The Big Questions: Is fracking the answer to the UK’s energy needs? Has this ‘green government’ failed?

This week's big questions are answered by adviser to the government on the economics of climate change Nicholas Stern

Nicholas Stern
Friday 24 January 2014 19:46 GMT

How has this year’s Davos helped to tackle global inequality?

If the truth be told, inequality has not been extremely high on the list of topics here. I think it’s still concerned in large measure with trying to be comfortable that the world is recovering. I do think the way in which inequality of income has moved in many countries, including our own, is deeply worrying for the kind of society we want to live in. I wish it were higher up the agenda.

New climate change goals set out this week by the EU emphasise the need for economic growth and industrial competitiveness. What is your view of that?

What’s crucial is to give clear and stable signals on the sense of direction. And what has undermined investment in energy in Europe in the past few years has been instability of signals: governments chopping and changing. Investment in high hydrocarbon sectors looks over the medium term to be risky because policies will intensify against hydrocarbon. On the other hand, investing in low hydrocarbon, or carbon-free, forms of energy has been discouraged by instability of policy.

I hope that the agreement this week, which is a 40 per cent reduction [on 1990 levels] by 2030, is a key element in a more stable sense of direction. But it badly needs an integrated European energy market. Northern Europe is windy. Southern Europe is sunny. You don’t have to be a genius to work out that you might as well do the wind energy where it’s windy and the solar energy where it’s sunny!

Does the drop in UK unemployment prove that the economy is on the mend?

We’ve got to remember that it’s the slowest recovery on record. And one reason is that it was a much bigger shock than we’ve seen for many decades. Another reason is that there was excessive squeezing on the fiscal side. We haven’t yet recovered pre-slump output levels. If you think about what a stable economy looks like, we might well be 10 per cent below that. We should remark how much we’ve lost as a result of all this and ask ourselves whether that loss was necessary and whether the policies that were followed amplified that loss.

The second question is: what are those employed people doing? I suspect that an awful lot of people are scratching around at part-time, low-paid, low-productivity activities because they’re decent people who desperately want to earn something, but the opportunities are so weak.

Is Ukraine destined to unshackle itself from Russia and become fully European?

I used to be chief economist of the European Bank for Reconstruction and Development. That was a long time ago, but you can draw analogies with Poland, its immediate neighbour. They are solidifying institutional structures by integrating with Europe. I think most people in Poland would say that was a good thing and helped them with their gradual move out of the difficulties in the old command economy. And I think the same could be true of Ukraine. I would welcome a Ukraine that got closer to Europe.

Is fracking the answer to our energy needs?

No. That’s not a statement for or against fracking, but it’s ludicrous to suppose that it is the answer to our energy needs. Gas as a substitute for coal could make sense as a bridge and it could reduce carbon emissions, and we should consider doing that. But there is a world market for gas. The cost of British gas will be the world market price for gas because we could have exported that gas – it’s basic economics. If that price is high, somebody makes a profit. Profit is no bad thing – but it’s not the answer to an energy problem. Substituting gas for coal and renewables for nuclear – that’s an energy strategy for the UK. But where you get your gas from? That’s a separate question.

To what extent has the “greenest government ever” failed in its pledge?

There’s no simple answer. The positives first: we have the legislation which established the targets for the Climate Change Committee. It sets where we needed to go to fulfil our long-term targets and asks whether we’re getting there. That overall strategy has not been dismantled.

But you see threats. And those threats are worrying to investment. You see a fourth “carbon budget” that was agreed but subject to review. You have attacks from the Tory right (astonishingly ignorant and uninformed) and leaked statements (accurate or inaccurate) about “getting rid of green crap”. That kind of thing also undermines confidence.

Is Ed Miliband right that breaking up the Big Six will reduce energy bills?

I’m not convinced. Competition is important. You can have competition with six companies, but how does that competition work? Is it working well? But then you have to look very closely. I haven’t looked very closely. The answer may be different kinds of regulation.

Is £31bn too much to spend on a sporting event, as with the Sochi Winter Olympics?

It depends how much people gain from such an event. I happen to be an intense sports fan and a fan of AFC Wimbledon, which is the most inspiring and romantic sports story this century. We showed what community meant and what real sports fans are like. On the Olympics I think it’s a matter of what it brings to people. You have to answer the question of how much that £31bn is there just for flag-waving. Are these kind of sporting of events valuable? Yes they are. But is Sochi going to be great value for £31bn? I don’t know.

Lord Professor Stern was adviser to the government on the economics of climate change and development from 2005-2007, and head of the Stern Review

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