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The Real Reason UK Energy Prices Are Skyrocketing · Merryn Talks Money

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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
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Speaker 2: Welcome to Merrin Talks Money, the podcast at which people
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Speaker 2: who know the markets explain the markets. I'm merin Thumbstweb.
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Speaker 2: This week we are discussing Britain's energy policies, how important
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Speaker 2: they are to our productivity and to British industry. With me,
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Speaker 2: is said Dita Helm, Professor of Economic Policy and Fellow
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Speaker 2: and Economics at New College, Oxford. Helme is best known
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Speaker 2: for his work on sustainability and the economics of energy.
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Speaker 2: He's a best selling author. He's an influential public policy
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Speaker 2: advisor and was awarded as knighthood in twenty twenty one
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Speaker 2: for his contributions to the environment and to energy policy.
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Speaker 2: Professor Helm, Welcome to Merin Talks Money.
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Speaker 3: Thank you very much for inviting me.
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Speaker 2: Well, I'm we're looking forward to it. There's a lot
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Speaker 2: of stuff going on in UK energy. There's a lot
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Speaker 2: of stories, everyone's taking side, everyone has an explanation, and
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Speaker 2: a lot of stuff doesn't quite make sense. So can
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Speaker 2: we start just with answering the very simple question I
1:11
Speaker 2: suspect has a complicated answer, but the very simple question
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Speaker 2: why is energy electricity in the UK so much more
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Speaker 2: expensive than everywhere else.
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Speaker 3: Well, the UK has the unenviable position of having about
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Speaker 3: expensive electricity in the developed world, and that takes quite
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Speaker 3: a lot of doing. Okay, so how do you get
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Speaker 3: from being in the mainstream of energy to being at
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Speaker 3: this limit. Well, what we've done is decide to go
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Speaker 3: unilaterally fast track for net zero on the grounds that
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Speaker 3: if we reduce our territorial emissions this will necessarily reduce
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Speaker 3: global warming.
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Speaker 2: Let's stop right there, because this is something that I
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Speaker 2: also want to just be clear on.
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Speaker 3: We get a lot of guy from.
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Speaker 2: Our politicians about the importance of reducing our carbon emissions, etc.
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Speaker 2: And they focus entirely on carbon emissions within the UK,
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Speaker 2: and there's no discussion about the fact that if we
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Speaker 2: don't produce something here but we buy it off it's
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Speaker 2: being produced somewhere else.
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Speaker 3: It makes no difference whatsoever.
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Speaker 2: And that seems to be one of the core contradictions
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Speaker 2: at the heart of the UK net zero policy.
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Speaker 3: I think the framework for measuring emissions for the global targets,
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Speaker 3: which to be fair to the British governments, comes from
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Speaker 3: the UN and through the process, and measuring in terms
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Speaker 3: of carbon territorial emissions makes some pretty fundamental mistakes. The
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Speaker 3: first is, and it's really important, it doesn't matter in
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Speaker 3: the world where a ton of carbon is emitted to
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Speaker 3: its impact on climate change. Carbon's just carbon. Similarly, it
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Speaker 3: doesn't matter where it's secustrated. Now, climate change is about
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Speaker 3: the concentration of carbon in the atmosphere. That's how many
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Speaker 3: parts per million of carbon there is up there, and
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Speaker 3: that's been going up at two parts per million every
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Speaker 3: single year since nineteen ninety without a blip. We haven't
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Speaker 3: made any progress on this, and last year as three. Now,
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Speaker 3: if you just focus on your territorial carbon emissions, how
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Speaker 3: much emissions take place in the UK, that is only
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Speaker 3: tangentially related to how much carbon we actually consume.
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Speaker 2: So just as a starting point, we should say that
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Speaker 2: this whole idea of reducing carbon emissions in the UK
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Speaker 2: purely on a territorial basis is meaningless. Guff.
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Speaker 3: No, it's not meaningless. It's part of what you would
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Speaker 3: do if you unilaterally wanted to stop causing climate change.
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Speaker 3: It's potentially necessary, but it's certainly not sufficient.
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Speaker 2: Okay, the measurement is meaningless, Guff. When it comes to
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Speaker 2: talking about a carbon footprint unless you include the footprint
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Speaker 2: of absolutely everything that we import.
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Speaker 3: Now, yeah, let's get's right. A lot of stuff we
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Speaker 3: produce in Britain, we consume it Britain. Now it does matter, okay,
4:03
Speaker 3: but we are very, very prone to import, particularly manufacturing
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Speaker 3: energy intensive stuff from elsewhere. And that's where it's our
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Speaker 3: carbon consumption that counts, and where it happens to be
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Speaker 3: produced is beside the point. And it just so happens
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Speaker 3: that this is a country which is de industrialized since
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Speaker 3: the early eighties at a faster rate than virtually everybody else.
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Speaker 3: And that means that carbon consumption is more important because
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Speaker 3: we switched to imports from places like China than it
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Speaker 3: would be in a number of other countries.
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Speaker 2: Yeah, okay, so let's put that bit to one side. Then,
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Speaker 2: with this drive for net zero exists, we don't necessarily
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Speaker 2: approve of the parameters around it, but nonetheless this drive exists.
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Speaker 2: And that you were about to start telling me before
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Speaker 2: I interrupted you, which I'm prone to doing, and I apologize.
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Speaker 2: You're about to start telling me how that impacts on
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Speaker 2: the cost of energy in the UK.
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Speaker 3: Well, if you want to decarbonize your electricity by two
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Speaker 3: point thirty, which is the ambition of this government and
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Speaker 3: this Secretary of State. I think the Conservatives wanted to
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Speaker 3: do it by about two thirty five. You have to
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Speaker 3: fast track swapping from fossil fuel generation to wind solar.
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Speaker 3: You can't fast track the nuclear and the thing about
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Speaker 3: wind and so they have lots of advantages, but basically
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Speaker 3: they are low density, geographically dispersed, small units and critically
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Speaker 3: inter emittant. So when the wind doesn't blow and the
5:31
Speaker 3: sun doesn't shine, you need something else. And of course
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Speaker 3: this stuff is not next to the transmission system. So
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Speaker 3: instead of the transmission system that used to meet our
5:40
Speaker 3: sixty cot at what's you now need all these new
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Speaker 3: transmission lines to places like the north coast of Scotland.
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Speaker 3: And this all comes at a price.
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Speaker 2: So the first thing you said is that we need
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Speaker 2: about double the capacity that we used to and I
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Speaker 2: just wanted to clarify that is because when the sun
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Speaker 2: isn't shining and the wind isn't blowing, bit isn't working,
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Speaker 2: but you still need the same capacity you used to,
6:03
Speaker 2: so the backup system needs to run at the same time,
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Speaker 2: so that's where you get the double from.
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Speaker 3: And then with the.
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Speaker 2: Transmission we used to have, you know, coulfied stations and
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Speaker 2: nuclear stations relatively near to where the energy was needed,
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Speaker 2: and a small number of them, so the grid could
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Speaker 2: be much smaller. Right, and now we have many, many,
6:22
Speaker 2: many different areas sending in energy, some of them very
6:25
Speaker 2: far away, so the grid has to be a completely
6:28
Speaker 2: different grid to cope with that. And those the two things.
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Speaker 3: Just to be clear, The government's advisory planning frame of
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Speaker 3: this says that in two thirty if we're to be
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Speaker 3: netze and electricity, we will also need thirty five gigawatts
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Speaker 3: of gas, which will sit there and only run five
6:45
Speaker 3: percent of the time. So that's half your total number
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Speaker 3: you had before still has to be there. And if
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Speaker 3: you will try to run a gas power station where
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Speaker 3: it's idle most of the time and just works five
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Speaker 3: percent of the time at short notice, you've really got
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Speaker 3: a lot of costs.
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Speaker 1: Now.
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Speaker 3: In addition to that, we need about ten gigawatts of
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Speaker 3: interconnectors so we can import the stuff from Europe if
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Speaker 3: we're short in one of those winter periods and we want,
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Speaker 3: we will need ten gigawatts of people voluntarily turning themselves
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Speaker 3: off what's called active demand management, what I call voluntary
7:22
Speaker 3: power cuts. So you need all of that lot to
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Speaker 3: get sort of the same amount of electricity you had before,
7:28
Speaker 3: because what we want is not intermittent power. We want
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Speaker 3: firm power and you know in the new industry for
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Speaker 3: things like data centers and banks and sell and you
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Speaker 3: don't want the possibility things may turn off. So that's
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Speaker 3: why you got that huge capacity.
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Speaker 2: Come So one of the things that we keep being
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Speaker 2: told is that, you know, solar energy, wind energy, all
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Speaker 2: renewables are going to make our energy bills come down.
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Speaker 2: But when we talk about that, we're not taking into
7:50
Speaker 2: account all the costs that surround using renewable to it's
7:54
Speaker 2: simply not true. Your bill is not going to come
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Speaker 2: down by three hundred pounds as a result of the
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Speaker 2: UK being a you know, greened global power.
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Speaker 3: Well, there is one reason why electricity bills could come down. Yes,
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Speaker 3: it requires mister Milliband to be exactly wrong. So he
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Speaker 3: thinks we're gonna have cheaper bills because we're going to
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Speaker 3: get out of high and volatile gas prices. But actually
8:18
Speaker 3: the reality is, in real terms of the gas price,
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Speaker 3: the European gas price is below the five and ten
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Speaker 3: year average, and there's lots of reasons for thinking why
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Speaker 3: the gas price might fall. Ironically, though, since our contracting structure,
8:33
Speaker 3: what's being done on net zero means that the wholesale
8:36
Speaker 3: price is less and less important going forward. He is
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Speaker 3: actually making sure in two ways that should the gas
8:43
Speaker 3: price fall, we will not get the benefits of that happening.
8:47
Speaker 3: Of course, gas in heating, that's a different story. But
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Speaker 3: that's all about whether, in fact there is much chance
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Speaker 3: that we're all going to switch to heat pumps and
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Speaker 3: get out of natural gas spoilers and heating. I suppose.
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Speaker 2: I mean, I take your point that it's entirely possible
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Speaker 2: that the gas price might fall. But with the demand
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Speaker 2: for electricity rising as fast as it is globally, with
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Speaker 2: the incredible demand from the big data centers, et cetera,
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Speaker 2: it's quite hard falling over the medium term, isn't it.
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Speaker 3: And that's it's got to pick up.
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Speaker 2: It's got to pick up the marginal the marginal capacity
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Speaker 2: required for all these data centers.
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Speaker 3: You're absolutely right that the demand for electricity is going
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Speaker 3: to go up. Okay, but you have to look what's
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Speaker 3: actually happening in the fossil fuel world. So fossil fuels
9:30
Speaker 3: provide a four percent of the world's energy. But if
9:33
Speaker 3: you look what's happening in the gas world, for example,
9:36
Speaker 3: take a look at the power of Siberia to pipeline
9:39
Speaker 3: which put In and the Chinese leader are putting together.
9:42
Speaker 3: That takes out the marginal LNG demand in Southeast Asia.
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Speaker 3: That affects back on the American ellerg. America wasn't exporting
9:53
Speaker 3: gas ten years ago. It was going to be. It
9:56
Speaker 3: was going to be the mass importer for which the
9:58
Speaker 3: Kuwaiti gas was developed to serve the American market. It's
10:02
Speaker 3: now one of the biggest exporters in the world, and
10:04
Speaker 3: by the way, it's also the largest AWE producer in
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Speaker 3: the world. So I don't think it's right to say
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Speaker 3: that the gas price is in ever to be going
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Speaker 3: to stay where it is or go up. And then remember,
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Speaker 3: in Europe the gas price is below it's five and
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Speaker 3: ten year level on the Dutch market, which is the
10:20
Speaker 3: price that we all use. And that's in a world
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Speaker 3: in which we squeezed out a hell of a lot
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Speaker 3: of Russian gas. Now it's not implausible to imagine the
10:28
Speaker 3: little bit of that Russian gas will creep back in
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Speaker 3: as well. So I'm on a different wicket. I think
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Speaker 3: that the pressures in the international gas market are largely down.
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Speaker 3: But that's why I think that the politicians are completely
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Speaker 3: wrong to tell us that they're going to get out
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Speaker 3: of high and volatile gas prices. And just because there
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Speaker 3: is a spot shock, as there's been in all markets
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Speaker 3: in the past, to mistake a trend for a spot shark,
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Speaker 3: that I think is just a gross mistake that many
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Speaker 3: any politicians in the past have made.
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Speaker 2: Okay, I want to ask you about storage in a
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Speaker 2: minute and see if that is genuinely a long term
11:07
Speaker 2: solution to some of these problems. But before that, you've
11:10
Speaker 2: explained everything very clearly. I think everyone listening to the
11:13
Speaker 2: part will then go, yep, now I understand how all
11:15
Speaker 2: this works. But if you understand it, I understand it.
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Speaker 2: Our audience now understand it. Why does Ed Milliband not
11:21
Speaker 2: understand it? Why does he persist with this view that
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Speaker 2: net zero in the form that it stands is the
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Speaker 2: answer to everything, and why does he persist in telling
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Speaker 2: us that our energy bills are going to come down
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Speaker 2: as a result.
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Speaker 3: Well, I'm an economist and I said in the university,
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Speaker 3: and he's a politician who has to get elected. I
11:44
Speaker 3: had no idea, whether he believes deeply that all of
11:47
Speaker 3: this is achievable and we can get to net zero
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Speaker 3: by two thirty and it's all going to be cheaper. However,
11:54
Speaker 3: it is true that he persuaded a great deal of
11:57
Speaker 3: the public that this was the case, and where I
12:00
Speaker 3: did a great deal of other people that this was
12:03
Speaker 3: a growth strategy. This is one of the areas where
12:05
Speaker 3: economic growth was going to come from. Now, in political terms,
12:10
Speaker 3: I respect all politicians who have taken the trouble to
12:15
Speaker 3: understand that climate change is a really big problem, just
12:19
Speaker 3: as I respect politicians from all sorts of parties who
12:22
Speaker 3: understand just how much devastation we're doing to biodiversity. So
12:26
Speaker 3: that's the first kind of tick in the box, and
12:29
Speaker 3: it's common ground, okay. The second is that there's a
12:33
Speaker 3: great difference of opinion about whether the technologies that we
12:39
Speaker 3: have at the moment can do on a fast track
12:42
Speaker 3: what is necessary to decarbonize them. Supposing we wanted to
12:46
Speaker 3: decarbonize properly and we wanted to do carbon consumption. This
12:50
Speaker 3: is an enormous task. This is a complete transformation. And
12:55
Speaker 3: some academics thing you can do this stuff, and some
12:57
Speaker 3: academics things are costs of solar and wind are going
12:59
Speaker 3: to fall so quickly, and battery technology is going to
13:02
Speaker 3: advance so quickly. This is all going to be fixed.
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Speaker 3: I don't agree. There's no evidence I think to support
13:07
Speaker 3: that proposition, but he obviously listens to that too, and
13:10
Speaker 3: there are different opinions on that. But the politics are
13:13
Speaker 3: really straightforward. If you tell the British public you know
13:17
Speaker 3: that you are causing climate change, and you and I
13:19
Speaker 3: are doing so, we are polluters. It's us, not industry.
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Speaker 3: We ultimately buy the stuff, whether it's made in China
13:25
Speaker 3: or it's made here. If you tell us that we're
13:27
Speaker 3: the polluters, and you say you should stop polluting, and
13:30
Speaker 3: you ask me, do I want to not cause pollution?
13:32
Speaker 3: Because I don't want to cousse pollution. Now you tell
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Speaker 3: me it's going to cost you a lot of money
13:37
Speaker 3: and your energy bill is going to go up. And
13:39
Speaker 3: this is a huge resource cost, which means that the
13:42
Speaker 3: British have to stop having zero savings nessive capital appreciation,
13:47
Speaker 3: but they have to set aside the kind of sums
13:49
Speaker 3: that say Chinese citizens sit aside for investment, your standard
13:53
Speaker 3: living might fall. You're not going to do it. It's like
13:56
Speaker 3: telling people that you know, the cost of COVID ought
13:59
Speaker 3: to be paid for, better off at the end of
14:01
Speaker 3: it than you were at the beginning. Well, people don't
14:03
Speaker 3: want to hear it. So what better to tell people
14:05
Speaker 3: is a win win win. You're going to get clean energy,
14:09
Speaker 3: it's going to cause economic growth. Oh and it's all
14:12
Speaker 3: going to be cheaper right now until you really get going,
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Speaker 3: you're not being found out. But now he is being
14:18
Speaker 3: found out. Now the government is being found out. Now
14:21
Speaker 3: we have the highest electricity industrial prices and nearly the
14:25
Speaker 3: same for domestic in the developed world, and we are
14:28
Speaker 3: hemorrhaging industry. We've lost the fertilizer industry. We've lost our
14:32
Speaker 3: fiber glass industry. You know, these costs are real. Now
14:36
Speaker 3: there are things you can do which can protect your
14:41
Speaker 3: industrial frame by charging them the marginal costs and not
14:45
Speaker 3: the full costs of the system, as most other countries do.
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Speaker 3: We choose not to do that. Now I think we
14:51
Speaker 3: hit the kind of reality wall. It isn't going to
14:54
Speaker 3: be three hundred pound cheaper unless the gas price falls
14:57
Speaker 3: very sharply, and again not for h the reasons that
15:00
Speaker 3: similar bound things. And now we have to rebase and
15:02
Speaker 3: the problem for the government is I think half the
15:04
Speaker 3: government understand that and half the government don't. And that's
15:09
Speaker 3: the political sort of dividing line. I'm glad I'm not
15:12
Speaker 3: a politician.
15:33
Speaker 2: Now. If all economic activity is energy transformed one way
15:37
Speaker 2: or another. If we really do want to properly see
15:41
Speaker 2: the UK economy grow and not just grow, but do
15:44
Speaker 2: you know see GDP per capitalize, improve living standards etc.
15:48
Speaker 2: And have a hope of financial survival, and the fiscal
15:52
Speaker 2: environment that we're in, we do have to find a
15:55
Speaker 2: way to make UK energy cheaper. So what is the
15:59
Speaker 2: answer to your mind? What is the answer to finding
16:02
Speaker 2: a way through this maze of wanting to humor the
16:07
Speaker 2: idea of net zero but also wanting to at least
16:11
Speaker 2: maintain people's living standards.
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Speaker 3: So what we have to do is to say what
16:17
Speaker 3: matters in that energy space for the success of the
16:21
Speaker 3: British economy as an open economy in a tradeable world,
16:25
Speaker 3: even with the tariffs and all those kinds of things
16:27
Speaker 3: around it. So what really matters is what industry pays
16:30
Speaker 3: for energy. If you and I pay too much for energy,
16:34
Speaker 3: it's just like I have being highly taxed. If you
16:36
Speaker 3: really want this high cost route that we're going down
16:39
Speaker 3: to switch the cost heavily from industry to the domestic consumer.
16:44
Speaker 3: And from an industry's point of view, I mean in economics, right,
16:48
Speaker 3: you don't say these are my costs, therefore this is
16:50
Speaker 3: my price. Say what's the market price? Can I get
16:54
Speaker 3: my costs in line to meet that market price? Okay?
16:58
Speaker 3: Urs market price actually very high too. It's got an
17:00
Speaker 3: energy problem. So out there in the world when it
17:02
Speaker 3: comes to the energy intensive bit us costs are enormously lower.
17:08
Speaker 3: So are China's. Actually, China's burned half the world's coal.
17:12
Speaker 3: It's got fantastic amount of cheap coal coming its way.
17:15
Speaker 3: America's just the from a purely energy point of view,
17:19
Speaker 3: the energy utopia pastily cheap gas, largest or producer in
17:24
Speaker 3: the world. Now, lots of wide open spaces for developing renewables.
17:28
Speaker 3: It's a win win win in almost all of these Moneys.
17:30
Speaker 2: And very very and very very open to nuclear now
17:32
Speaker 2: the US very open ms and putting up new stations
17:36
Speaker 2: all over the place, etcetera, in a way that we
17:37
Speaker 2: are not.
17:38
Speaker 3: Well, let's come to newcle a second. But so the
17:41
Speaker 3: point is we should charge a price to industry which
17:45
Speaker 3: enables it to compete in markets, and that means separating
17:49
Speaker 3: out who pays the marginal costs of generating power, and
17:53
Speaker 3: everyone should pay their marginal costs. And the reality is
17:56
Speaker 3: we should switch quite a lot of those costs from
17:59
Speaker 3: large industry to us, the consumers. And politically that is
18:04
Speaker 3: extremely difficult, but that's the thing to do immediately, because
18:08
Speaker 3: there is an industrial crisis out there. You know, who
18:11
Speaker 3: in the Labor Party thought they'd be nationalizing the steel
18:13
Speaker 3: industry within twelve months. Who thought the car industry would
18:17
Speaker 3: collapse quite as fast as it has, even though Brexit
18:20
Speaker 3: did it. Who thought that there'll be another refinery to
18:23
Speaker 3: join Grangemouth on the way out by the way, to
18:25
Speaker 3: turn them into import terminals for what they were exports.
18:28
Speaker 3: Who thought that the fertilized industry would collapse. Who thought
18:31
Speaker 3: the buyer fuels industry collapsed. This is what real large
18:35
Speaker 3: electricity prices do. It's a crisis and it has an
18:39
Speaker 3: obvious answer. Charge the competitive price, not the full costs,
18:45
Speaker 3: and then recover the full cost. You can choose. You
18:47
Speaker 3: can make the taxpayer pay for it, you can make
18:50
Speaker 3: us the consumer pay for it. But face that and
18:53
Speaker 3: tell people the truth behind that proposition. That's the first
18:56
Speaker 3: and most important and urgent thing to do. And to
18:59
Speaker 3: be fair, the government has begun to act on this
19:02
Speaker 3: territory and has set this data two twenty seven to
19:05
Speaker 3: come up with something more general. But their mistake is
19:08
Speaker 3: to think that our only problem is really large intensive
19:12
Speaker 3: producers like steel. Whereas you know, if you make boots
19:17
Speaker 3: or shoes or widgets, you know you're competing too. It's
19:21
Speaker 3: not you're using a lot of energy for your factory,
19:23
Speaker 3: but someone else is producing them over at China at
19:26
Speaker 3: lower cost because their energy costs are that So it's
19:29
Speaker 3: not just a bit of industry, it's affected. It's the
19:32
Speaker 3: whole of the industrial sector. And that's got to be
19:35
Speaker 3: faced up to. And that's the crisis and that's the urgency,
19:38
Speaker 3: and that's where mister miller Band will have to tell
19:40
Speaker 3: you and me, you know what you're going to have
19:43
Speaker 3: to pay more.
19:44
Speaker 2: Is there also a case for pulling back on building
19:47
Speaker 2: renewable energy infrastructure in that there's a lot of wind
19:52
Speaker 2: up in and around the UK now and you know,
19:55
Speaker 2: on good days when the wind is blowing, almost all
19:58
Speaker 2: UK electricity has provided by renewables. And so if that
20:02
Speaker 2: is the case, can you get to a point where
20:04
Speaker 2: you say, well, that's kind of enough.
20:05
Speaker 3: On a good day, it's already.
20:06
Speaker 2: Doing nearly all the electricity we need, so maybe we
20:09
Speaker 2: should pull back.
20:10
Speaker 3: First of all, we're never going to build it as
20:12
Speaker 3: fast as that the government thinks we're going to.
20:14
Speaker 2: Right.
20:15
Speaker 3: The supply chain just isn't there. It's all Chinese or heavily,
20:18
Speaker 3: and in the supply chain, the idea that we're going
20:21
Speaker 3: to be able to say, you know what, just give
20:23
Speaker 3: it the stuff now now we want it because we've
20:25
Speaker 3: only got fifty months or so to go, because we've
20:27
Speaker 3: got to meet this arbitrary target of two thirty it's
20:29
Speaker 3: just not going to happen.
20:31
Speaker 2: Now.
20:31
Speaker 3: You have to look at the energy system as a
20:33
Speaker 3: whole and say what's the balance you want. So in
20:35
Speaker 3: the UK, would you want to basically end up running
20:39
Speaker 3: your electricity system on wind and solar in the hope
20:42
Speaker 3: that you're eventually going to build a bit of nuclear
20:44
Speaker 3: and that's it. No, So personally, I wouldn't do fifty
20:48
Speaker 3: gigawatts of wind, And I'd look at the prices that
20:51
Speaker 3: emerge and what's happened, because these are capital goods, is
20:56
Speaker 3: that the cost of capital's doubled, and the cost of
20:58
Speaker 3: capital is the most important number. For a nuclear power station,
21:01
Speaker 3: for a solar or for wind, they're just capital. And
21:06
Speaker 3: you know, the real interest rate is high. The nominal
21:09
Speaker 3: interest rate on a thirty year bond is five point seven.
21:12
Speaker 3: You know, not long ago, it was naught, right, So
21:16
Speaker 3: people assume the costs were all going to come tumbling down.
21:18
Speaker 3: This is the most important cost and it's going up.
21:21
Speaker 3: And that says non balance. Do you want to do
21:23
Speaker 3: it quite as fast? Do you want to do quite
21:25
Speaker 3: so much? So pragmatism. Is it going to make any
21:29
Speaker 3: difference to climate change if it built a little bit
21:31
Speaker 3: less wind a little bit more? No, Would it be
21:33
Speaker 3: better to spend that money on encouraging some SMR nuclear actors?
21:37
Speaker 3: You know, there are choices, But when you impose an arbitrary,
21:41
Speaker 3: short term political target on edge system, you're bound to
21:44
Speaker 3: create a higher costs and you're bound to create yourself
21:47
Speaker 3: lots of problems.
21:48
Speaker 2: It has a smaller side. Are we absolutely certain that
21:53
Speaker 2: these giant giant wind turbines are at least cover neutral?
21:59
Speaker 2: Are we sure that these giant turbines are positive in
22:04
Speaker 2: the end?
22:05
Speaker 3: First of all, that is a very unpopular thing to say,
22:08
Speaker 3: but it's true. There is no such thing as clean energy.
22:12
Speaker 3: That's the real climate crisis ahead of us. There is
22:15
Speaker 3: no way you can produce energy in volume which is
22:19
Speaker 3: genuinely zero emission, except at the point of generation. So
22:24
Speaker 3: if you dig back into the supply chain of solar
22:27
Speaker 3: or wind or indeed nuclear, any of these technologies, First
22:31
Speaker 3: of all, the starting point of this process is a
22:33
Speaker 3: huge amount of mining. You need copper, you need nickel,
22:38
Speaker 3: you need aluminium, you need iron ore, et cetera, et cetera.
22:42
Speaker 3: And for ev is an electric cars you need a
22:44
Speaker 3: lot of cobalt too, and other minerals. So you do
22:47
Speaker 3: a lot of environmental damage and to the secrustration of
22:50
Speaker 3: carbon which would otherwise take place. Then you get to refining.
22:54
Speaker 3: Refining is one of the most energy intensive things in
22:57
Speaker 3: the world you can do, and most refining minerals in
23:03
Speaker 3: China and especially Indonesia is coal steel coal. Ye. Right,
23:09
Speaker 3: So if you work out the carbon embedded in the
23:12
Speaker 3: thing that you bought, your ev your wooden turbine or
23:15
Speaker 3: your solar panel, that is not clean. The difference comes
23:20
Speaker 3: that once the turbine's turning around, it's not using anything
23:24
Speaker 3: that's carbon intended to turn around it's using the wind,
23:27
Speaker 3: whereas when the gas power station's going it is producing emissions.
23:31
Speaker 3: So life cycle, it's probably true in most cases that
23:37
Speaker 3: the renewables have less carbon emissions associated with them than
23:42
Speaker 3: the fossil fuels like gas generators and coal, but they're
23:45
Speaker 3: not zero.
23:46
Speaker 2: Yeah, So again it depends. It depends on the life
23:48
Speaker 2: cycle of a turbine. If your turbine goes for the
23:51
Speaker 2: full twenty five years, sure ever goes for fifteen, maybe
23:54
Speaker 2: not so much, And so a lot of marginal fudge
23:59
Speaker 2: in this stuff.
24:00
Speaker 3: That there is a lot. But of course end of
24:03
Speaker 3: life is very interesting. End of life of a fossil
24:06
Speaker 3: fuel bar station is quite complicated, right, end of life
24:11
Speaker 3: of a wind turbine, Well, most of it's recyclle. That
24:16
Speaker 3: doesn't mean you don't use energy and recycling you do.
24:19
Speaker 3: It's not free, it's not zero emissions. And we haven't
24:23
Speaker 3: really worked out what we're going to do with solar
24:24
Speaker 3: panels extract some of the minerals from at the end.
24:27
Speaker 3: I mean, the real answer is it's complicated.
24:29
Speaker 2: Okay, Now, let's say them that what we really want,
24:33
Speaker 2: what we really want, if we want to grow. We
24:35
Speaker 2: want to improve our living standards, is we want to
24:37
Speaker 2: be able to use more and more and more energy.
24:40
Speaker 2: And one of the difficulties we've got ourselves into is
24:43
Speaker 2: this idea of thinking that we can survive by trying
24:46
Speaker 2: to use less energy, that we should become increasingly efficient.
24:49
Speaker 2: We should, as you say, gover, voluntary power cards, etcetera,
24:52
Speaker 2: try and reduce the amount of energy we use. But
24:54
Speaker 2: of course progress comes in using more energy, not less.
24:58
Speaker 2: So the answer that the simple answer of the of
25:01
Speaker 2: course is you say, everything is complicated is more nuclear
25:04
Speaker 2: is SMRs all over the place, replace the old or
25:06
Speaker 2: replace the old call stations, etc. With big nuclear plants,
25:09
Speaker 2: but an SMR outside every small town and off we go.
25:13
Speaker 2: How realistic is the nuclear future in the UK?
25:17
Speaker 3: Okay? So the first thing to say, which is really important,
25:20
Speaker 3: Until very recently, people thought that you solve climate change
25:23
Speaker 3: by reducing the demand for energy. You're absolutely right, that
25:26
Speaker 3: doesn't solve the problem. In fact, energy efficiency increases the
25:30
Speaker 3: demand for energy. This is Jevan's law, because if you
25:35
Speaker 3: improve the efficiency of energy delivery, you make it effectively cheaper,
25:40
Speaker 3: and if the price goes down, the demand goes up.
25:42
Speaker 3: That's what we've been doing for two hundred years, and
25:44
Speaker 3: there's no doubt whatsoever that the mindset that's finally changed
25:47
Speaker 3: to recognize the demand for energy, and the demand for
25:49
Speaker 3: electricity in particular, it's going to rise. So how do
25:52
Speaker 3: we meet that much greater demand for energy into the
25:56
Speaker 3: future Given where we are now, It is in my
26:00
Speaker 3: mind pretty much practically inconceivable that you can run an
26:05
Speaker 3: economy in ten or twenty or thirty years time primarily
26:09
Speaker 3: on wind and solar. You would have to solve the
26:13
Speaker 3: storage problem, and that would require you to solve the
26:17
Speaker 3: intermittency problem, and you'd have to do that with a
26:20
Speaker 3: certainty that data and anything else requires, and do it
26:25
Speaker 3: at reasonable costs. No doubt. Batteries are coming on, but
26:27
Speaker 3: they're very expensive. But we've never found a battery yet
26:31
Speaker 3: that can solve the long duration problems in winter. So
26:35
Speaker 3: in that frame, is there anything else? Of course, the
26:37
Speaker 3: answer that everyone absolutely goes to is nuclear.
26:41
Speaker 2: Right.
26:42
Speaker 3: Nuclear is dense energy, very high density energy. It is
26:46
Speaker 3: firm power, it's not intermittent, it comes in really big lumps,
26:51
Speaker 3: even small modular reactors, and it can be placed near
26:55
Speaker 3: the sources of demand. So it's the absolute opposite of
27:01
Speaker 3: a wind turbine offshore lovely so great. Now here's the problem.
27:06
Speaker 3: It's fantastically expensive in this country. How can it be
27:11
Speaker 3: that for three point two gigawatts in the Somerset coast
27:16
Speaker 3: it's going to cost forty something billion? How can size
27:21
Speaker 3: world cost forty billion? But then how can a railway
27:26
Speaker 3: line from London to Birmiham cost three quarters of a
27:29
Speaker 3: billion a mile? So this country has an extraordinary problem
27:33
Speaker 3: with the costs of any construction, and nuclear is a
27:38
Speaker 3: construction problem, par excellens. Now people say, oh, well, let's
27:41
Speaker 3: make it more in factories, let's do SMRs. Well, first
27:44
Speaker 3: of all, small Roger reactors are not small. They're like
27:47
Speaker 3: five hundred megawatts or two hundred megawats. These are quite big, right,
27:52
Speaker 3: and at the moment they're basically mini versions at PWR
27:57
Speaker 3: nuclear pass stations like Hinkley size well, making the factories
28:02
Speaker 3: a hell of a lot of hink clearers made in
28:04
Speaker 3: a factory, right, it's not And you know, you say, well,
28:08
Speaker 3: batch production. Really, we're going to order twenty or thirty
28:11
Speaker 3: of these things and roll them off at a rated
28:13
Speaker 3: knot so you can do that. France was once buildings
28:16
Speaker 3: fifty two nuclear reactors big ones. It was once building
28:19
Speaker 3: six big nuclear reactors simultaneously, right, But to do this
28:25
Speaker 3: you need an a national effort to do it like
28:28
Speaker 3: the French did and the Japanese did it. Nobody else
28:31
Speaker 3: has pulled this off. Now, once you take a one
28:33
Speaker 3: look at the economic decision making in Britain and the
28:36
Speaker 3: absence of savings and the dwardling over building, you know,
28:41
Speaker 3: this is a huge sort of problem. The Brits aren't
28:44
Speaker 3: good at. This is one where you have to commit,
28:47
Speaker 3: and you have to commit to a lot of them,
28:49
Speaker 3: and you have to set the contracts, the training, the
28:54
Speaker 3: skill set, the manufacturing bas et cetera to achieve that outcome,
28:59
Speaker 3: and that it's like suddenly eure a peach time economy.
29:02
Speaker 3: You need a wartime economy. You know, that is one
29:04
Speaker 3: of the big structural changes. Do you think that this
29:07
Speaker 3: government is going to do that? You know, we took
29:10
Speaker 3: this years to get to Hinkley and that was going
29:12
Speaker 3: to produce turkeys by for Christmas in two seventeen. It
29:15
Speaker 3: won't be finished to what twoint thirty how long size
29:18
Speaker 3: were going to take? And when's the one after size
29:20
Speaker 3: will come? Should we make up my mind about that
29:22
Speaker 3: in two forty that's our problem. In the meantime, we've
29:25
Speaker 3: closed down uclear industry at roughly the same pace as
29:28
Speaker 3: the Germans.
29:29
Speaker 2: Who have replaced it with coal. In the last part,
29:31
Speaker 2: doesn't they I'm optimistic. You sound very pessimistic. We can't
29:35
Speaker 2: do any of these things. But what you're actually saying
29:37
Speaker 2: is it nearly all these things are policy decisions and
29:39
Speaker 2: they can be changed. So when you talk about how
29:41
Speaker 2: expensive nuclear is, you say, in this country, So all
29:44
Speaker 2: we need to do is be a bit more like
29:46
Speaker 2: career and we're all good.
29:48
Speaker 3: So one of the things I find, with respect extremely
29:53
Speaker 3: irritating in the energy world is that if you criticize
29:56
Speaker 3: what's currently done and you point out the problems, ah,
30:00
Speaker 3: you're a pessimist, etc. You tell me something optimistic, etc.
30:04
Speaker 3: As if this is some sort of dare I say,
30:06
Speaker 3: a childish game between whether you're pessimisting or opera or
30:09
Speaker 3: an ideology. Even oh ideology is worse, right. But so
30:13
Speaker 3: I'm not a pessimist, I'm not an optimist. I'm a realist,
30:18
Speaker 3: and I talk about climate realism and energy realism. Are
30:22
Speaker 3: these problems solvable? Both the climate problem and the enderwerk.
30:25
Speaker 3: Of course they are. Humans are remarkably ingenious. What isn't
30:31
Speaker 3: solvable is the desire of in a country like Britain,
30:35
Speaker 3: for us to live massively beyond our means, not to
30:39
Speaker 3: pay for the pollution we're causing, not to save, to
30:42
Speaker 3: rely on the comfort of strangers, to do savings, to
30:45
Speaker 3: provide our financial investment. All this stuff is foreign financed.
30:50
Speaker 3: We rely on all of this because we aren't prepared
30:52
Speaker 3: to save and sacrifice consumption, and we're not prepared to
30:56
Speaker 3: allow a chunk of national income to go from what
30:59
Speaker 3: we want to do consuming as it would in say China,
31:04
Speaker 3: into investment via the financial systems. And when I wrote
31:07
Speaker 3: my book on legacy, setting out what as the saying
31:09
Speaker 3: of economy, looks like it's perfectly possible, but you have
31:13
Speaker 3: to start by the really hard bit, which is it's
31:17
Speaker 3: not that we can't grow our standard living in the future.
31:20
Speaker 3: It's just right now we're living beyond our means.
31:23
Speaker 2: Okay, I think that all very hopeful, because when something
31:26
Speaker 2: isn't sustainable, it usually comes to an end. So change
31:29
Speaker 2: may well be ahead of us. Fans, Adam, thank you
31:32
Speaker 2: so much for joining us today.
31:33
Speaker 3: I hugely appreciate it. It's been very very interesting. Well,
31:37
Speaker 3: thank you very much for inviting me. Thank you.
31:44
Speaker 2: Thanks for listening to this week's maryn Talks Money. If
31:46
Speaker 2: you like us, you rate, review, and subscribe wherever you
31:49
Speaker 2: listen to podcasts. Also keep sending questions or comments to
31:52
Speaker 2: Merrorn Money at Bloomberg dot net. You can also follow
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Speaker 2: me and John on Twitter or x. I'm at marinas
31:58
Speaker 2: w and John is John Underscore Step. This episode was
32:01
Speaker 2: hosted by Me Maren Sumset Web. It was produced by
32:04
Speaker 2: some Asadi and Moses and sound designed by Blake Maples
32:07
Speaker 2: and Kelly Gary. Special thanks to Ciddy to Helm