislike it, liquefied natural gas (LNG) is one part of the way out of Europe’s current energy mess, but it’s not an overnight solution…
Today’s Morning Jolt spotlights reports that the Biden administration is “panicking” — their reporter’s words, not mine! — that OPEC is about to enact a production cut that will send the price of oil soaring even further. At the beginning of the week, the fear was that OPEC+ was considering a cut of more than 1 million barrels a day.
Liquefied natural gas (LNG) may (as I’ve noted before) represent one part of the way in which Europe extricates itself from its current energy mess, but it should always be remembered that LNG (which is transported over long distances in tankers) is part of a global market in a way that “ordinary” natural gas is not…
Theoretically, the danger to OPEC+ is that keeping the oil price high (or trying to) will accelerate the move away from oil as an energy source. Indeed, history does suggest that it will lead to greater energy efficiency. Markets respond to incentives.
Whether higher oil prices will speed up direct decarbonization is less clear. If voters are paying attention, the current energy crunch may well operate as a warning to them about where the current reckless “race to net zero” is going to end up
Taxation
Proposals to completely abolish a tax are commonly considered foolish or irresponsible, but it’s clear from experience that not having a state income tax is entirely manageable, and it may even contribute to smaller government overall. As Russ Latino wrote for Capital Matters earlier this year, Mississippi has been a leader on state tax reform, and politicians there are considering full repeal of the income tax as a next step. State leaders across the country should be encouraged by the examples of the seven states that Edwards highlights, and eliminating the individual income tax should be on the table.
Antitrust
The Robinson-Patman Act has been rightly abandoned as completely out of step with the goals of modern antitrust. For example, in its report to Congress and the president, a bipartisan commission to modernize antitrust was unambiguous in its views: “Congress should repeal the Robinson-Patman Act in its entirety.”
Against this, there has been a more recent attempt to revive the act as part of a larger push by a new group of “neo-Brandeisians” who have been working to spurn the focus on low prices and consumer welfare. Instead, they argue that antitrust policy should just target big (i.e., successful) companies…
In an effort to control major U.S. e-commerce and tech companies, the FTC’s chair, Lina Khan, has initiated a new wave of lawsuits, which include antitrust suits against Amazon and Meta (formerly Facebook). Her actions have led to the federal agency’s adoption of an aggressive regulatory posture. Unfortunately, the FTC’s new agenda may fail the very people the FTC purports to help: American consumers…
The NFL is back in full swing, to the delight of football fans across the nation. There have already been a number of instant classics just a few weeks into the season. One of the most exciting games was the week 2 matchup between the Kansas City Chiefs and the Los Angeles Chargers. Beyond being a competitive game between great offenses, the game was the first under the NFL’s deal with Amazon to exclusively broadcast Thursday night games on Amazon Prime.
A federal antitrust bill targeting Big Tech companies such as Amazon would threaten this new arrangement…
Environment
Despite some last-minute drama over the fate of the permitting-reform proposal by Senator Joe Manchin (D., W.Va.), one thing is clear: Democrats and Republicans are finally beginning to reckon with the red tape that hamstrings everything from renewable-energy infrastructure to natural-gas pipelines.
But energy projects aren’t the only area where the elimination of such red tape is needed: America’s growing wildfire crisis has also been exacerbated by bureaucratic sluggishness, and the problem deserves bipartisan attention.
Transportation
It wasn’t that long ago that ocean-shipping lines were paragons of greed and price gouging in the minds of some politicians. In late March, Senator Elizabeth Warren (D., Mass.) partly blamed ocean carriers for inflation and called for congressional action against the “anti-competitive nature” of the industry. In his 2022 State of the Union address, President Joe Biden announced a “crackdown” on carriers, saying that “these foreign-owned companies raised prices by as much as 1,000% and made record profits.”
Now, international ocean-shipping prices have been falling for months, and ocean carriers will likely be struggling to break even soon…
Private companies are ready to invest in improving California’s freight-rail infrastructure in response to the traffic congestion that has hit the state over the past two years. The question is whether California’s regulations will allow these projects to be completed…
Inflation
California residents will be receiving $1,050 back from the state government starting this week in a move that Governor Gavin Newsom says is designed to “help address rising costs.”
As I wrote back in June when this program was announced, it does not address inflation and is little more than an election-year handout. It’s probably not a coincidence that the checks are being issued in October, right before the midterm elections…
But what is truly strange is that so many people are apparently still under the impression that inflation can be tamed without the economy slowing down and the unemployment rate going up. I have never been one to believe in the Fed’s ability to manage a soft landing — the question, in my opinion, was always how harsh a landing it will be — precisely because the tools that the Fed has at its disposal to tame inflation will slow down the economy.
The Furman piece offers many good arguments for why the Fed must stay the course.
Here is something I am not surprised about: the economic geniuses at the U.N. are also among those calling for central banks to stop their efforts to control inflation…
The Deficit
During a speech in Phoenix over the weekend, President Biden boasted that his administration had reduced the deficit by $350 billion last year and $1 trillion this year. The president said, “I’m so sick of Republicans saying we’re the ‘big spenders.’ Give me a break. Give me a break.”
A closer look at federal spending and deficits under Biden’s watch reveals that the president may not be entitled to that break…
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