BRITAIN is facing a 1970s-style ‘oil price shock’ that could wipe £45bn from the UK economy, the climate and energy minister, Chris Huhne, has warned in his first intervention on the issue since the start of the Middle East political crisis.
Rising oil prices pushed petrol to a record 130p a litre at British pumps this week, and turmoil in the Middle East is leading to intense pressure on George Osborne, the finance minister, to ease the pressure on motorists, probably by dropping previously announced plans to increase fuel duty in the budget on March 23. But in a speech on the impact of the oil crisis on Thursday, Huhne argued that a price of $100 a barrel for oil transforms the economics of climate change in Britain.
He disclosed that the Department of Energy and Climate Change’s economists have warned that if the oil price rise turns into a 1970s-style crisis the cumulative loss to the UK economy would be worth £45bn over two years.
Oil is at a two-and-a-half-year high and there have been predictions that if the political turmoil spreads across the Gulf, the price will rise further. The Libyan rebellion has shut down oil production in many parts of the country, and while Libya’s oil fields produce only about two per cent of global demand, experts say the disruption is putting pressure on world supplies.
Huhne said: “If the oil price doubled, as from $80 last year to $160 this year, it could lead to a cumulative loss of GDP of around £45bn over two years. This is not just far-off speculation: it is a threat here and now.”
The speech was in part an attempt to galvanise public support for tough measures to create a green economy after recent setbacks including attacks on the science of climate change and stalled international negotiations. The speech could also be seen as an attempt to burnish the coalition’s green credentials after months in which the Department for Transport has declared an end to the “war on the motorist”.
Drawing on research conducted for the Labour government by Lord Stern, Huhne argued that $100 a barrel is seen as the point at which the economics of climate change pivots so that it becomes cheaper for British consumers and businesses to invest in green technology than remain with the status quo.
He said that if oil only reached $108 a barrel by 2020, as predicted by the US department of energy, then the UK consumer would “win hands down” by paying less through low-carbon policies than for fossil fuel policies. This is the moment to invest in green infrastructure, homes and transport, according to Huhne. Fossil fuels are now the costly, high-risk option for energy: it is “crazy” not to prepare for a low-carbon future.
He argued that the government had made it possible for consumers and businesses to switch to green energy, through the green deal for homes, feed-in tariffs and new technologies such as electric cars which are predicted to have a breakthrough year in 2011.
In the low-carbon economy, Huhne said, “we will turn to electricity to heat our homes and charge our cars, leading to a doubling in demand for electricity by 2050”. Steve Holliday, chief executive of the National Grid, predicted this week that the UK would need to increase its installed capacity of electricity generation from 75GW to 100GW by 2030.
— The Guardian, London