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Food for thought; responses invited:

HERE'S THE COST ... AND HERE'S HOW TO PAY FOR IT

Frank Taylor

George Monbiot's article Here's the Plan (reprinted in Sustainable Economics; November 2006) may be a little too prescriptive on the precise methods and technologies to be used to solve global warming (for example, why buses and not a 'reverse Beeching' plan for railways; why complete bans on certain goods and not swingeing sumptuary taxes?), but its sense of urgency and direction is undeniable. To

solve this problem we have to place a sector of our economy on a virtual war footing. In war we have a situation where problems must be overcome completely and quickly or else suffer defeat. Today we are confronted by a similar imperative.

He is also right to be wary of the Emissions Trading Scheme. We are wasting time, fiddling whilst the planet bums, in dreaming up fancy ideas for concocting an entirely fabricated and synthetic 'market' in carbon. It is unlikely that this war will be won by presenting a small number of people with the opportunity to become multi millionaires. Especially as the big boys will be up to their usual game of rigging the rules in their favour. More and more the Emissions Trading Scheme is looking like a game of Monopoly except that the big players decide their own starting points. But we must also be wary of the whole bureaucratic panoply of caps and quotas, rations and credits. Again we might well create hostages to fortune in allowing powerful players to rig the rules in their favour.

What it all boils down to is far simpler. More so when stated in cold, loud figures. Fancy schemes for carbon trading or not, quotas or caps or whatever, cut it anyway you please and it will always get down to the actual money invested over a period of time. Wars do not and cannot wait for some kind soul to be graciously pleased to turn up with the money. You roll your sleeves up and get on with it.

There are different ways of expressing the energy consumption of a country, as an oil or coal equivalent or as an equivalent in installed megawatt capacity or gigawatt hours. I will use the last. Britain's current energy needs stand at slightly under 1million GwH. This means, if we assume that we are able to reduce consumption by 30% by 2030, we still need to be installing around 30,000 GwH of new green energy per annum.

The capital costs of achieving this resolve into two principle components. Firstly energy saving measures. The two greatest items here will be home insulation and public transport. Secondly there will be the cost of installing green energy itself Based on present day prices the approximate global figures will be as follows;

Insulating 20 million buildings to high standard, at 5000 per building 100 billion

Reinstating 5000 miles of closed railway at 5 million per mile 25 billion

60 urban mass transit systems at 250 million each 15 billion

50,000 buses at 400,000 each 20 billion

Development of IT technology for homeworking, videoconferencing, etc. 10 billion

Miscellaneous measures, e.g. freight and goods delivery systems, canals, cyclecways etc. 20 billion

If we say around 200 billion we would probably be in the correct general area.

With regard the green energy the sums, again at present day prices, are roughly as follows:

20 million 2 kW solar panels, at 4000 per KW 160 billion

20,000 wind turbines at 2 million each 40 billion

Tidal and wave energy (say) 50 billion

To which we can add smaller sums for biomass and minihydro schemes, and perhaps a figure for sequestered carbon, if that is needed as a stopgap to replace nuclear power, and if the technology works.

The basic sum is that to get Britain to 90% carbon reduction by 2030 is going to cost something of the order of half a trillion pounds, or somewhere between 20 and 25 billion per annum to the economy as a whole. A caveat in dealing with this figure is necessary since large scale production of home insulation, wind turbines and solar panels would probably lead to a reduction in price. But in dealing with such costs, unlike those who promote such glories as the Dome and the Olympic Games, it is always prudent to err on the side of caution.

How might this be paid for? Taxation will obviously play a role. If the playing field of aviation taxation were levelled we might raise between 7 and 10 billion per annum, which would not only cover the additional capital costs needed over current transport budgets but offer also a fair measure of operational subsidy.

Secondly the private sector, during this timescale, might be expected as matter of normal course to invest between 60-100 billion in energy plant. We might also expect private investment in other components such as public transport.

This paper will therefor assume a gross cost of 450 billion of which taxation and the private sector contribute 100 billion each. This leaves 250 billion to be funded by the government. Now this, too, could be funded out of taxation ... or the PSBR ... since it only represents an approximate addition of 2% to current national spending.

However what an opportunity for interest free money to flex its muscles! Suppose the Government were to issue 10 billion per annum of interest free money. This would purchase an asset in the shape of wind farms, solar panels, home insulation, etc., where the use of accrual accountancy would ensure depreciation at a real rate, and thus create no false deficits. But electrical generation also creates an income. For the sake of simple argument let us suppose that this return averages (the output from different green technologies would differ in practice) 4% per annum. Thus the net cost on the first year of the scheme is 10 billion; in year 2 9,600 billion; year 3 9,200 billion; year 4 8,800 billion ... and so forth until in the 25th the net cost is zero even though 10,000 billion is still being invested..

Over 25 years a gross sum of 250 billion would be invested, but with the inflationary layer of interest stripped out, the net cost over the period would be 130 billion. Moreover the taxpayer would be left with an asset which had an average depreciation of (say) 50%, but which was yielding an income of 10 billion per annum.

At the beginning of this paper I said that we have to put sections of our economy on a war footing. However the expense will be nothing like that of either World War where military expenditure engulfed around one fifth of our GDP. The fact is that this can not only be done, but done in a way which will invest the common weal with a substantial and valuable asset, create 'good' growth, and yet all that done without costing the taxpayer a brass tack.

Frank Taylor

February 2007

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