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Valuing The Environment Is The Only Sensible Energy Strategy 02/08/2004

Is wind farming over the hill? The small amount of electricity is in contrast to the volume of hot air generated. At a recent debate in Edinburgh, four anti-wind commentators put a powerful case against the government’s subsidy of this kind of renewable energy. Unfortunately, representatives of the Scottish Renewables Forum failed to turn up to put the case for wind. Two brave businessmen had to stand forth in their place to ensure a more balanced debate. Meanwhile, the Conservative Party has put forward ideas to give local residents a greater say in whether windmills should go up.

Anyone after a simple explanation of the facts involved should look no further than David Simpson’s excellent new pamphlet, ‘Tilting At Windmills’, published by the David Hume Institute. The central point that Simpson makes is that we do not value the environmental costs of different types of power generation. As a result, we do not know their full costs, nor the full benefits of energy saving. So we end up imposing one type of generation over another as a result of emotive political arguments.

Each type of power generation has different environmental costs. The real driver behind this debate is of course that fossil fuels release gases into the atmosphere, supposedly changing the climate. However, nuclear has the potential of radiological leakage, while windmills can blight the visual environment.

We understand the capital and maintenance costs of power generation. But we rely on utterly inadequate methods for assessing environmental costs, and this is where the confusion comes in.

Take the environmental costs of burning fossil fuels. These were effectively determined in Kyoto through a process of political compromise. As a result they are no better than a stab in the dark. They require our government to apply arbitrary penalties on fossil fuel users of £1 billion a year to encourage ‘renewables’.

How can we do better? Simpson suggests auctioning tradable carbon emission allowances to fossil fuel generators. This would encourage efficiency savings and technological improvements because generators could sell part of their allowance to rivals if they could reduce their own emissions. A market price for such pollution would be established.

However, these would still operate within a politically defined total. The trouble is that there is no scientific consensus as to the extent, cost or even cause of global warming. The politicians therefore have little to go on except the pressure of environmental lobby groups.

It might be better to make this analysis more independent of politicians. A commission could review the available evidence on a regular basis and recommend a value for the allowances to be auctioned. Further, the money raised should not go into government coffers. Instead, it could be paid into a fund which could be used to mitigate the damage caused by climate change when this became apparent – or returned to generators if the damage proved illusory.

It is easier to work out the potential environmental costs of nuclear power. One way to cope with hazards of this kind is by using insurance. Premiums would reflect the likelihood and cost of radiological pollution. They would fall as technology made plant, waste management and decommissioning safer.

The hardest kind of pollution to price is visual. What is the value of a beautiful view? Who should be compensated if it is affected by windmills? Currently, such judgements are made using the planning process. This is a crude mechanism. Decisions are made by civil servants or politicians elected on a broad platform every four years at best. Either the developer or the residents loose all from the decision, and both are frustrated by the delays, with their bitter lobbying campaigns.

Instead, as Simpson says, we must find a way of establishing tradable visual property rights. Wind farm developers would offer affected residents compensation for the impairment of their view. These would vary according to the beauty of the location and the nature of the residents (some say the young and the poor do not mind windmills as much as the old and the middle-class!).

It might seem difficult to establish such a market in beauty. But Simpson mentions a couple of studies which have looked at this in detail. Moreover, the government’s crude subsidies have shown that a market might work well for developers – landowners or crofters who are paid to host windmills often accept the impact on their views. A proper market in scenic beauty would spread this compensation to all the affected, allowing us to find its true environmental value.

Finding ways to price environmental impact, as well as generating costs, is the only way to judge correctly which sources of energy we should invest in. As ever, a political grand strategy is no substitute for the market.

'Tilting at Windmills’ is available on www.davidhumeinstitute.com
21 - 23 hill street, Edinburgh, EH2 3JP Tel: 0131 226 8157