Paying the price

Dave Powell

23 May 2013

This blog first appeared on Business Green.

Irritatingly, everything seems to be getting more expensive: energy, transport, and even a pint.

But a delve into some of the factors affecting the prices we pay in the UK reveals two common threads: environmental pressures and sharply growing demand for what is, ultimately, a finite stock of natural resources.

Between 2004 and 2010 domestic electricity bills rose 60% and gas bills 90%. According to Caroline Flint MP last week, the average bill now stands at an eyewatering £1,420 a year. It's all down to the soaring price of gas, say Ofgem and DECC, driven by increasing international demand. Getting off fossil fuels sharpish isn't just the right thing to do to avoid dangerous climate change but also get us off a gas price which, the Government says, is likely to continue to rise (yes, even with shale).

For transport, fuel duty makes for a convenient scapegoat for soaring petrol prices; but it is lower in real terms than any point since 2001. The real reason is the cost of oil; Brent crude prices have risen (with some jolts and starts) significantly over the last decade, and are projected to rise in the future. Again, other factors are at play - the latest developments of alleged price fixing, for example - but the International Energy Agency predicts a steady upward march in years to come. 

It's the same across a gamut of resources, as pioneering investor Jeremy Grantham powerfully illustrates.  Massively increasing demand for commodities has wiped out in a decade the previous century's steady decline in resource prices. This time, he warns, it's different: this is no blip.

If that wasn't enough, changes to the climate are starting to have an impact on food prices. In April Channel 4 reported that our wet and cold winter had led to a UK wheat harvest "a third lower than normal... potentially driving up food prices".  Last year's poor weather led to a decrease in wheat yields of 14% on 2011 and a 14% drop in oilseed rape yields; analysts anticipate a 6% rise in the price of products like vegetables this year due to poor yields.

With increasing confidence, scientists are pointing the finger for our unseasonal seasons at man's impact on the climate; the loss of Arctic sea ice caused by climate change has been directly linked to the UK's chilly and soggy spring. Climate change will bring more extreme weather, for example, the drought that is currently forcing up US food costs.

This handful of examples should be pause for thought for those who think "the environment" isn't an everyday concern. It is: its health and abundance are critical factors in determining how much things cost, what sort of economy we can support and how resilient it is to shocks.

As Ian Cheshire, CEO of Kingfisher, warns:

"There is massive inbuilt price inflation unless we rethink the resource implications of our actions, and I think that will show up in people's everyday life in all sorts of areas"

That's why our Make It Better campaign is calling on companies to redesign processes and products to be more resource-efficient - and for regulation that would require stragglers to keep up.

But the lack of connection drawn by the Government is frustrating. The Treasury's rejection of cross-Government demands for a review into the impact of resource constraints on growth is galling; the Chancellor's refusal to give investors certainty about long-term clean energy policy by opposing a 2030 decarbonisation target is wrong-headed. George Osborne regularly cites the rising oil price as a reason for widespread economic gloom, but unveils only measures to get more fossil fuels, like shale gas and North Sea oil; sticking plaster stuff in the face of global megatrends.

In the face of shortages and ecosystem havoc, going gung-ho for more stuff is a very poor cousin to rapidly cutting our environmental footprint, getting off the fossil fuel merry-go-round, and taking wise decisions now to insulate the UK from the stresses and shocks that the 21st century looks to have in store.

@powellds