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In Thinking, Fast and Slow, Daniel Kahneman describes his research into the following quirk of human nature. If we obtain something desirable, and then lose it or have it taken away some time later, we are unhappier than we would have been had we never received it in the first place. The ‘something’ could be anything we like – money, property, a partner, a friendship, work status, … even perhaps a reduction in our energy bill.

At the time of writing, Ofgem might be experiencing an acute sense of the truth of this observation. On Friday, the regulator announced an increase of £96 in the price cap for default energy consumers, with a new level of £1,138 (based on typical household consumption of electricity and gas) applying from 1st April 2021. This made national headlines, with many emphasizing the cruelty of a significant increase in these Covid-affected times.

Less attention was given to the fact that last summer Ofgem reduced the price cap by £84 for the winter 2020/21, or that this current level is the lowest since price caps were introduced two years ago. Several interpretations of this fact are possible: one might infer, for instance, that the price cap could have been lower to begin with. The point being made here is simply that Ofgem warned, repeatedly, that the current level might not last. In July, they stated that Covid had led to a fall in demand, hence a fall in wholesale prices and costs, and the opportunity had arisen to reduce bills significantly; they also stated that the reduction was temporary – that if costs returned to pre-pandemic levels, the cap might have to rise again. This was re-stated in October. In November, they warned that the cost associated with unpaid bills had escalated, which might place further upward pressure come the spring.

Fair to say the warnings have been a little submerged in some of the recent media reports.

Suppose the price drop in October had not occurred. Ofgem would now be reporting an increase of around £12, or 1%, roughly the same percentage as the Consumer Price Index movement over the last 12 months. It could have been announced as “price cap held fixed in inflation-adjusted terms”. Not much of a story there. The media would have been uninterested.

And yet customers on default tariffs would have been worse off because they would be paying more for electricity and gas in these winter months. Worse off in money terms that is, but probably happier because they would not have received a benefit (price reduction) that would be subsequently removed in the spring.

Equality and the environment

Fuel poverty is an emotive topic. To express any sympathy for Ofgem’s position runs the risk of being branded as middle-class and out-of-touch with the brutal reality facing thousands of households that have to choose between feeding their families and heating their homes.

Fuel poverty is serious. Its very existence is evidence of social and political failure. The state of the environment is also serious: as Mark Carney reminded us in a BBC interview two days ago, not that we should need reminding, climate change is likely to lead to many more deaths and much more hardship around the world than coronavirus.

A sound principle is that the price of a product should reflect the damage caused by its consumption. If David Attenborough is right and we are on the verge of another mass extinction – this time caused by humans via global warming – then energy consumption should be not cheaper but more expensive for most of us.

If we then say the fuel poor should be exempt or compensated, how do we define the fuel poor and how do we administer exemptions or compensation? No easy answers here, as successive governments of different colours have found.

If only we had a more equal society – or at least one in which everyone had a basic level of income. Then we could move on from the debate about fuel poverty, put an environmentally fair price on energy, and and give the proper economic support to a greener way of life we so desperately need.

‘Net zero’, I predict, will be Environmental Phrase of the Year for 2021.

It is easily misread as ‘not zero’, which is good in a way, because de facto they often mean the same thing. My NY resolution this year – which I’m hoping will last longer than usual, i.e. at least until the second week of January – is not to be fooled by ‘net zero’ in its growing array of guises.

It is a phrase increasingly used by politicians and companies in their response to climate change. Thus the UK government has legally committed that the country will reach ‘net zero’ by 2050; the oil company BP aims – but does not yet bind itself – to be net zero by 2050; Amazon commits to net zero by 2040; while Microsoft and Google are even more ambitious, pledging to be net zero, or even ‘carbon negative’, by 2030.

It is great to see such ambition – but what does ‘net zero’ mean? In theory, it means that national or corporate emissions are offset by actions that suck greenhouse gases out of the air: re-forestation, for instance, or carbon capture and storage. The offsetting might also include support for de-carbonisation actions in other countries, or even by other companies. In theory, it is right to include these offsetting actions in the overall calculations.

But while the theory is sound, and the ambition is laudable, ‘net zero’ is susceptible to self-delusion, double counting and fraud:

• First, actual emissions may be unreasonably or excessively attributed to other parties – e.g. emissions associated with all of the goods we import attributed to the countries that export them – or to no party at all – e.g. emissions from international aviation and shipping.
• Second, offsetting measures may be unreasonably credited to one’s own account – e.g. re-forestation or renewable energy projects that might have happened anyway, independently of our ‘support’. (By extension, other people may be unfairly discredited.)
• Third, emissions may be understated – e.g. in the aviation sector, where it is customary to ignore radiative forcing effects, or agriculture, where changes in land use (especially past ones) are left out of the analysis.
• Fourth, offsetting tonnages may be overstated – e.g. by conflating annual and lifetime carbon capture in re-forestation projects, or using the upper end of a range when the benefit is highly uncertain, or ignoring knock-on effects such as when re-forestation in one place causes de-forestation somewhere else.
• Fifth, future projections might be based on optimistic assumptions about technologies that don’t yet exist, or patterns of consumption not yet proven.

The BBC’s favourite measure

Apropos the second bullet above, the BBC published on New Year’s Day its five key recommendations for individual action. Number one? Switching to a renewable energy supplier.

I confess to a certain degree of despair on this point, but to re-cap: the share of electricity now generated by renewables in the UK (about one third) is roughly what it would be if no-one in the last 30 years had consciously switched to a renewable supplier. Why? Because the share has been determined by national subsidies.

I recommend switching. I just think we need to be honest that hitherto it’s hardly been saving the planet. The key question to ask is this: is my new green tariff more expensive than the one I was on previously? If the answer is No, then chances are the action is having little or no impact – because either the renewable project was already cost competitive (in which case it would have been developed anyway by somebody, whether you ostensibly supported it or not) or it has been subsidised well enough to be so. If the answer is Yes, your action may be having a positive effect, assuming the reason for the price increment is neither inefficiency or profiteering by the supply company and the money gets to the generator … but the answer has not usually been Yes.

Why does this matter? It matters if people think they’ve ‘done their bit’ for the environment by changing their energy supplier, when nothing physically has actually altered.

Money – a useful test

This example illustrates a useful principle, albeit very approximate in its application: costs account for the use of resources. Unless an individual or firm feels the costs – including the cost of abstinence – it’s unlikely that much has really changed. If the cost is minor, let’s say a £300 flight is increased by £10 for offsetting, or a firm spends £1m on new offices and an additional £0.01m planting trees to offset the construction, then the benefit is probably also minor. Getting something for nothing (or not very much) unfortunately doesn’t tally with the natural world.

We need verifiable cost data, verifiable emissions savings, and a clear causal link between them. We need this data to guard us against the forthcoming avalanche of hype, and perhaps our own propensity for wishful thinking. Especially if Covid eases, media attention turns away from it, and we have a hot summer.

So let’s be supportive of ambition by all means, but at the same time be clear-sighted about the potential for deceit; and make a New Year’s determination not to be the willing dupes of vested interest.