Electricity privatisation and deregulation positively deters investment in conservation and energy efficiency: “the market competes for lowest up-front price, not lowest price over the lifetime of a product … In the old electric system, it cost utilities less to subsidize our more efficient bulbs than to build another dinosaur plant”. In a market system the incentive is to sell more electricity for premium prices.
Privatisation allows, and in many instances encourages, the maintenance of old polluting coal-fired power plants that contribute smog, mercury and particulate matter to the atmosphere causing thousands of deaths annually. In Australia, privatisation has led to the increased use of the most polluting type of coal, brown coal and there has been a 31 percent increase in greenhouse gases as a result of energy deregulation.
In the US it is the public utilities that have led in conservation efforts while private power companies have cut their conservation budgets. The Commission for Environmental Cooperation, a NAFTA (North American Free Trade Agreement) agency, found that electricity deregulation caused the energy efficiency budgets of North American power companies to be cut by 42 percent between 1995 and 1999.
Independent Power Producers (IPPs) “skew incentives towards new generation and against meeting electricity needs through greater efficiency”. There is not much likelihood that electricity suppliers will encourage their customers to use electricity efficiently if they are committed to purchasing more electricity than they need from an IPP. Moreover, the export credit agencies that often fund them usually do not require the environmental measures and protections that governments require. As a result IPPs have tended to favour oversized, outdated, polluting fossil fuel-based power projects.
A study by the World Resources Institute of electricity reforms around the world found that:
Financial concerns and donor conditions have driven electricity reform. Managed by closed political processes and dominated by technocrats and donor consultants, environmental considerations play almost no role in a re-envisioned electricity sector. Social concerns are given more importance, but only to the extent that reforms affect politically powerful groups.
When the market decides on the fuel source there is no incentive to take account of the environmental costs of that source. As a result, new generating capacity around the world continues to be dominated by fossil fuels. In the US the Energy Information Agency predicts that new power plants will be mainly gas-fired in the shorter term and increasingly coal-fired in the longer term as gas prices increase.
Similarly Europe’s new power plants are likely to be gas-fired for the short-term future. Although cleaner than coal, gas still contributes to global warming and is not renewable. Worldwide, the use of natural gas and coal surged in the mid-2000s.
In 2009 the UK Committee on Climate Change advised pointed out that nations with significant non-fossil fuel based electricity, particularly hydro-electricity and nuclear energy, had achieved this through large-scale government investment. It argued that private companies competing in electricity markets could not achieve the required shift to renewable energy.
The best way to ensure that new power plants are based on renewable energy is for the governments to build them. Although private companies have invested in a few token renewable energy plants, only governments, which don’t require high short-term returns on their investments, can make the concerted effort to invest in the sort of technologies necessary to prevent further global warming.