Monday, 31 October 2011

Paying people to use less energy will save money

Everyone wants cheap energy. The UK's North Sea oil and gas reserves, exploited systematically since the 1980s, helped give us a long run of low energy costs – and we built our consumption patterns on this bonanza of cheap supply. But since 2004, energy imports and prices have risen sharply.

Household bills have doubled in tandem with the doubling of the cost of imported gas, which now makes up nearly 40% of our demand. As Sam Laidlaw, the chief executive of British Gas, said: "The price we pay for our gas is determined by a global marketplace, not the marginal cost of North Sea production." Our reliance on a single source of fuel for almost all our heating and half our electricity – good for both climate and cost in the 1990s – is looking less wise now that prices are rising.

Rising prices are supposed to make us use less, which means less cost and less carbon in the atmosphere. But the consumer pain of price rises also creates a political demand for action to cut prices, which has fed demands on George Osborne to cut "green levies" on our bills. Doing so would be counterproductive, because it will raise future bills.

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