Whenever an economist or someone who seeks to make themselves out as being a go-ahead free market type wants to declare their interest in saving the planet from climate change, you can bet your life it will largely involve a call for hefty increases in carbon taxes. And now people are saying that is what we need to get heat pumps installed in the UK. That includes a lot of people who should know better, judging by evidence to the House of Commons' Environmental Audit Committee recently.
But they are barking up the wrong tree. Sure, price rises affect energy behaviour, of course, but can economists point to any big green technological changes that have largely been promoted by energy tax increases? Advances in wind power, solar pv, energy efficiency in buildings, efficiency in lighting appliances etc have all been achieved almost entirely through carefully targeted regulations and incentives.
The same will be true for heat pumps; especially for heat pumps! Heat pumps are partly stymied in the UK because they are manacled by certification and building regulations that were drawn up for gas heating. See more on this at 100percentrenewableuk.org/blog. Heat pumps are very successful on the continent for two reasons, only one of which is the fact that prices for domestic gas supplies are much higher relative to electricity on the continent, making heat pumps much more cost-effective.
The other factor is that building and certification regulations allow them to be built for the market, that is they do not have to be built as big for a given house as UK regulations insist, and they can be run without 'zoning' which, again allows them to operate much more efficiently. An especially terrible example of the disinformation and confusion spread by the big energy companies is described in one of the more useful type of consultancies, that is something commissioned by environmental groups. on the amount of self-serving nonsense spread by the gas industry trying to inflate the case for hydrogen.
But let us get back to the price argument. If you want to make the technology more cost-effective in terms of price, then do not go down the path of trying to impose large increases in gas prices through a carbon tax or something similar. That will produce massive political resistance in the case of the highly sensitive domestic heating market. Instead have incentives that work properly - like a mixture of the renewables heat incentive and installation grants together. New build housing and housing in areas not connected to the grid are good markets to establish a British heat pump industry initially. The Energy Saving Trust says as much anyway.
Of course we have to source the money for the incentives from somewhere - and here levies on energy consumption for specified purposes can usually be politically acceptable. On the other hand we should resist the pressures from the big energy companies for self-serving subsidies that are added to the costs of electricity. The roll-out of so-called smart meters is a case in point which is paid for by a levy on electricity consumers. Most of these have been given to companies who do not offer smart tariffs, yet the scheme is costing energy consumers large quantities of money just to save the companies themselves some meter reading costs.
Then there are the subsidies for Hinkley C and then Sizewell C which will be levied just at the time when the levies used to prime-pump the renewable industries are falling. Yes, keep electricity costs down by sourcing electricity from renewable energy, not nuclear power or carbon capture and storage.
A lot of the problem results from the confusion spread by economists who are hired by the big energy companies. They know their free market theory and equations about supply and demand, and they know what the companies who commissioned them want them to say. But in fact they know little about the institutions - the regulations and the industrial practices - that act as barriers to, and ways of framing, real life markets.
