Michael McCarthy: Three solutions in one to a string of problems the free market could not deal with

There are lots of things the market will do for you, like lowering consumer prices or making companies lean, mean and keen, but one thing no one pretends the market will do is give you a clean planet.

Just over two decades ago the Thatcher Government abolished the long-standing state control of the energy supply system, typified by Walter Marshall's Central Electricity Generating Board, and turned the whole power network over to market forces.

Electricity privatisation was a solidly dogma-led move, following other Tory privatisations, from British Airways to British Telecom, and you can argue about whether or not it was a commercial success, and provided real benefits for anyone other than senior managers.

But there can be no argument that the Thatcherite free-market model for electricity has now come up against a problem it cannot deal with, and that is climate change.

In fact, it is three problems in one, for the solution to global warming is also the potential solution to the issues of security of energy supply, and of rising consumer prices: low-carbon power.

Low-carbon energy, which can come from nuclear generation, or from renewable technologies, such as offshore wind, does not produce, as fossil fuels do, the carbon dioxide waste gases causing the planet to warm; but if we install lots of it, we do not have to rely on foreign energy supplies, and the more we have, the more we are insulated from international price hikes in oil, gas and coal.

The difficulty with low-carbon electricity is that atomic power stations and offshore wind farms cost a fortune to build, and without a guaranteed long-term rate of return, which the market cannot provide, utility companies are reluctant to build them in number.

So yesterday we had a Tory-led Government turning its back on the market dogma it once espoused and bringing an element of central planning back into the energy supply system.

Not be quite Stalinism, perhaps; but offering utilities long-term fixed-price contracts to put up power stations does show just how great are the market's limitations in dealing in dealing with climate change – which the economist Nicholas Stern famously referred to as "the greatest market failure in history".

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