Prices create clarity, d’ye see?

Back in those archaic times that we actually took note of Bill Nordhaus and Nick Stern in our discussions about climate change they were united upon a major point. We have to use prices in order to make our decisions. We have to use prices to make others make decisions too. We can do this through a carbon tax and markets or through cap and trade and markets but prices do have to be the thing. Because only through prices can we actually see - clearly and obviously - what actually is the least expensive method of dealing with the problem.

As an exercise in wishful thinking, Ed Miliband’s response to a new report on his plans to decarbonise the electricity grid within five years would take some beating. He commissioned a body called the National Energy System Operator (Neso) to examine the feasibility of his plans amid widespread scepticism in the industry that it was remotely achievable.

Neso said this accelerated timetable (it was originally planned for 2035) could technically be met but would require a Herculean effort on every front. Nearly 620 miles of new power lines would have to be built at a time when demands for other construction projects were being expanded amid a desperate shortage of workers.

In addition, millions more people would have to be persuaded to turn off their power at night to conserve energy. Most ministers would consider this analysis and conclude that the 2030 target is far too ambitious, even reckless.

Not Mr Miliband. He greeted the report as a “rebuke to those who said it couldn’t be done”. But it hasn’t been done. Mr Miliband is suffering from the zealot’s delusion that simply wishing something would happen will make it so.

It’s not just that. We have no evidence - really, none at all - that Ed’s plans are going to be less expensive than other methods of dealing with the same problem. We have assurances, yes, but that’s all we have. We have our doubts for, fairly obviously, lowering energy prices by using more expensive forms of energy generation seems unlikely.

But say that this will indeed be true. Where, actually, is that proof of the numbers? Once we’ve added in the new grid, the batteries and all the rest?

Which is why the economists were so insistent that we should not have Heath Robinson constructions planned by central bureaucracy but instead must have a system with the clarity of prices. So we know. #

And, yes, this is important. For, as they also note, humans do more of less expensive things and less of more. So, if we decide to deal with climate change in an expensive manner then we’ll do less dealing with climate change. Which doesn’t strike as sensible TBH.

Tim Worstall