Adrian Hamilton: Don't confuse energy policy with climate change

In pure energy terms, the future of nuclear power is questionable. The huge costs might be better spent
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The Independent Online

"Which is the issue that has rocketed up the agenda of most political leaders in a way barely foreseen even three years back?" Tony Blair asked in his speech to Georgetown University last weekend, before giving the emphatic answer: "Energy policy."

Well, it may be that it rocketed up Blair's agenda, or even Bush's. But to imply, as the British Prime Minister did, that the energy problem came out of the blue is just plain ignorant. As ignorant indeed as his Chancellor, Gordon Brown's, hopelessly ill-informed effort to blame it all on Opec production controls at last year's TUC conference.

There is absolutely no reason why policy makers shouldn't have been fully aware of the potential supply problems building up in energy far earlier than three years ago. For a decade or more, oil experts have been warning of a growing strain on available supplies of oil and gas given the take-off in Chinese demand. Not a few of them were also voicing worries that even Saudi Arabia no longer had the spare capacity and reserves to keep up with the pace of consumption.

The fact that Britain chose to produce its North Sea reserves flat out during the period of lowest prices and now finds itself with declining output just as the market is tightening and prices rocketing is entirely the responsibility of policy-makers and a greedy Chancellor who preferred to milk the cash cow than consider the consequences.

If US policy-makers had encouraged more refining capacity, if the international community had not imposed such a negative and self-defeating policy of sanctions on Iraq during Saddam's regime, and then had managed the post-invasion reconstruction better, then we might not have faced the squeeze that we're currently enduring.

We all know why Blair has chosen to make energy a prime example of his new philosophy of global challenge, of course. It's something that can be used to build up a a picture of global challenges in which terror and Iraq can be conveniently elided. But context is everything in policy-making, particularly where fundamental economic and resource issues are concerned.

The point about the current energy situation - for that is what it is, rather than a crisis as this stage - is that it hasn't come upon us as something entirely new. In most ways, it follows the same pattern as the previous "crises" in 1973/4 and 1978/9.

Then as now, the rise in demand was pointing to a pressure on supply that was unsustainable over the longer term. Then as now the major consumers had become perilously dependent for the increase in output on a few Middle East countries whose interests did not necessarily lie in pouring out oil in ever-increasing amounts. And just as the Club of Rome declared the 1973 energy crisis as proof of a deeper problem of the limit on the world's natural resources of unrestrained growth, so now energy is used as the central feature of wider concerns about climate change.

It is important, however, to separate out these issues. In purely energy terms, the great lesson of 1973 was to let price do its work in reducing demand and decoupling economic growth from fuel use. In real terms the world allowed price falls to emasculate that. Now that the price is going up again, then we have some hope of demand being curbed, even in the major developing countries, so long as a collapse in the dollar does not obviate the effect.

For governments, the primary responsibility must be not so much to intervene directly on demand as to ensure security of supply by diversifying sources and increasing emergency stocks. International actions on stocks did much to reduce the effect of the fall of the Shah of Iran in 1978. Now the same must be done for gas, with urgent and perhaps state assisted investment in liquified natural gas facilities together with a Europe-wide agreement on gas sharing similar to that introduced for oil after 1973.

Diversity of supply is more difficult because of the problems of over-reliance on a small number of countries for increased output and the rigidity of pipeline networks for gas and new oil sources. Again the lesson of 1973 was that you can't expect producers not to use their new-found strength to maximum advantage. It is as idle to demand that Russia sustain cheap gas prices and traditional customer relations as it was to expect Opec to show undue constraint in the 1970s.

Where does nuclear fit into this picture? In pure energy terms its future is questionable. Against its advantages as a secure source of supply are the high capital costs, pollution risks and the huge price of waste disposal. Could the same money be better spent on other energy sources and reducing demand?

Its contribution to preventing climate change is a different matter. Here you are talking of government action to override the market for reasons of urgency and special emission factors. And this must be weighed against the alternatives, including intervention on demand, which the Government might undertake. What you should not responsibly do is to act as the Prime Minister, egged on by his chief scientific adviser, David King, and pre-empt the debate with the unproven assertion that nuclear is the only answer to both climate change and energy shortage. It may be the best alternative available, but that has still to be established, and there is time to do it.

Tony Blair is right. Energy policy is a priority. But there's nothing new about the questions it raises - nor their solutions.