Dreams versus reality

16th Sep 2019

 

I’m a great fan of the TV series “Father Ted” and one of the memorable sketches is where Father Ted has to explain to his sidekick Dougal, the difference between dreams and reality. Most weeks I get to read a policy proposal, usually from someone with a vested interest, and I smile thinking to myself “dreams or reality”, recognising that the author hasn’t set this test for their suggestion. I had the pleasure of reading one such proposal this week.

OK, I’m biased, I do believe that low carbon gas is the way to decarbonise heating and hot water. Not exclusively, there will be other options available that play their role, but for the vast majority currently on the gas grid low carbon gas is the fuel of their future.

To try and wrestle some of that market away, proposals get dreamt up. They sound good on paper but tested against reality, well, let’s just say they leave a little to be desired.

If I take, for example, the idea of adding a carbon tax to heat and hot water. To an economist, believing in the efficacy of the market and applying the laws of demand and supply, yes, a per-unit tax on consumption of a product will reduce demand of that product. But, what if the market is not perfect? What if inequalities exist that distort the impact? What if the market solution delivers a social cost (externality) that has an impact?

So you make heat more expensive (by this the author really means gas). It means consumers will use less, and have colder homes, or reduce consumption of something else to continue to maintain the same level of comfort. The only way this approach works to make households switch their heating systems is to make the carbon tax something onerous to pay. When this happens, those that suffer the most will be the least well-off, unable to switch for financial or other reasons. Despite best endeavors, trying to compensate in some other way is never a 100 per cent perfect solution. With fuel poverty already at 4.5 million households across the UK; stubbornly refusing to fall, suggesting the cost of gas is increased by a substantial amount Government falls into Dougal territory. The authors of this plan need to ask themselves whether they think politicians are really going to do this just to allow companies to sell their products. Dreams versus reality.

Best wishes

Mike Foster, CEO