x Abu Dhabi, UAEFriday 28 July 2017

A lack of ideas drains UK parties' election power

Only active government can shape markets to prioritise green growth and job creation. So says the Labour Party's UK election manifesto. That is perhaps not so surprising for the heirs to former prime ministers Clement Attlee and Harold Wilson.

Only active government can shape markets to prioritise green growth and job creation. So says the Labour Party's UK election manifesto. That is perhaps not so surprising for the heirs to former prime ministers Clement Attlee and Harold Wilson. What is more striking is that the Conservatives, the party of the arch-free marketer Margaret Thatcher, agree. And the Liberal Democrats, a third-party force in British politics for the first time in 80 years, see an even bigger role for the state in energy and environmental policy.

The election matters, of course, to the large British population of the UAE. But its significance goes beyond that. The UK is the world's fifth-largest gas market and eighth-largest emitter of carbon dioxide. It is still a large, if diminished, oil and gas producer, with world-class renewable energy resources through wind, waves and tides. It hosts leading oil companies, such as BP, BG and (Anglo-Dutch) Shell.

Most important, the UK has often led global trends in its approach to markets. John Maynard Keynes set the tone in the Great Depression with his prescription of government involvement, the reigning orthodoxy in Europe and the US during 30 years of post-war prosperity. The 1980s Thatcher government led the free-market fight-back, with deregulation, privatisation of state-owned dinosaurs and often brutal conflicts with trade unions and government employees. The UK was one of the pioneers of the liberalised energy markets of the 1990s, a path now followed rather cautiously by the rest of the EU.

This approach has delivered some successes. Markets worked, despite the sometimes contradictory and shifting winds of government policy. When the UK became a net gas importer, I worked on a new pipeline: we invested because customer demand made it profitable. Electricity in the UK is still cheaper than in western Europe (except in nuclear-dominated France). So, in the 2000s, despite the shocks of China's emergence, the war in Iraq and other geopolitical upsets, plus steep declines in the UK's own oil and gas output, there was no energy crisis. Because deregulation failed in banking does not mean that it failed in energy.

Contrast this with the statist 1970s. The two oil shocks of that decade led to queues at petrol stations, energy rationing under the "Three-Day Week", and "stagflation" - the unfortunate malady of high inflation combined with low growth. The UK is one of the few major countries meeting its Kyoto commitments to reduce greenhouse gas emissions. Though this happened mainly due to the phase-out of coal power in favour of gas, hitting targets by accident is better than trying but failing. Finally, renewable energy seems to be taking off.

All the stranger, then, that the three main parties now seem to concur that free markets cannot deliver clean and secure energy. The manifestos, indeed, are more remarkable for their similarities than their differences. All want the state to fund environmental projects - the Conservatives and Labour even use the same name, a "Green Investment Bank". All propose some kind of state-run planning commission. And all want to create "green jobs" - the Conservatives "thousands", the Liberals 100,000 and Labour 400,000.

The idea that the government can pick winning technologies and create jobs in specific sectors has been discredited in the past. After all, every green job has to be paid for by taxes on some other job. And the Conservative policy of oil taxation bizarrely harks back to 1970s price controls. Eliminating the role of price as a way of signalling scarcity ensures more volatility, not less. Still stranger, legitimate roles for government are hardly discussed.

The UK should encourage a united approach to diversifying European gas supplies, dissuading Germany from cutting side-deals with the Kremlin. Yet the Liberals mention Russia only tangentially, and the other two manifestos not at all. There are some sensible tweaks to existing policies, such as taxing plane flights rather than passengers, revenue-neutral green taxes, a floor on carbon prices, and promoting energy efficiency and rail travel.

Yet despite the apparent consensus, the parties' political instincts are very different. MPs for the Conservatives, home of environmental sceptics, ranked climate change as their lowest priority. The former Tory environment minister John Gummer labelled Kensington and Chelsea "the most reactionary borough on the planet" for not offering free parking for electric cars. The Liberals, by contrast, are the most activist, with a challenging, indeed all but infeasible, target of 40 per cent renewable electricity by 2020.

One real difference is their categorical opposition to new nuclear plants, despite the need for large-scale, low-carbon power ahead of a possible electricity shortage in the 2020s. Labour can be judged on its record: 13 years in government have delivered modest environmental progress and energy markets that have functioned acceptably under tough conditions, while some key decisions - for instance, new nuclear power, and carbon capture - have been stalled.

Tackling climate change is clearly one area where government has to make markets pay for environmental damage. Since all the parties are advocating greater control of energy, there may be a case to be made for more state involvement. But none of them have argued that coherently. As the late Mr Keynes said: "Ideas shape the course of history." But no vision has yet emerged for energy in a globalised world facing global problems: we have, in these manifestos, policies but not ideas.

Robin M Mills is a Dubai-based energy economist and author of The Myth of the Oil Crisis