If Britain wants to cut energy bills it must get tough with the United States

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Heaven help the planet, because dealing with climate change is going to cost something (although a lot less than not dealing with it). The politics is getting more difficult, judging by the promises of Ed Miliband and David Cameron. They evidently think that voters are in no mood to pay even a modest insurance premium to stop what the latest Intergovernmental Panel on Climate Change report says is a 95% certainty that human activity is destroying our habitat.

The latest round of populism on energy prices began last October, when the prime minister said the government would legislate to put consumers on to the cheapest deal. Miliband joined in last week, with a call for a price freeze. The Tory right riposted with demands to cut support for low carbon generation, currently a small part of the total.

Energy comes with painfully large bills of typically £1,200 a year, probably the biggest bill after the rent or mortgage. Never mind the inconvenient fact that we have lower electricity and gas prices than most western European countries, and that the biggest impact on household bills is world gas prices – going up as Asia booms and Japan, Germany, and Italy abandon nuclear power. The polling shows energy prices hurt.

Both Miliband’s and Cameron’s proposals risk being counter-productive, which is why the government swiftly ditched the prime minister’s. Shopping around may be frustrating, but it is safer than telling companies to put people on to the lowest bill, which would mean they would only charge one tariff.

Miliband’s price freeze from the election until 2017 would have two effects: bigger price hikes between now and the election, and bigger catch-up price rises when the freeze comes off. Price controls do not work. In electricity, price caps were one of the toxic components that caused California blackouts in 2000 and 2001. Sharp rises in wholesale prices, combined with caps on retail prices, would simply cause companies to turn off the lights. Why sell at a loss?

via If Britain wants to cut energy bills it must get tough with the United States | Chris Huhne | Comment is free | The Guardian.

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