Well, it depends on how you count subsidy

Mr Huhne, one of the leading Liberal Democrats in the cabinet, used an interview with The Sunday Telegraph to speak out in favour of harnessing both onshore and offshore wind power in comments likely to alarm Conservatives and place further strain on the coalition.

The Energy Secretary, ahead of a key Commons statement on energy policy on Tuesday, also stressed there was \”no money\” for state subsidies for a new generation of nuclear power plants – the favoured option of both the Conservatives and Labour.

The problem here is that people, especially the politicians, aren\’t counting all subsidies as subsidies. It\’s a bit like on balance sheet and off balance sheet shenanigans.

There are, in theory, two ways (well, more than that but we\’ll look at just two) to provide subsidies to electricity generation.

We could set aside some amount of tax money and use that to pay directly some of the costs of a form of generation which is not economic purely in market terms. This might also include agreeing to unsure long tail risks, as would likely be necessary with nuclear.

We could rig the market, insist upon a price premium being paid for electricity from certain technologies. In this case the subsidy is paid by consumers, not taxpayers. Yes, very largely exactly the same group of people but the advantage to politicians is that no one see the huge cheque floating out of the Treasury.

Note that all of this doesn\’t depend upon whether we\’re pricing in externalities properly or not, the cost of carbon and so on: we can do those things as well, but we\’ve still got these two ways of subsidy over and above that.

Politicians are obviously going to prefer fiddling with market prices: they\’ll get less blame for it this way.

However, given that taxpayers and electricity consumers are largely the same group of people, what really interests from our point of view is which of the two sets of subsidies is greater? Not where they\’re hidden, or which bill contains them, the \’leccie or the tax, but which system provides electricity with the least total subsidy?

No, I\’ve not done the sums but I have a very strong feeling that it\’s nuclear which gives us the electricity we want with the least total subsidy. But it\’s possible for the anti-nuclear crowd to obfuscate on this point precisely because we\’re not counting the two subsidies as being equal.

In fact, I\’m reasonably certain that if we did account for carbon emissions properly, did have those externalities properly fixed into prices, that nuclear would require no further subsidy while wind would still need more.

The crucial part here therefore, the weasel wording that makes wind seem, in political terms, cheaper than nuclear is \”state subsidies\”. They\’re just not counting the amount gouged out of consumers as a subsidy….which, of course, in economic terms, it is.

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