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Will the UK government cap renewable industry revenues?

Graham Watson

12th October 2022

A lovely applied example Here of the complexities of policymaking. In tackling the energy crisis, the government is looking to cap the price that renewable energy sources are able to charge for their power, something that intuitively would seem to make sense.

However, there are a number of problems here. The first is that any such cap is going to deter investment in the sector, and make hitting climate change targets harder.

A second is an issue of fairness - in effect such a move represents an implicit cap on profits and it seems odd that the government should be capping the profits of renewable energy companies and not, as yet, imposing a windfall tax on fossil fuel companies.

And then you have to think about the unintended consequences - but I doubt the current government will have got this far.

Here is another interesting climate change policy option

Might the UK follow France and ban some short-haul air travel to reduce the carbon emissions from aviation? The latest research by the Intergenerational Future think-tank Reported here in the Guardian suggests that a ban on domestic flights for which there's a rail alternative would reduce emissions by 33%. It doesn't strike me as unreasonable, not least because of advances in video communications too.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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