Another sticking plaster solution for King Coal

Green motor cars; Exchange of views
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The Independent Online

The moratorium on building further gas-fired power stations was a foolish measure introduced by a Government without a coherent energy policy and panicked by the prospect of imminent pit closures. The lifting of the moratorium is, therefore, long overdue. But whether this, and the simultaneous announcement of £110m in aid for the mining industry, will lead to cheaper, cleaner electricity and a sustainable future for coal is another matter altogether.

The moratorium on building further gas-fired power stations was a foolish measure introduced by a Government without a coherent energy policy and panicked by the prospect of imminent pit closures. The lifting of the moratorium is, therefore, long overdue. But whether this, and the simultaneous announcement of £110m in aid for the mining industry, will lead to cheaper, cleaner electricity and a sustainable future for coal is another matter altogether.

Stephen Byers, who is red-hot on arithmetic, says the six new gas-fired stations he approved yesterday will provide enough work to keep one man employed for 8,000 years or 8,000 men in work for a year. What he didn't mention is that this is enough generating capacity to displace 15 million tonnes of coal and wipe out half of what is left of the British coal industry.

It cannot have escaped Mr Byers' notice, however, that since his predecessor stopped the "dash for gas" in its tracks two years ago, the price of the stuff has more than trebled. At 29p a therm, it is difficult to see how new gas-fired stations can possibly be economic, whatever thermal efficiencies combined cycle technology offers.

Moreover, when the new electricity trading arrangements finally stutter into life next March after all the computer bugs have been ironed out, these stations will have to fight much harder to make a living in the more competitive generating market that will come into being. The old sweetheart deals, whereby regional electricity companies signed long-term deals to buy high-priced juice from gas stations they had invested in themselves, are long gone.

But it would be a brave man who bets that the future of the coal industry is any more secure. The surge in the price of oil and imported coal ought to be turning every day into Christmas day for Britain's remaining pit owners, but RJB, the daddy of them all, is still contriving to lose money hand over fist. When the pit prop of state subsidies is withdrawn, the steady collapse of what remains will surely resume.

The tragedy of the moratorium is that during its two-year run nothing was done to develop the clean coal technology that might give the industry a future, although there was much guff spoken about it at the time. In another two years, when the state aid runs out, the next Government will have another energy policy crisis on its hands. Does it allow itself to be held to ransom by high-priced gas from the old eastern bloc, should it keep dying pits open at horrendous cost, or should it go nuclear again. Not an enviable choice.

Green motor cars

No one was fooled by the Chancellor's attempt to dress up tax cuts for motorists in "green" overalls during last week's pre-Budget Report, least of all the the motor industry. As a "green" measure, reducing the tax rate on ultra low sulphur fuels amounts to little more than fiddling while Rome burns.

Much, much more will have to be done, according to Jim O'Donnell, head of BMW UK, if the Government is serious about reducing emissions of carbon dioxide, the main greenhouse gas. At present, the internal combustion engine accounts for about a third of all such emissions. That proportion is growing strongly as more of the world's population becomes wealthy enough to take to the roads.

Attempts to regulate our way out of the problem through Kyoto like international agreements, if they have any effect at all, will never be adequate to the task of curtailing the human love affair with the motor car. Rather, the solution lies with technology, but for the technology to be applied requires government action.

BMW is aiming to have cost competitive hydrogen driven versions of its various models, with no compromise on performance, ready for mass production within five years. Other manufacturers predict even earlier and Ford is pretty much betting the farm on the death of the internal combustion engine within a decade.

Fantasy perhaps, but then so was much of today's internet ten years ago. There are none the less formidable barriers to overcome. For hydrogen cell technology to take off requires a seismic shift not just for the motor industry, but for oil producers and distributors too. In attempting to facilitate and hasten this change, governments face some powerful vested interests, not least their own, since in most cases fuel duties are a very considerable proportion of all tax receipts.

To give this technology a chance at the speed required to do something serious about greenhouse emissions requires big tax breaks, at least for a period. No one is going to invest in the necessary hydrogen distribution infrastructure without a very considerable tax differential with existing fossil fuels, least of all the big oil companies, who will be slitting their own throats anyway by doing so.

Furthermore, these tax breaks would have to be guaranteed for a number of years if business and public confidence in the new technologies is to be properly underwritten. For most purposes, all these issues may still lie in the future. The safety implications of serving up liquid hydrogen on the forecourts is another such imponderable. But the future is usually with us sooner than we think and governments need to start addressing it now.

As for the long term investment implications, sell oil and buy anything to do with hydrogen cell technology seems to be about the sum of it.

Exchange of views

It is hard to believe the talks between Abbey National and Bank of Scotland can be going anywhere. Last night's joint statement has to be one of the most frosty such missives written in many a long year. There was, apparently, "an exchange of views" at a meeting between the two yesterday and neither party has "anything to add at present". Presumably it wasn't intended to be read that way, but the usual meaning of "an exchange of views" is the full and frank variety, i.e. both parties gave the other a piece of their mind. The door has been left ajar with agreement to consider "further exchanges", but from the outside it doesn't look good.

The personalities involved in yesterday's meeting tell their own story. The exchange of views was restricted to the chairman and deputy chairman of Abbey National, and their opposite numbers at the Bank of Scotland, the Governor and deputy governor.

The two chief executives, Ian Harley and Peter Burt were excluded, presumably on the grounds the exchange would indeed have become full and frank had they been there. Mr Burt and his executive team wouldn't work for Mr Harley, and Mr Harley is equally determined not to give way to Mr Burt in any get together or takeover.

As ever with banking mergers, personalities and egos seem to be a major sticking point. Furthermore, the combination as proposed looks suspiciously defensive in nature. In both cases, it is possible to imagine more value enhancing takeover partners, the competition authorities allowing of course. The exchange of views is seen to have put both banks in play, even if they can't agree terms, and no one in the City is going to complain about that.

* outlook@independent.co.uk

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