Tuesday 18 January 2011

Fisking Chris Huhne

As a prelude to taking a look at his alarming plans for the UK electricity sector, I thought I’d give Chris a brisk fisk. Now obviously there are those – Mrs Huhne included – that would like to fisk Crapper Huhne with the spiky end of a bogbrush (only joking, Big Brother). But after his masterly ratiocination on ‘what is a subsidy’,* we do need to examine his words rather warily. And this is what he has to say on the subject of oil prices, in answer to an FT EnergySource question:

Qn: Does the UK govt believe an oil shock is likely before 2014?

CH: "
The costs and risks of fossil fuel production are only going to increase in the future, as is the demand from growing economies such as India and China."

Increasing costs and risks of oil production are pretty much a given: likewise demand from growing economies.
So far, so boring. Note, he doesn’t say ‘prices’, or mention gas (see yesterday).

"The oil price is factored into the government’s wider economic thinking."

No, really, Minister ?

"The new Office for Budget Responsibility published … an assumption that future oil prices will rise year on year. This leads me to the conclusion that a shift towards non-fossil fuels is in our long-term national interest, as well as the interests of the planet."

Bit of a non-sequitur there. Firstly, we know this was your ‘conclusion’ long before the OBR opined. Secondly, you don’t say you agree with the ‘assumption’ – probably because, as an experienced businessman, you know that prices don’t always follow from costs and risks. The price of oil today is far higher than its cost, and (OPEC permitting) could fall tomorrow. So it’s handy the OBR gives you the thing you need to hang your hat on; but you can pin it on them if things turn out differently.

"Once we have a decarbonised electricity system in place, the prices we pay for supply will be lower and far more stable than they would be if we resigned ourselves to an oil and gas dependent future."

A non sequitur to make the first one look pretty puny. But it is a tremendously important feature of his current line on why we need to turn our electricity industry upside down and shake it. If hydrocarbon fuel prices were to rise indefinitely, it would indeed eventually become cheaper to generate electricity by other means.

A big ‘if’, that – because gas prices may be set to demolish the assumption, as noted yesterday - and with it Huhne's supposed rationale. A neat little piece of sophistry, Chris, but it not a sound foundation for wrecking our electricity market. Watch this space.


*“Arguably, few economic activities can be absolutely free of subsidy in some respect, given the wide ranging scope of state activity. Our ‘no subsidy’ policy [for nuclear power] will therefore need to be applied having regard to proportionality and materiality” - Huhne. I think we know what this means ...


roym said...

if gas prices are about to tank, how long will we have to wait for npower et al to cut our blinking bills?

Budgie said...

You can fisk the Huhne all you like, ND. Huhne is a nasty little man in all senses, and in his private and public life. Why do puny politicians always try to second guess the people actually doing the job?

Nick Drew said...

roym - well of course Ofgem is investigating residential energy prices right now (for what that is worth)

residential electricity prices are set to rise from here to eternity, to pay for Huhne's fanciful "decarbonisation"

gas prices, though, are another kettle of fish altogether. Having already de-coupled from oil prices, they should logically de-couple from electricity, too - though for different reasons

(the most recent price-hike, announced by E.on this month, was for 9% on the leccy but only 3% on their gas)

budgie - Huhne is a particularly clear case of backing off long-held views in favour of political advancement: we know he has no time for nukes, but is gearing up to subsidise them because he was told to. As indicated in the post, I reckon he doesn't swallow the OBR line on oil prices. (Funnily enough, though, I do - more or less - see 2011 predictions)

and I know for certain, he sees the possibility of gas-prices staying relatively low