Tricks of the trade, by Jillian Ambrose

“Policy design must give thought to market volatility”

Pinning political decisions on a crystal-ball view of traded markets is risky business. But one which politicians are all too happy to go in to, it seems.

Just ask former chief secretary to the Treasury Liam Byrne, who in 2010 famously left the coalition government a letter saying “Dear Chief Secretary, I’m afraid to tell you there is no money”, after it became apparent that Labour’s earlier spending policies were at odds with a recession-wracked world.

Although I doubt anyone in Brussels left a pithy note over the failure of the poorly designed EU carbon market, it goes to show: policy designed without thought to the reality of market volatility, is a policy at risk.

Returning closer to home, a new report from Policy Exchange has been quick to draw parallels between Byrne’s letter and the situation befalling newly appointed energy secretary Amber Rudd. The level of subsidy set aside for low-carbon development has been pinned on the government’s forecast of where market prices will be in coming years. Even though government has already revised these forecasts lower, the report claims they need to be revised lower still. If not, the amount paid out to generators to top them up to the agreed strike price will spiral, leaving the pot empty sooner than expected, the report warns. Alternatively, the right-leaning think tank suggests a change in policy altogether, which might conveniently prove to be just what the anti-wind Tories are hoping to hear.

“Dear onshore wind sector….”