The Treasury sides with the consumer over climate policy

Tim Yeo is now posing as a friend of the consumer. Launching the latest report from the Energy and Climate Change Committee this morning, he attacked the Treasury for ‘refusing to back new contracts to deliver investment in nuclear, wind, wave and carbon capture and storage’. The report argues that could ‘impose unnecessary costs on consumers’.

The basic logic of his claim is this: investments are more expensive when they are riskier. Investors expect to be compensated for the risks being taken with their money. If the Government offers guarantees that reduce the amount of risk energy companies run by investing in expensive sources of energy like offshore wind, then those firms can invest at a lower cost. They can then pass those lower costs on to their customers.

It isn’t quite that easy though. The price of conventional energy may not be as high as the Government thinks it will, particularly with a seemingly bottomless well of shale gas out there.