Following hard on the heels of the British government’s , with its apparent incentives for large quantities of new power from nuclear and renewables, UK chancellor George Osborne has now unveiled his – building up to 40 new power plants – and given a clear nod to potential shale gas and the fracking that will be needed to extract it.

Often described as a second “dash for gas”, it may be as much a cause for perplexity as anything else. Do we really need these two large government initiatives tailing each other like London buses?

In light of the go-ahead for gas, it is worth asking whether the government remains committed to carbon emissions reduction targets and to the advice of the which it set up. The CCC wants a lesser role for new gas generation.

The secretary of state for energy and climate change, Ed Davey, a member of the Liberal Democrat party that forms a minority within the coalition government, says yes. The chancellor, a member of the Conservative party which dominates the coalition, demands delay and a review of crucial decisions, which implies no. The prime minister David Cameron, a fellow Conservative, appoints climate and renewables sceptics to key positions and vetoes the appointment of the chief executive of the CCC, David Kennedy, to head up the government’s Department for Energy and Climate Change.

You have to draw your own conclusions. Less clarity over government policymaking is hard to imagine.

If investment in renewables and nuclear power materialises, their costs, and carbon emissions, will fall, perhaps encouraging a future government to reaffirm the UK’s commitment to carbon reduction targets. If that happens, any gas-fired stations built today will either have to fit carbon capture and storage (CCS) technology or operate at ever-lower capacities and lower marginal returns on electricity.

An investor in such a gas plant, perhaps faced with rising gas prices, would stand to lose money unless paid simply to be there for when the wind was not blowing or the nuclear stations were being serviced. Perhaps the capacity payments envisaged in the Energy Bill will do that. The detail is still to be revealed.

Keeping gas

If, on the other hand, there is little investment in nuclear and new renewables, then the gas-fired power stations will need to run and run to keep the lights on. Without CCS, the UK will miss emissions targets by a large margin.

Leaving aside the abdication of the high ground of climate change mitigation this would represent, there is the issue of gas prices and security of supply.

Optimists imagine that the bonanza of shale gas in the US will spread to Europe and the rest of the world, prices will fall, and the UK will see a new age of cheap energy. There is no evidence that this is likely.

Most experts suggest that even where shale gas exists in quantity – not as common as the initial euphoria about shale gas imagined and current commentary asserts – its extraction would be limited by factors such as public opposition to the local environmental impact and lack of the huge quantity of water that fracking needs.

Burgeoning global demand from India, China and other emerging economies would eat up new gas supplies as fast as they became available, so prices would remain high and supplies potentially constrained. In this scenario, UK households and industry would be tied to a highly unpredictable roller coaster of gas prices that are generally high and can spike higher due to volatility, and be vulnerable to geopolitical disruptions to supply.

Responsible option

For my money, the climate-responsible, economically prudent and relatively secure energy trajectory for the UK is the low-carbon route, based largely on renewables and the efficient use of energy, but perhaps with some new nuclear for a diminishing base load.

Despite the risks, we will still need some of the gas-fired power stations that the government’s gas generation strategy envisages. They are relatively cheap to build and their owners would be increasingly paid through the 2020s to back up the low-carbon energy when it is not available. But that role would diminish as energy storage options for renewables develop and electricity grids across Europe become more inter-connected – as is envisaged.

What seems to have become clear in the last few weeks is that the chancellor and prime minister do not care much about climate responsibility, and have been persuaded by the gas industry and other voices that large-scale gas use is a relatively safe bet. This seems to me a dangerous conclusion for the UK, with little foundation in evidence. A future government should reverse it.

Asking economists is likely to elicit advice based on the experience of the
US and Western Europe: “Get rich first, and you’ll get clean later.” If you do
as they say, you could well become the next Malaysia—prosperous but choked
with pollution.

The get-rich-first mantra is chanted by governments of every political
colour, size and bank balance. Its adherents also include the great majority of
policy makers at the World Bank in Washington DC, the OECD in Paris, and the
World Trade Organization in Geneva. But I believe this strategy should have no
place in the new century.

The idea that prosperity automatically leads to a cleaner environment stems
from the experience of today’s rich countries. They rebuilt their economies
after the Second World War, and then worried about the environmental effects of
what they were doing. But it also has roots in a landmark research paper about
income inequality. In 1955 Simon Kuznets, a professor of economics at Harvard
University who later won a Nobel prize, suggested that initially the gap between
the incomes of rich and poor people in a country increases as average incomes go
up. But beyond a certain threshold, inequality turns a corner and the gap begins
to narrow. Kuznets showed his findings as an inverted U-shaped graph.

Some economists have now stretched the Kuznets hypothesis to cover economic
development and the environment. They take the view that pollution and
development have a similar, inverted U-shaped relationship—which they call
the environmental Kuznets curve. According to this, pollution in poor countries
will initially get worse as average incomes rise. But once incomes have reached
a certain level, the environment will begin to improve as some of the new wealth
is spent on cleaning up the mess.

This idea has allowed governments such as the tiger economies of Southeast
Asia to ignore environmental protection, as they set their sights on
double-digit rates of economic growth. But the idea is unsound. More and more
research is showing that the relationship between the Kuznets hypothesis and the
environment is as weak as the environmental record of some of the governments
that advocate it most ardently.

Most of the evidence in its favour comes from studies of pollutants in the
atmosphere and in water. It is claimed by supporters of the environmental
Kuznets theory that in many countries, atmospheric concentrations of industrial
pollutants including sulphur dioxide, nitric oxides, smoke and water pollutants
have followed an inverted U-shaped trajectory in relation to rising incomes.
This may have been true in some cases, but it is certainly not true as a
general rule.

For example, there is a study which suggests that urban sulphur dioxide
concentrations in the US follow an N-shaped trajectory in relation to
incomes—increasing again after a period of decline during the 1970s, while
incomes continue to rise. Similarly, one global study of 10 different
environmental indicators, commissioned in 1992 by the World Bank, found that
drinking water and urban sanitation followed an inverted U-shaped path and
improved with rising incomes, but municipal waste generation and carbon dioxide
levels got worse.

It is hardly surprising that sanitation and the availability of piped, clean
water tend to improve with income, because both are basic services requiring
financial investments. Other indicators that show an inverted U-shape relative
to income include chlorofluorocarbons (CFCs), emissions of nitric oxides and
carbon dioxide in Britain, and deforestation in Africa and Latin America.

In each case, however, environmental improvements did not just happen as a
natural result of higher average incomes, but were brought about by deliberate
policies. CFCs are being phased out globally because of convincing evidence of
ozone depletion. In Africa and Latin America, deforestation may have slowed down
while incomes rose, but this was thanks to effective forestry management and
policies to control land clearance. In Britain, carbon dioxide emissions began
to fall during the 1980s because of a political decision—which had nothing
to do with the environment—to permit gas-fired power stations, which then
displaced coal-fired electricity generation. In 1998, carbon dioxide emissions
in Britain crept up again, even though per capita incomes were their highest
ever.

In fact, carbon dioxide provides the best argument against applying the
Kuznets hypothesis to the environment. Emissions worldwide show no sign of
coming down, even though per capita incomes in the richest countries are now
more than $30 000. It’s clear that no matter how wealthy we become,
emissions will continue to rise unless governments take appropriate
measures—such as ratifying the Kyoto Protocol on climate change and then
taking practical measures to cut emissions.

In the end, environmental protection depends on countries carrying out the
right policies, such as cutting back on ozone-depleting chemicals, taxing
greenhouse fuels, or developing clean technologies. A substantial body of
research, from the OECD and others, tells us that, on balance, environmental
policies do not slow down industrial development. Some policies, such as
dropping environmentally damaging subsidies for energy and water use, will even
spur economic development.

The environmental Kuznets hypothesis is dead and should be resolutely buried.
But that doesn’t mean poor countries shouldn’t industrialise, nor that their
economies shouldn’t grow. It just means that they should protect their
environment at the same time. The rich countries’ environmental profligacy was
due to ignorance and primitive technologies. It killed many of their citizens
and destroyed the quality of life of millions more. Poor countries today have
not got the same excuses. They should not make the same mistakes.