Last week George Osborne’s Budget included a number of announcements relating to the energy industry which had not been anticipated. Most notable was a fuel duty cut paid for by a tax on North Sea oil and gas production.
Today the independent think tank Reform held a lunch with Ariel Cohen, an international energy security expert from the Heritage Foundation, on the topic of global energy security. What we learnt was that there is considerable instability in global oil and gas markets, especially in the Middle East and Russia.
Regime change in the Middle East is likely to mean even more uncertainty going forward. The events at the Fukushima plant in Japan will cause the world to reflect on nuclear energy, although the sentiment at our lunch was that much of what is happening at the moment is short-termist reaction and the long-term future for nuclear will not be negatively affected in most developed countries.
Whilst some attendees suggested that the solution to these global challenges was to do more to increase renewable energy production at home, it was pointed out that the UK is already doing a great deal in this area, at a cost of around £5 billion since 2002. One estimate was that reaching the target of 25 per cent of electricity coming from renewable sources by 2030 could cost a total of £100 billion.
A number of guests who agreed about the levels of instability in global markets suggested that the sensible response was to spread risk, across different parts of the world and across different energy sectors.
At the lunch it was agreed that the most important thing the Government could do is to create a stable operating framework. On this, last week’s Budget did not deliver. Despite this Government promising that it would have much more consultation around tax and regulatory changes, the increased tax on North Sea production took the industry by surprise. Just as concerning is the inconsistency of the policies, with moves to reduce costs for motorists sitting strangely at odds with the Government’s commitment to climate change policy and a green technology revolution.