Peter Franklin: The West needs a NATO for economic security

25 Apr

Peter Franklin is an Associate Editor of UnHerd.

There are many reasons to be relieved that Marine Le Pen didn’t win yesterday — and one of them is her policy on NATO. She wanted to pull France out of NATO’s integrated military command. Vladimir Putin must be disappointed she won’t be getting her way. However, Emmanuel Macron isn’t to be wholly trusted either. Back in 2019, he airily declared that NATO was experiencing “brain death”. Maria Zakharova, the now familiar Russian foreign ministry spokeswoman, agreed with him.

But both he and she were wrong. Far from being moribund, NATO has proven itself to be the indispensable international body. While the EU flounders and the UN does zip all, NATO is our best guarantee against Russian aggression.

There are those who blame the alliance for provoking the Kremlin. But if the Russians were really so opposed to NATO expansion, then they should have made a point of not attacking their non-NATO neighbours. Clearly, they decided not to go for that.

After the horrors of Bucha, the people of every NATO country should be grateful for the protection that this security umbrella provides. Yet we cannot rest easy. The last two years have shown us that the West is far from safe. Our borders may be well-defended, but the global supply chains on which we depend are acutely vulnerable.

Most obviously, there’s the urgent issue of Europe’s energy supplies. While a dribble of support makes its way to Kyiv, EU cash continues to flow into the Kremlin’s coffers — blood money for Russian coal, oil and gas.

And it’s not just the energy question. Consider the Huawei controversy. Why on Earth did western countries like the UK and Germany even consider using Chinese 5G technology? We’re not talking about consumer trinkets here, but the very backbone of our communication networks.

Even if we manage to exclude non-western companies from our most sensitive infrastructure projects, we still face the fact that we’ve exported our manufacturing base to the Far East without thinking through the consequences. With lockdown policies currently disrupting Chinese container ports, we’re learning the hard way that the cornucopia of cheap exports can’t be taken for granted. The result is the worst inflation that we’ve experienced for decades. There’s very little that Western governments can do about it.

Don’t get me wrong. I’m all for free trade – but not at the cost of surrendering the commanding heights of our economy to potentially hostile foreign powers. Imagine if we were to wake up to find that we had no means to stop Putin’s tanks from rolling into Poland, Germany, and beyond. We’d demand to know why NATO had left us militarily defenceless, and there’d be calls to disband the organisation for failing in its basic responsibilities. Who, then, do we blame for leaving the West economically defenceless?

Obviously, the buck stops with our elected politicians. But they’re not the only ones that need to be held accountable. A North Korean-style policy of complete national self-reliance is neither feasible nor desirable. As with NATO in respect to defence, the economic security of the free world depends on close co-operation between democracies.

International bodies like the IMF and OECD need to be asked if they could have done more to anticipate and prepare for the current crisis. Of course, there’s a limit to what most of them can do given their narrow remits and restricted powers. However, one organisation definitely could and should have done more: the European Union. What’s the point of a supra-national entity if it can’t co-ordinate a basic level of economic security?

What was the EU’s single biggest strategic priority over the last 25 years? Was it (a) to clean-up and diversify the continent’s energy supplies or (b) to pursue a horrendously complicated, but wholly unnecessary, experiment with monetary union? Amazingly, the Euro-establishment that chose option (b) is still in power and taken seriously. Indeed, the extent of failure still isn’t fully appreciated. While the Germans have taken flak for the Nord Stream pipelines’ era-defining stupidity, other examples are largely unknown.

Take the story of the gas pipeline that should have been built, but wasn’t. This is the Midi-Catalonia (‘MidCat’) pipeline — a proposed connection between the French and Spanish natural gas networks via the Pyrenees. The strategic significance is that Spain links to supplies from North Africa — and also to shipments of liquified natural gas (LNG) from North America. (The Spanish and Portuguese, unlike the Germans, had the foresight to build several LNG import terminals.)

The MidCat pipeline would have allowed these alternative sources of gas to flow from the Iberian peninsula into France and the rest of Europe, reducing reliance on Russian gas. The European Commission favoured the scheme, but was powerless to stop the French from blocking due to the economic benefits largely accruing to the Spanish.

Belatedly, the French authorities have realised that there’s more than mere commercial interest at stake and changed their minds. But had it not been for their myopic selfishness, work could have started years ago – and Macron had the effrontery to call NATO “brain dead”.

Europe needs to start thinking strategically again. One way might be for the EU to adopt a full-fledged Common Energy Policy. However, the miserable experience of the Common Agriculture Policy (CAP) and the Common Fisheries Policy (CFP), suggests that a CEP would also involve bureaucratic inertia and horse-trading politics. Big decisions would take years – if they were made at all.

Moreover, the European Union is too small a forum. Europe’s energy security cannot be secured without the full involvement of non-EU members like Britain, Norway, and (obviously) Ukraine. Indeed, non-European countries need to be involved too, especially America.

To achieve the strategic cooperation required to safeguard our gas supplies, we need an inclusive but action-orientated alliance that is unencumbered by extraneous distractions like trying to build a superstate. The model is therefore NATO, not the EU. But who would take the initiative to build a new institution? Boris Johnson is barely clinging on to power and Joe Biden is barely with us. The German Chancellor, Olaf Scholz, doesn’t have the credibility — and Emmanuel Macron is devoted to the wrong kind of internationalism.

Perhaps a new British Prime Minister will be needed for action. There’s no time to waste.

Clive Moffatt: Ministers are still in the dark over achieving energy security

14 Apr

Clive Moffatt has over 30 years of experience as an energy market analyst. He founded and chaired the UK Gas Security Group (UKGSG) from 2017-19.

The inflated long-term targets set last week for nuclear and wind power generation will not ensure security and affordability. What they will do is fuel a rapidly rising spiral in energy charges and taxation for many years before any new power is delivered. As the founder and former chairman of the UK Gas Security Group, what I outline below is what I believe to be a more coherent and realistic strategy.

Well before the Russian invasion of Ukraine, the risks to energy security (supply and price) were rising as the UK and other Western countries turned away from coal and became more reliant on natural gas to support intermittent renewable energy. What sort of policies can the Government pursue to deal with this urgent problem?

1. Abolish Price Cap and Rebates

There is no sense in capping retail energy prices when you have no influence over the wholesale market.

Caps benefit larger, better resourced suppliers by making it quicker and easier for them to grow their market share. Better to let the market compete while tightening the financial tests that are applied to existing and potential suppliers. Ofgem’s failure to check on energy suppliers that have now gone bust has already cost consumers some £2bn.

The retail price rebate scheme is based on the false assumption that the future direction of wholesale prices can be expected to fall long enough to allow suppliers to recoup the loans through higher prices. Furthermore, price rebates are a “blunt” policy instrument benefiting all but in particular those who can afford to pay more.

Fuel poverty should be addressed through the existing benefits system and not via blanket rebates on Council Tax and energy prices.

2. Support New Investment in Gas Security of Supply.

Natural gas has a critical role to play in the energy mix up to and beyond 2050. Increasing on and off-shore gas production will reduce the threat of imported gas supply shortages. Moreover, the rationing of gas and electricity and more gas storage (now only 2% of annual demand) will reduce energy price volatility.

More domestic gas production will also be required. The decision to proceed with additional North Sea gas exploration and development should be welcomed but fracking also has a role to play in reducing the UK’s dependence on gas from the Norwegian and EU pipelines and global shipments of LNG.

More gas storage capacity could be built in the next 5-10 years by imposing an obligation on suppliers and shippers to keep a proportion of their annual gas demand in storage linked to a storage capacity auction. The amount auctioned should include an allowance for the possible growth in hydrogen production to fuel heat and transport.

National Grid does not have responsibility for the real-time balancing of the gas market (unlike its role as SO in the electricity market) and so, if shippers refuse to pay high prices, or cannot access LNG when required, and suppliers see a shortfall emerging, the effect is not only to raise prices but to trigger a gas supply emergency.

More could be done now to avoid blanket industrial rationing and increase short- term liquidity in the gas market through a system of Demand Side Reduction (DSR). An option to curtail incentive would encourage some industrial users to agree in advance to curtail demand in advance of any emergency.

3 Support New Investment in Gas Power Generation

In the next 20 years, with the demise of coal and the retirement of existing nuclear capacity, the UK will be short of both regular baseload and reliable flexible power generation to compensate for the planned expansion in intermittent renewable energy.

The answer is not another 40GW of intermittent wind power which would massively increase the system balancing costs: constraint payments and the need to finance back-up fossil fuel generation. Furthermore, there are growing concerns about the “whole life” costs of wind generation linked to reduce productivity of large wind farm clusters off-shore and the costs of repair and maintenance. The target for new off-shore wind capacity should be halved pending a more detailed analysis of a quantum jump in intermittent supply.

Nor is a massive expansion in large or small nuclear capacity the right way forward, despite the attraction of zero emissions. Large nuclear plant takes too long to build and adding decommissioning it is hugely expensive on a “whole life” basis. Taxpayer underpinning of capital costs, and/or penal price subsidies, are required to make large nuclear viable.

Small modular reactors are potentially cheaper to build but, planning concerns notwithstanding, the technology is unproven and there is no established manufacturing base capable of delivering the economies of scale needed to avoid capital cost and/or price subsidies.

To ensure the delivery of affordable cleaner energy in the next 10-20 years and possibly beyond we need new investment in natural gas. In the medium term, probably some 10GW of new baseload gas generation is required and this should be provided by unabated gas via a new capacity market auction and built in the next five years.

Carbon capture and storage (CCS) to remove the C02 is still an expensive prototype requiring more gas, raising electricity costs. So, initially, some new large- scale gas plant should be CCS compatible.

In addition, a separate auction should be run to procure smaller scale (eg 300MW units) flexible generation with unabated small-scale gas competing with batteries and Demand-Side Reduction (DSR) with strict bidding rules on network locality, reliability and costs with penalties for non-delivery.

4 Cost of Carbon and Competitiveness

It would help underpin both new gas and renewable generation if the Government sets a long term, gradually rising trajectory for the price of carbon up to and well beyond 2050.

But manufacturing in the UK should be protected by a carbon equalisation tax on countries with more lenient emissions regimes and manufacturers should be able to claim tax rebates or receive subsidies to help fund high energy efficiency processes.

5 No Deadlines on Sale of Gas Boilers

There are some 25 million domestic gas boilers in the UK which are reliable and cost-effective and run on an established network. Decarbonising domestic heating is essential to the 2050 Net Zero target. But, right now, the costs involved in switching to heat pumps or using “green” hydrogen are prohibitive, and user benefits doubtful.

6 Take the Politics out of Energy

Advocacy rather than rigorous analysis has so far dominated the Net Zero energy debate and the time has come to create an independent Strategic Energy Authority (SEA.) The proposed independent ISO for power and gas addresses only one part of the problem – the conflict of interest within National Grid.

An SEA would go further and set long term investment targets for generation transmission and distribution based on the need to balance emissions reduction against security and affordability. It would also create a consistent and cost-effective policy framework to ensure fair competition between different forms of energy supply. Moreover, it would oversee the system operation of the electricity and gas market and facilitate greater liquidity in the short term balancing market. Finally, it would be able to liaise directly with Treasury to define and publish long- term budgets for taxes and levies impacting on consumers and industry.

The Prime Minister asked for a “grown-up” approach to energy. These proposed policies would deliver it.

Anthony Browne: Now is not the time to go slow on Net Zero

21 Mar

Anthony Browne is MP for South Cambridgeshire, and chair of the All Party Parliamentary Group on the Environment.

Does the invasion of Ukraine – and the commodities price crisis that it has exacerbated – mean we should “press pause” on Net Zero? Gas and petrol prices have rocketed up in the past few weeks, increasing the cost of heating and driving, and causing real financial pain to households, particularly those on lower incomes. The Government has unleashed a £9 billion package to bring bills down, but there is a limit to how much it can buck global markets. The call has come for further action – in particular, to start fracking in the UK again.

I fundamentally disagree that Net Zero needs to be paused. Many of the arguments put forward are not just self-serving, but patently irrational. If they were acted upon, we would be repeating rather than learning from the mistakes of the 1973 oil price shock.

I have always seen three major reasons for aiming for net zero – one is to curb climate change, and the other two are to enhance national security and to improve economic resilience.

Weaning ourselves off fossil fuels – which is completely achievable – is not only critically important for the environment, but would mean that we would no longer be funding and dependent on some of world’s worst authoritarian regimes, and the change would make our economy more resilient against volatility in global energy prices.

In 1973, a six day war in the Middle East produced an oil price shock that unleashed explosive inflation and a deeply scarring recession, sending our economy into turmoil for nearly 20 years. That is a critical weakness on an otherwise powerful, diverse economy.

Our economy is less dependent on oil prices now than it was – the energy intensity of GDP has fallen – but we are still vulnerable, as we are experiencing.

After 1973, other countries had deliberate strategies to wean themselves off oil – France went for nuclear power, Denmark for wind power, and Japan for solar. By contrast, we went for North Sea 0il. But since our output is part of global markets, that did nothing to insulate us from global price shocks.

We have more recently boosted renewable energy. Few people realise that more of the UK’s national electricity supply is now produced from wind power than it is from gas. No foreign dictator can stop the wind from blowing on these shores. The fact that over half our electricity comes from zero carbon sources (wind, solar and nuclear) means that its price has been less volatile than if it was produced solely from oil and gas, whose prices are decided by highly volatile international markets.

France, where nuclear power generates three quarters of electricity, and Norway, which is 100 per cent hydroelectric, have suffered from electricity price spikes, but only because they have been exporting power other countries which are vulnerable.

North Norway, which is isolated from the main European power networks, has seen more stable electricity prices from its hydroelectric plants. Two thirds of Norway’s homes are warmed by electric heat pumps, and so are not directly affected by global gas prices.

The UK could produce more fossil fuels, but the UK cannot much influence international oil and gas prices, whether it fracks or not. For as long as our heat and light and transport depend on fossil fuels, we will still be at the whim of international markets. 

But imagine if all our (and Europe’s) electricity production were from zero carbon sources – renewables and nuclear – and if we drove electric vehicles, and had electric heating for homes, then homeowners and drivers would be more insulated from international energy price movements and no longer funding foreign dictators.

The answer to the current crisis is more people driving electric cars, and less electricity produced from fossil fuels – not pressing pause on Net Zero, producing more fossil fuels and doing less to get people to drive electric cars and heat their homes with electricity.

That would simply exacerbate the problem, not solve it. You won’t make the UK less hostage to global fossil fuel prices by making the UK more dependent on fossil fuels. We need to learn from 1973, not repeat the mistakes.

As we get to Net Zero by 2050, there will still be a continued demand for oil and gas as transition fuels, and there will be some residual demand afterwards for industries such as chemicals.

Where that fuel comes from is less an environmental issue than a security one. Since Russia only supplies four per cent of our gas, it is not really an issue for the UK: giving the go-ahead to the wind farms and solar farms already in the pipeline will more than make up for the shortfall from Russia.

The energy gap is more an issue for the EU, which is heavily dependent on Russian oil and gas. If Europe stops buying fossilsfuels from Russia, it will have to buy them from elsewhere, but that does not in any way mean it needs to stop aiming for Net Zero.

The Russian invasion in Ukraine is not a reason to give up on Net Zero. Rather, it is a reason to redouble efforts to get there as quickly as possible.  That will benefit the environment, economic resilience and national security.


James Kirkup: Sunak’s task next week. To get cash into the hands of those who need it. And launch an energy efficiency mission.

17 Mar

James Kirkup is Director of the Social Market Foundation.

Perhaps it’s because now, as then, I have Covid, but when I ponder Rishi Sunak’s approaching Spring Statement, my thoughts go back to March 2020. Then, Sunak made his bones with the British public with nerveless statements about the support he’d offer for an economy – and a population – teetering on the brink of panic.

Those early days of his chancellorship seem a long time ago now: it’s been a long two years. But there’s a lot to learn from those moments, even if both economics and politics have changed since then.

Then, the dominant issue was a pandemic that would prove to be longer and more serious than most people realised. Today, the same is true of what Westminster calls the “cost of living crisis”.

That phrase is so familiar that a lot of people who use it think that it’s old news – that everyone out there “up and down the country” knows full well how much prices will rise and real incomes will be squeezed.

Well, if they think that, they’re wrong. Rising prices, especially on energy, are still going to come as a nasty shock to a lot of voters. Just because us media and political types know something will happen, don’t assume the wider public does too.

So the first job for next week’s not-a-Budget statement is ruthless honesty about what’s coming – and the limitations of what the state can do, in the short term, about energy prices.

That doesn’t mean doing nothing. The compassionate, responsible response to rising prices should be to concentrate help on those who need it most. That should start with benefits uprating. As things stand, benefits will rise by 3.1 per cent in April, because that’s what CPI inflation was in September. But it’s now at 5.5 per cent and will likely exceed six per cent for the rest of the year.

If Britain really is One Nation, not two, then preventing a deep real-terms cut in the incomes of the poorest should be a priority for Sunak next week.

There’s more to do, of course. Current plans for a £150 council tax rebate for most homes and what amounts to a £200 loan towards energy bills are both over-complex and poorly targetted.

Instead, HMT could simply give £500 to every benefit-claiming household, and £300 to non-benefits households where no-one pays higher rate tax. That wouldn’t cost any more than the current plans: the SMF proposal would cost around £8.4 billion, pretty much the same as existing measures.

Simplicity and speed are key here. What’s needed is a return to the spirit of furlough: just get cash into the hands and accounts of people who need it.

And some people who don’t: the Treasury’s natural objections to the waste involved in universal payments are normally reasonable, but these – still – are not normal times. The strong and natural desire to declare that the exceptional circumstances of the pandemic have passed should not blind us to the fact that Russia’s war on Ukraine is another event of arguably even greater historical significance.

And that offers something of an opportunity, for a politician big enough to seize it. Here’s how Sunak can do so next week.

The immediate and obvious impact of Russian aggression on British lives is via energy. Even though we buy relatively little fossil fuel directly from Russia, we’re still exposed to international prices that are directly and badly susceptible to Russian malfeasance.

Hence the various Government schemes afoot to reduce that exposure: some more wind power, some more extraction from the North Sea, and some wishful thinking about the Saudis and others agreeing to pump more to prices down.

The remarkable thing about all these efforts is ministers almost totally ignoring the best path to reducing British exposure to international energy prices and so easing household energy bills: use less energy.

This is Sunak’s opportunity, though he’ll have to override Treasury orthodoxy and his own inclinations to take it.

By any international standard, Britain’s homes are poorly insulated and badly energy inefficient. This is one of those big, slow and boring national problems that successive governments have nibbled at then pushed aside over several decades.

There are many reasons for this. Voucher schemes are hard to design and easy to exploit: the people most likely to use them would probably have made home improvements anyway. There are always sexier, more immediate things to promise, which are more likely to pay off in time for the next election. No one wants to be the politician telling people to clear their lofts out and fill their wall cavities. Lagging is boring.

More recently, the Treasury has been resisting energy efficiency drives on the grounds that UK industry can’t deliver: not enough workers, not enough material, inadequate supply chains to provide it.

None of these problems is imaginary. But none is insurmountable, to someone with adequate ambition and understanding of how markets work.

The ultimate reason British energy efficiency schemes have failed over decades is a lack of consistency. No policy has stood for long enough to provide confidence and certainty, either to households or industry. The evidence from successful efficiency policies worldwide — New Zealand, Japan, the Netherlands, to name a few – shows that what’s needed above all is the long-term certainty that only strong government policy can offer.

And that’s what Sunak should offer next week: nothing less than a national mission to make Britain’s homes more energy efficient. That mission will take a decade and more, and should be put above party politics: the Chancellor should make a Big Tent offer to Labour to sign up to his aims.

Importantly, this can all be done without so much as mentioning the words Net Zero. The Chancellor’s public ambivalence on climate issues is regrettable, but might not hurt at all here. The best way to get the public to buy in to the national energy efficiency mission isn’t to talk about carbon foregone but pounds saved. The difference between Energy Efficiency Certificate Bands C and D is around £100 per year. And that’s a recurrent saving: who wouldn’t fancy £1000 more in their pocket over the next decade?

This doesn’t all have to be state provision, incidentally. Some banks and building societies are gagging to lend to households to fund home efficiency measures. The Chancellor should use his bully pulpit to egg them on, and prod the rest to do more.

This advice isn’t original or novel, because the energy efficiency issue is a longstanding one that hasn’t really changed. What has changed are the times.

Britain may not be a direct combatant in Russia’s war, but we face wartime economic impacts. That requires a response of similar scale, a great national effort to defend our homes and incomes from unnecessary over-exposure to international energy markets. If he wants to be

the leader of this decade, Rishi Sunak should use his statement next week to launch that unabashedly patriotic drive for energy efficiency, declaring loudly and proudly that it’s time to Lag for Victory.

Garvan Walshe: To turn the tide in Ukraine, it’s time for Putin – not the West – to fear escalation

17 Mar

 Garvan Walshe is a former National and International Security Policy Adviser to the Conservative party

“Don’t you now there’s a war on?!” would be the best paraphrase of Volodymyr Zelenskiy’s incredulity at Poland and the United States not being able to organise a way of supplying MiG-29 fighter jets to Ukraine’s embattled air force.

Ukraine fights on – alone – now beginning a fourth week against the invading Russian army and air force. They’re giving it everything they’ve got, paying a huge price for Vladimir Putin’s aggression, and our failure to take the Russian threat seriously since 2014.  Despite Ukrainians’ heroic resistance, we still haven’t fully made the shift in mindset that, even more than actual fighting, characterises the move from peace to war.

The Home Office hasn’t understood that a bureaucracy built up over years to deter refugees needs to be taken apart. Germany says it will reduce its dependence on Russian oil and gas, but not yet.  Israel sits on the fence while a country with a Jewish president is targeted for destruction.  Defence ministries everywhere cavil about supplying Ukraine “defensive”, as opposed to “offensive” weapons. 

But there’s another even more serious mistake that is still being committed: to think avoiding escalation is more important than achieving victory.

“Escalation dominance” is the mind game by which Putin has, in Zelenskiy’s words, “hypnotised” the West. Don’t do anything that will make it harder for me to beat Ukraine, he says – or else.

Fear of provoking Putin is a major reason why Ukraine has not been equipped with modern air defences, overt Western training missions have left the country, and there are no Western forces there. Would Putin have invaded had there been an American, or even a Franco-British, garrison in, say, Kharkiv? The answer doesn’t start with ‘y’.

In line with Soviet doctrine, Putin has turned his sabre-rattling nuclear. Avoiding “World War Three” is the reason given for ruling out NATO troops in Ukraine; discarding a no-fly zone, and even failing to send over those MiGs.

“We can’t fight Russia” said the Prime Minister. But if we can’t fight Russia in Ukraine, why could we fight them in Poland, the Baltic States or even Germany? Would that not also be World War Three, with the same, or possibly greater, risks of nuclear escalation?

The logical conclusion of this line of thinking is that NATO’s security guarantees can’t work, and that a nuclear-armed Russia cannot be stopped. Yet during the Cold War we learned how to make the USSR stop and think, because we understood how to make sure that the threat of escalation wouldn’t pay.

The most important word in the last sentence is ‘pay’. How can Putin be convinced, as a succession of Soviet leaders, including Stalin, were, that escalation isn’t worth it?

We need to start with Putin’s notion of worth, which is not irrational, but is a little different from the kind of rationality that dominates Western thinking. We think of worth as an absolute quantity. If we’re going for a run, what matters to us is the time in which we complete it. He thinks of it as a relative quantity. It doesn’t matter how long he takes, as long as he takes less time than anyone else.  Another way of putting it is that he doesn’t care so much about being rich as about being first. 

This means we need to threaten to do more to him than he has to threaten to do to us to force a change in behaviour. We would abandon a course of action if it left us worse off than we are at the moment. He would still choose to take the hit, as long as the hit we suffered was heavier. This creates a well known paradox: to prevent his escalation we not only need to be able to match his escalation, but need to convince him there’s a realistic possibility that we could escalate further.

Because we have projected our own psychology onto him, our apparently responsible statements – that we won’t send troops in or establish a no-fly zone, and so on – embolden Putin rather than reassuring him of our intentions.

We need instead to re-establish our credibility.  A first step is a return to some rhetorical ambiguity: we need to signal that measures which would amount to war, such as a no-fly zone or the deployment of combat forces in Ukraine should now be under consideration.  He, not we, needs then to consider whether that war would be worth fighting.  

Second, we should take steps to show that even if a no-fly-zone or ground troops are only possibilities, we will strengthen our support for Ukraine. Yesterday’s announcement that Soviet-design anti-aircraft missiles, which Ukraine can operate immediately, will be sent in is an important first step.

But the main danger to Ukrainian cities and civilians is from artillery, not aircraft.  Ground attack drones, “loitering munitions” (very small drones) and radars to detect where artillery is fired from will be of greatest use.  But if Russia is to be deterred from escalating, it needs to understand that we, too, are willing to take some risk.

When the Soviet Union cut off Berlin, the United States, Britain and France responded with the Berlin airlift. These days it is Mariupol that is besieged, and its civilian population the subject of Aleppo-style shelling. As well as providing Ukraine the weapons to destroy that artillery, could we not consider an escorted airlift of air-dropped humanitarian supplies into the city? Russia could try and engage the planes escorting the aid, but would they really shoot at British, French or American aircraft?

A Mariupol airlift would not be without risk, but it’s less risky than a Russian victory.

John Redwood: My critique of the Chancellor’s Mais Lecture, and what the Government should do next

7 Mar

Sir John Redwood is MP for Wokingham, and is a former Secretary of State for Wales.

Amidst all the harrowing reports from Ukraine and the deaths and destruction wrought there by Russia, the Chancellor has sought to chart a course for the economy for the next couple of years.

In his Mais lecture he echoed his predecessor, Philip Hammond, in seeking a productivity breakthrough. He also reaffirmed the Maastricht rules approach to economic management, wanting tax rises to get the deficit down first. The Treasury should note that its role model the EU has abandoned these rules for the time being, and is pursuing monetary and fiscal expansion.

The lecture was wrong to deny that lower tax rates can bring in more revenues. The Republic of Ireland has been a shining example of this, boosting its per capita GDP far higher than ours or the lower level of the  EU by attracting huge investments through a 12.5 per cent Corporation Tax rate.

Their business taxes offer a higher percentage of total tax take than our higher rates. The Chancellor ignores the findings of Margaret Thatcher and Nigel Lawson who he praises. They produced a surge in revenues from higher paid people by major cuts in income tax rates.

The Government should take the cost of living crisis more seriously. In accordance with the Mais lecture, it needs to create the conditions for private sector investment in creating more better-paid jobs and in producing more of the goods and services we need at home.

Levelling up needs to be private sector led, and offer people the chance to set up and run their own businesses, be trained for better paid employment, and find ladders of opportunity in the areas attracting the projects and businesses.

The Government should not take the fast growth rate of 2021 for granted. It was a one-off based on removing Covid restrictions and on an unprecedented injection of money by the Treasury and the Bank of England. In the end, they overdid it in scale and duration, triggering a nasty inflation. The new investment has to take place against a less supportive public sector background.

The rise of prices well above wages will cut growth, as people spend more of their money on such basics as food and energy. That will leave them with less to spend on leisure and pleasure – on items that are nice to have. The huge rise in energy bills alongside tax rises including National Insurance will sap spending power further. The economy will slow. The lecture did not tell us how the extra private sector investment will be attracted in these conditions, particularly with the planned rises in Corporation Tax to come.

These troubles will be compounded by the Government’s import promotion policies, which are most pronounced in the Business and Agriculture departments. Business is busy allowing the rundown of big energy using manufacture like steel, ceramics, aluminium, and glass in the name of Net Zero.

The trouble is that we then import the products from abroad, meaning that more C02 is created in their production and transport to us. The Business Department is busy reducing our oil and gas output so that we need to import more energy. Again, this adds to our CO2 production worldwide.The Environment Department is developing big subsidy incentives to remove land from food production and to encourage older farmers to give up. That will make us more dependent on imported food.

So why does the Government not like products made or grown at home? Why doesn’t it want more home output to boost jobs, incomes and lifestyles? Any sensible programme of levelling up should be cutting taxes and making it easier for local businesses and farms to set up and grow.

This year, revenues have come in much higher than the Budget forecast, thanks to higher growth – and way higher than the £12 billion that the Government says it needs for a tax rise. The Treasury did not put up rates of tax, so revenue grew. During the next financial year, higher tax rates and frozen starting levels will hit taxpayers hard. Revenue is likely to underperform as growth stutters.

An energy shortage is a big part of the problem. The government should ease the shortages of gas, oil and electricity. They should invite in the oil and gas producers in the U.K. and help them increase production straight away from current fields. They should offer licences for new production from all those new and extended fields that have already been discovered. That’s more jobs, better paid jobs, and plenty of extra tax revenue. It is also less CO2 generated globally, as our own gas produces under half the CO2 of imported LNG gas. We will have much more productive industry if we have cheap or competitive energy.

The Government should work with the electricity industry to keep the lights on. We  will need more capacity than is planned to cover the electric revolution. We need more power for when the wind does not blow and the sun does not shine. We should abandon the current policy of putting in more and more interconnectors to allow us to import more from an energy short continent.  They should produce schemes to promote more home-grown food.

Rachael Finch: Net Zero and energy security. If we go too fast for the first, we won’t get the second. Indeed, we may get neither.

4 Mar

Rachael Finch is a former British Army Officer and works in the defence sector. She is currently a Deputy Chairman of the Conservative Women’s Organisation West Midlands.

When Russia is negotiating with Western countries over the crisis in Ukraine, it is doing so knowing it is in control of 41 per cent of the EU’s gas supply. Having also built up its foreign currency reserves to defend itself from Western sanctions, and with no Western political appetite to commit troops to the crisis, Moscow is in a strong position.

In the long-term, Henry Smith, writing for this website, is likely right: Net Zero, by reducing dependence on natural gas, will weaken Russia’s position.

However, in the short-to-medium-term, the transition to Net Zero will transform geopolitics before a world powered by green energy can take shape. When we consider that almost 60 per cent of Russia’s exports comprise petroleum or coal products, it’s hardly surprising that Vladimir Putin is not the world’s most vocal environmental campaigner.

Consequently, the UK Government needs to look beyond the long-term environmental challenges of global warming, and address the nearer-term geopolitical risks that are present. Geopolitical risks create uncertainty in energy markets as reliability is questioned, pushing up prices for consumers and creating resistance to Net Zero goals.

The move away from oil and gas as sources of power will not happen overnight, and during this period, petrostates will continue to profit from their exports of fossil fuels. However, the combination of pressure on investors to divest from carbon-based fuels and the uncertainty about the future of fossil fuels may result in declining investment in oil and gas.

If oil supplies fall faster than oil demand as a consequence, fuel shortages and higher and more volatile oil prices will be here to stay for a while. Notably, the current increase in UK gas prices is due to a drop in gas supply at the same time as an increase in demand.

Higher oil prices result in higher revenues for petrostates such as Russia, or Saudi Arabia. In addition, as the transition to so-called clean energy develops, the overall reduction in the demand for oil combined with the need to keep costs as low as possible may result in higher-cost producers, such as Canada, being priced out of the market. This leaves room for states that produce cheaper oil, such as Saudi Arabia, to fill the gap increasing their geopolitical clout.

The same logic applies to gas markets. And for Europe, this means an increasing dependence on Russian gas: Russia’s importance to Europe will increase in the short-to-medium term if the Nord Stream 2 pipeline eventually comes online. If Putin wants to push back against the expansion of NATO in Eastern Europe, now is a good time for him to do it.

However, it’s not only fossil fuel exports that could increase Moscow’s geopolitical clout. According to the International Energy Authority, global nuclear energy generation will need to double between now and 2050 if the world is to achieve net zero emissions by the same date.

Many of the nuclear reactors planned or under construction outside Russia are being built by Russian companies. China is also a relatively large investor in nuclear power, meaning that both Moscow and Beijing will increasingly be able to influence industry norms and impose global standards in their favour.

China also controls many inputs required for clean energy technology, dominating both mining and the processing and refining of critical minerals, such as copper, cobalt, lithium, nickel and rare earth metals. An increase in the demand for clean technology will further increase China’s geopolitical influence. China has previously shown its ability to (mis)use this influence when it blocked the export of critical minerals to Japan in 2010 over the disagreement about the East China Sea. It could do so again.

It may seem as though localising supply chains is a way to fix these tensions. Despite the Green Party’s utopic advocacy for reducing emissions in the UK’s imports to zero, the reality is a net-zero global economy will need large supply chains for components, products and global trade in low-carbon fuels and minerals.

Global competition is needed to encourage innovation and to develop new markets, reducing prices for consumers. But, increasing electrification, be it for vehicles or heating, will likely result in more local production due to the difficulties with transporting electricity over long distances. Although local supply chains can be beneficial for security and employment reasons, too much localisation reduces diversification, creates vulnerabilities and raises prices for UK consumers.

Moreover, China’s recent increased use of ‘home-grown’ coal as an energy source is driven in part by the shortage of gas on global markets and the need for more energy security. Germany has also found itself in a similar position after its ban on nuclear power. Localising power supply chains doesn’t necessarily result in a reduction of carbon emissions.

Decarbonisation also poses problems for developing countries. The COP26 highlighted this with lower-income countries calling for developed nations to pay for historical damage allegedly caused by greenhouse gas emissions.

Whether you agree with this statement or not, developed and developing nations have diverging future goals which will increase tensions. The latter need growth to raise their populations out of poverty in the most economically efficient way. The former, by trying to stop the use of fossil fuels to deal with global warming, are preventing this happening. When the reality of life is a diesel-generator backed power grid that keeps blacking out, an electric car is not a sought after item.

For many developing countries, the way out of poverty may involve extracting hydrocarbon resources. However, developed nations are putting pressure on financial institutions not to support extractive projects, but by not assisting with an alternative, the tensions will grow.

China, on the other hand, is providing finance to countries like Cote d’Ivoire, helping to develop their extractive industries and by doing so is feeding internal Chinese demand for raw materials. As far as many developing countries are concerned, rolling back globalisation could do far more damage in relieving poverty and living standards than continued global warming.

The transition to a world powered by clean energy is radical and it will be messy. If, on the way to achieving Net Zero, national energy security conflicts with responses to global warming, there is a real risk of friction on the road to a green planet.

International climate leadership needs to mitigate the national security implications of a transition to green energy, in addition to making promises and signing agreements. Nuclear power and continuing investment in oil and gas reserves are essential tools in dealing with energy market volatility and the inevitable periods of disconnect between supply and demand of fuels; it’s good to see the government beginning to recognise this.

Supply chains need to be diversified to reduce reliance on one main provider – competitive markets are essential in this regard, as well as keeping prices lower for the UK consumer. And there will be a need to support communities dependent on fossil fuels, both domestically and internationally.

New green technologies will solve technical problems, but they will also encourage states to maximise their own interests and policymakers would be naive not to recognise this. However, perhaps the greatest risk of Net Zero is that if the conflict between global warming and national security is ignored, that the transition to a greener planet won’t take place at all.

We can’t even begin to come to terms with the implications of this war

25 Feb

The Government’s responses to Vladimir Putin’s full invasion of Ukraine range from perhaps hosting its government in Britain, through sanctions targeted on Putin’s cronies and others aimed at Russia’s economy, to reinforcing our military presence in Eastern Europe and supporting armed Ukrainian resistance.

The asset freezes on more than 100 people and entities announced yesterday by Boris Johnson are an example of the first, and the proposed export ban on all dual-use items to Russia one of the second.

The Government has already moved army battlegroups, Apache attack helicopters, fighter jets and warships to Eastern Europe.  It is reportedly sending helmets, light anti-tank weapons and body armour to Ukraine.

It is essential to add that Ministers, like other participants in and observers of this drama, do not know how events will now unfold.

It could soon become clear that Putin has over-reached, and is consequently deposed.  Or he may hold what he is taking, as the western front against him collapses.

Most likely, he achieves his immediate objective amidst hideous bloodshed, installs a puppet government in Ukraine – and will then grapple with an armed insurgency supported by most if not all of the main western powers.

However, few certainties aren’t the same as none, and one development is certain.  Putin will react in turn to our allies’ and our own response to his war.  We have collectively not even begun to grasp the implications.

Some of us remember the Cold War against the Soviet Union.  More recall recent “hot wars” in which our troops fought abroad – Iraq, Afghanistan.

There has been republican and loyalist terror in Northern Ireland and Great Britain too, as well as atrocities by Islamist and other actors.

But most of us have not experienced such attacks, nor fought for our country abroad, nor encountered Soviet espionage at home.

Neither have we encountered what might be called Lukewarm War – or, in the less hyberbolic language of the Integrated Defence and Security Review, “competition across multiple spheres”.

This “will grow in other spheres, including technology, cyberspace and space, further shaping the wider geopolitical
environment”, it said.

“Systemic competition will further test the line between peace and war, as malign actors use a wider range of tools – such as economic statecraft, cyber-attacks, disinformation and proxies – to achieve their objectives without
open confrontation or conflict.”

Are our cyber-defences ready for possible cyber-attacks?  Our conventional ones for more Russian incursions into our airspace and waters? Is the Government geared up for Putin’s developing push in social media and elsewhere online?  Is the British public remotedly prepared for cyber assaults aimed at our national infrastructure?

Then there are the twofold implications of the further manipulation by Putin of Russia’s gas supplies – first, for prices at a time when the cost of living is already soaring and second, even more profoundly, for security of supply.

Successive governments have deprioritised this security, the first leg of any proper energy policy, at the expense of the other two: affordable prices and lower emissions.

So the war in Ukraine poses a new questionmark against the Net Zero emissions target, and will give new impetus to Rishi Sunak’s push for new oil and gas fields in the North Sea.

Security of energy supply, like running the NHS less hot in preparation for another pandemic, and like security of food supply, is an aspect of the emerging post-Covid politics of resilience (or should be).

It will be argued that Putin won’t cut off his gas supply nose to spite Russia’s economic face, and that it will be hit hard by western sanctions.

Especially by those applied to “high-end and critical technological equipment and components in sectors including electronics, telecommunications and aerospace”, to quote the Prime Minister’s words.

The counter-view is that Putin is turning Russia into an autarky, with low national debt, high reserves, a fiscal surplus and leverage over wheat and corn.  And that if you want to see what real resilience looks like, gaze eastwards.

It may be that with Russia moving closer to China, we are looking at a future in which Eurasia and Eastasia form a common economic bloc against Oceania’s, to borrow the terms of George Orwell.

Or in which, just as Nixon went to China, Donald Trump goes to Moscow: or rather, some future Republican or even Democrat President does so, in an attempt to peel off Russia from America’s hegemonic rival.

Then there are the implications for rogue actors: Iran; North Korea. Such future speculation returns me to today’s unknowns, such as Putin’s response to sanctions against Russia or the arming of Ukraine’s resistance.

It may be that Ukraine should indeed have been admitted to NATO, though I am far from convinced that the move would have been practicable. “Collective defence means that an attack against one Ally is considered as an attack against all Allies,” in the words of Article Five of NATO’s charter.

Would voters in some NATO member states, including Britain, see Russia’s attack on Ukraine in this way?  I doubt it. But whatever view one takes, the West in general, and the EU in particular, has been willing to float the end of Ukraine’s full membership of western institutions without providing the means.

At any rate, the Government is right to seek to arm the Ukrainian resistance, and western Europe must ready itself for a flow of refugees.

However, we have no alternative but now to draw a military line in the sand, or rather in the green grass of Europe, not in Ukraine itself but on the borders of our NATO allies, such as Poland and the Baltic States.

Which means action short of NATO seeking to establish a no fly zone over Ukraine, given the risk of escalation in the event of planes from any of the actors being shot down.

Admittedly, it’s impossible to weigh those risks in any event, since Putin is evidently more willing to take risks than some Russia-watchers believed.

In such circumstances, we tend to reach for the comfort blanket of the past.  It’s the Soviet Union all over again, say some.  No, 1939, say others.  Others still say 1914.

It’s true that history repeats itself.  But sometimes it says something new altogether, and the novelty catches us off-balance.

So it may be now in the wake of an event so baleful, like 9/11, that no-one can know where it will lead. Resolute voices filled the Commons yesterday.  But I also hear whistling in the dark.