Spain's experience is even worse. In a May 2010 document, the country's Ministry for Industry showed that businesses were paying 17 per cent more for electricity than their European competitors, largely as a result of subsidies to renewables, which were €5bn in 2009. It also noted that whereas prices should have fallen due to cheap fuels, they actually rose because of environmental policies.
Moreover, because Spanish energy companies do not recover the full cost of renewable generation from consumers, but accumulate government debt instead, one company alone, Endesa, was owed €8.3bn by the state at the end of September 2010. The total "tariff deficit", as it is called, amounted to around €16.5bn in 2010, and according to the ministry, will increase by a further €2bn in 2011 in spite of efforts to rein in subsidies. Whether Spain has fared any better than Germany in its attempt to create a self-sustaining green or low-carbon economy is also open to doubt. A study by Gabriel Calzada Alvarez of Madrid's Universidad Rey Juan Carlos has estimated that the market distortions needed to create one green job destroyed two jobs in other sectors. Since 2000, each green-sector job has cost €570,000, with wind-industry jobs costing €1m. The details here are debatable, but they are consonant with German experience, and do not bode well for Britain.
Perhaps the most instructive example, and of particular relevance to the Coalition, is the Japanese solar thermal hot water industry. In response to the first oil shock, governmental support created a market that was by the early 1980s installing 2.7m square meters of panels a year. Unfortunately, the resulting companies were weak and the products were either poor or poorly installed, with the result that the industry not only collapsed as the oil price fell but, due to consumer disenchantment, has failed to recover in recent years in spite of higher hydrocarbon prices. Installation rates have flat-lined for the last decade at around 0.25m square metres a year and it is at least arguable that the Japanese solar thermal industry is less vigorous than it would have been had the government never offered a helping hand. The Japanese call this the "solar tragedy".
All told, subsidies and targets are unlikely to be a successful means of driving energy system change, and probably entail government responsibility for the income of a large part of the electricity sector, perhaps in perpetuity, with consequential gross inefficiency and wealth destruction through misallocation of resources.
Despite these dismaying precedents, the Coalition is attempting to drive a green industrial revolution by means of state-guaranteed rates of return for investors in nearly half the electricity sector. The Government's own figures show that this will be expensive, resulting in costs that will seem all the more insupportable if natural gas prices remain low. In addition, current ambitions may have disastrous opportunity costs. To achieve targets, government must commit itself to currently available emerging technologies and thus will forestall or forego as yet unknown inventions and innovations.
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