Electricity Market Reform

The UK Department for Energy and Climate Change (DECC) has issued its long awaited White Paper on Electricity Market Reform (EMR). 

The White Paper has four main parts:

• Feed-in Tariff with Contract for Difference - this is the renewable support mechanism to replace the Renewable Obligation (RO).
• Capacity Mechanism -  this is designed to protect security of supply. Seeks to incentivise generators to be available, but not to necessarily generate. The policy is developing and the White Paper includes further consultation on the mechanism.
• Carbon Floor Price - the policy on this aspect has been developed separately by the Treasury and announced in the Budget.
• Emissions Performance Standard (EPS) - this introduces a limit to the level of emissions, seeking to discourage carbon intensive generation.

Billed as radical it falls somewhat short of that description. In essence it tinkers with the discredited market mechanisms and does nothing to address rising prices and fuel poverty. The Government estimates that the reforms are likely to add £160 to the average annual energy bill by 2030.Norrie Kerr, Director of Energy Action Scotland sums up the fuel poverty issue:



“UK Government plans announced today on energy market reforms will undoubtedly have the effect in the short to medium term of increasing domestic fuel bills, possibly by around £160. This is an easy move by the government as it shifts the onus for the cost of reforms onto the shoulders of the energy companies. Moreover, it is a regressive step as payments to cover the costs will take the form of blanket levies on customers’ bills and will not be based on either ability to pay or level of usage. A fairer way to pay for reforms would be through general taxation.”


And it is not the end of the price rise story. The UK Climate Change Committee estimates that bills in 2020 may rise about 25%. The regulator Ofgem has a wide range of figures, largely dependent on the price of gas, stretching from 14% to 52%.



It is certainly the case that the transition to lower carbon generation will be costly under the current market structures. Renewables may be desirable - but they cost more and still require a balanced mix of generation sources. We can disregard the Scottish Government's fantasy energy policy here. 

But this is not supportable unless we address fuel poverty. Nearly 25% of the population are now struggling to pay energy bills and that is simply unsustainable. There is little in the White Paper regarding energy efficiency. The cheapest unit of energy is the one not produced in the first place by virtue of being energy efficient.

The so called market mechanisms are simply expensive games playing by the power companies and National Grid. We should reform this system and develop a credible plan for fuel poverty. Now that would be truly radical.

General Well Being

There is a growing interest in looking at alternatives to Gross Domestic Product as the sole measurement of a country's performance. The term "gross national happiness" was coined in 1972 in the small Himalayan kingdom of Bhutan by the former King Jigme Singye Wangchuck. At first offered as a casual, offhand remark, the concept was taken seriously, as the Centre for Bhutan Studies with some assistance from Canada, developed a sophisticated survey instrument to measure the population's general level of well-being.

Even the Prime Minister supports the concept. In 2006, just five months into his time as Conservative Party leader, he described the task of gauging people's wellbeing as one of the "central political issues of our time". In government, the Office of National Statistics has been asked to produce measures to implement his "long-stated ambition of gauging general wellbeing." There is apparently some 'nervousness' in Downing Street on this issue. Not surprisingly as reflected in the Daily Record comment; "It sounds crazy - especially coming from a Tory Government whose economic policies spell misery for millions of people." Indeed! But the ONS started to collect the data last April.


In France, Nicolas Sarkozy, announced that he intended to include happiness and wellbeing in France's measurement of economic progress. He was accepting recommendations made by two Nobel economists, Joseph Stiglitz and Amartya Sen, who called on world leaders to move away from a purely economic concept of gross domestic product, which measures economic production, to wellbeing and sustainability.

Canada already does some polling on wellbeing and John Helliwell from their statistics office has been to the UK to advise when he commented;  "Canadian statisticians and researchers also poll subjective wellbeing across the country, but the data have thus far not attracted much policy attention. What is or could be dramatically different in the UK is for the government not just to undertake more widespread and thorough collection of subjective wellbeing data, but also to give them a central place in the choice and evaluation of public policies. That would be a global first."

Stiglitz is of course an economic advisor to the Scottish Government. I also understand that the Scottish Parliament, Economy, Energy and Tourism Committee may be asked to look at this issue. Patrick Harvie MSP is on record as a keen supporter of this approach. 

Still not convinced? Well none other than the OECD is championing the cause and has a major piece of work underway called the Better Life Initiative. The OECD is probably better known for its rather dry treatment of economic data so their eleven dimensions; housing, income, jobs, community, education, environment, governance, health, life satisfaction, safety and work-life balance is very interesting. Britain comes out fairly middling on the current assessment with 68% of Britons satisfied with their life against an OECD average of 59%. However, since the 1970's, evidence suggests that we are no happier despite increasing material wealth and improving health. 

The summer edition of The Geographer, newsletter of the Royal Scottish Geographical Society has a number of articles on this issue and good overview from their Chief Executive,Mike Robinson. He highlights the Spirit Level analysis and the work of Eric Weiner in his book Geography of Bliss. Weiner compared the happiest and most miserable countries and concluded that "Money matters, but less than we think and not in the way that we think. Family is important. So are friends. Envy is toxic. So is excessive thinking. Beaches are optional. Trust is not. Neither is gratitude."

If you want to take some practical actions then support  Action for Happiness. This is a movement of people committed to building a happier society. They want to see a fundamentally different way of life where people care less about what they can get for themselves and more about the happiness of others. They emphasise this has positive outcomes for everyone. It's not just a 'good' thing to do.

The final word from my fellow Liverpudlian John Lennon, quoted by Mike Robinson in his article:
"When I went to school, they asked me what I wanted to be when I grew up. I wrote down 'happy'. They told me I didn't understand the assignment, and I told them they didn't understand life."

Middle income levels

An article by Chris Giles in the Financial times this week  'Spectre of stagnating incomes stalks globe' deserves a wider audience.

His key point is that most citizens across the globe are suffering from, at best, stagnating incomes;

"Fork-lift truck drivers in Britain could expect to earn £19,068 in 2010, about 5 per cent lower than in 1978, after adjusting for inflation. Median male real US earnings have not risen since 1975. Average real Japanese household incomes after taxation fell in the decade to mid-2000s. And those in Germany have been falling in the past 10 years."
 
This was to a degree masked by the property boom that allowed the middle classes to borrow. However, most countries have shown an increase in per capita income. So where has the money gone? Answer, to the very rich. It started in the USA and has now spread to Europe even allowing for progressive taxation and benefits;
 
"The Organisation for Economic Co-operation and Development found increasing income inequality between the mid 1980s and late 2000s in 17 out of 22 advanced economies for which it had sufficient data."
 
Exacerbating this trend has been a decline in demand for mid-range jobs.
 
"Across advanced economies, the labour market is becoming polarised into “lovely jobs and lousy jobs”, says Alan Manning, a professor at the Centre for Economic Performance at the London School of Economics. Between 1993 and 2006, the proportion of jobs with middling pay fell, while high- and low-paid employment rose."

The revolution in communication technology has allowed graduates with these skills to expand sales and the financial sector to gamble with other peoples money. At the bottom of the income scale technology is largely irrelevant to jobs like cleaning and caring. Routine but middle skilled jobs are being squeezed.

Giles concludes:

"It is no fun to be a fork-lift truck driver in a world of automated distribution warehouses. That shows in middling jobs and wages. And since the middle decides elections, it will also weigh on the minds of politicians."
 
Very useful article that flags up an issue that has been given insufficient attention. To this I would add that organisations in the public and private sector  are reorganising many traditional middle skill jobs out of existence. So it is not only wages, but real jobs that are on the line. This has implications not only for the workplace, but for wider society as well.