UK energy & climate policy: what you need to know
This week at COP28 representatives finally agreed on a deal to ‘transition away’ from fossil fuels, but it also laid bare the differences between the nations when it comes to climate policy.
But how does the UK stand up and is there more consensus on climate change at a national level? Audley investigates:
It was touch and go, but this week at COP28, a deal (although imperfect) was reached. In what the UAE hosts will claim as a victory, the global stocktake text was accepted with no objections, and it enjoins countries for the first time to embark on a de facto phase-out of fossil fuels. However, its detractors say it reflects the low level of ambition of the summit, given it cannot compel any country to abide by the phase-out, and it has allowed countries like the US and China, who are the biggest oil and gas producers, to get off fairly lightly.
Where does the UK sit in these negotiations and what are its climate credentials? On the international stage, the UK has led efforts to halt the creation of new coal-fired power plants and while UK Climate Minister Graham Stuart was criticised for his swift exit from the summit, King Charles was the event’s curtain raiser.
For many of the countries at COP28, the broader issues of climate change and clean energy are complex on a national level. In this piece, Audley investigates what the UK government’s position is when it comes to energy policy and how aligned it is with its opposition.
A wedge issue?
The issue of climate and energy policy has the potential to be a battleground between the Conservative Party and the Labour Party in the UK. Prime Minister Rishi Sunak has tried to put clear water between the Tories and Labour by pushing back the ban on petrol and diesel cars and shifting his tone on the environment to one of “a pragmatic, sensible approach”.
The one obvious area of difference is in how much to invest in the green transition. Labour’s pledge to spend £28bn per year on its Green Prosperity Plan would mark a clear distinction between the two parties – but how much Labour wants to stick to this pledge is uncertain. Communications from the Party’s leadership have been unclear and even contradictory on this point.
In the summer the pledge was postponed, then it was reported that it would take a full term to redeem the pledge, and now because of self-imposed fiscal rules, Starmer suggested this month it might not happen. It is also rumoured to be a source of division in the party between Starmer and his shadow climate secretary, Ed Miliband, who first conceived of the plan. Sources suggest that Starmer wants to focus on economic change and Bidenomics-led policies.
Between Labour and Conservative there is some divergence on oil and gas licenses in the North Sea. As outlined in the King’s Speech, the Conservative party’s new legislation will allow companies to bid yearly for new licenses to drill for fossil fuels. This is a policy that Labour opposes, with its own policy to halt new licenses.
However, more broadly, the two parties' policy positions aren’t all that different. The Conservatives and Labour are aligned when it comes to the gradual phase-out of oil and gas and greater investment and exploration into nuclear, offshore wind, and solar power. Most divergence relates to timelines, of which Labour’s are more aggressive. This is highlighted by its ambition to remove fossil fuel power from Britain's electricity grid by 2030, a timeline five years ahead of the Conservative target.
And, at the time of writing, it seems unlikely that climate and energy will be in the top 3 (or maybe even top 5) issues at the top of voters’ minds at the next general election.
The legacy of “hug a husky” Cameroon environmentalism
Eons ago, a fresh-faced David Cameron, newly elected Leader of the Opposition took a trip to the Arctic to highlight the effects of climate change. Around the same time, the Conservative Party’s logo changed to become a blue and green tree. It was an attempt to soften the party’s image and drive up its strategic focus on energy and the environment.
In some respects, the Conservative record is strong in this area. Cutting out coal from energy production almost entirely is a signal achievement. On the international stage, the UK is considered a leader in addressing and tackling climate change. Indeed, at COP, the UK led efforts to halt the creation of new coal-fired power plants.
However, there has always been a tension within the Conservative Party. The infamous ‘get rid of the green crap’ comments show even Cameron himself was not fully signed up to the green agenda.
Critics have said that the Government’s current strategy is unambitious and doesn’t add up to much. Compared to the United States Inflation Reduction Act, the UK’s policy position looks more like a hodgepodge of policies and light on detail, rather than a real strategy aimed at driving a genuine economic transformation.
They might also point to the indecision displayed by the Conservatives, particularly over critical issues like building nuclear power plants. Failure to shore up the domestic energy supply over time did leave the UK more exposed to the shock of last winter. This might be the Tories’ biggest failure on energy.
Nation of NIMBYs
The net-zero transition will require enormous amounts of new infrastructure. New nuclear power plants, and wind and solar farms will all have to be thrown up in the next decade. The national grid will have to undergo huge work to be upgraded and expanded as our energy usage becomes geared much more toward electricity. (Amazingly, half a million kilometers of cable will be required to upgrade the grid).
There are two practical problems getting in the way: the relatively high cost of infrastructure projects in the UK, and NIMBY (not in my backyard) minded communities.
The UK’s planning system and its attendant bureaucracy are often cited as a major hindrance. To give an example, Sizewell C's environmental impact statement is now at 44,260 pages and it had to answer 2,229 written questions at the examination stage.
At the time of the Autumn Statement, the government launched a new policy paper “Getting Britain Building Again” with the objective of speeding up infrastructure delivery. The issue is at least being explored but it will require huge attention and political will to solve what has been an intractable issue for decades.
NIMBY-ism is often prevalent when new infrastructure is proposed. New power lines or power plants are not likely to be popular with those who see them as a blot on the landscape. Siding with these people could bring political advantage – but the cost would be slower net zero development.
One route forward to bring NIMBYs onside is to effectively pay them off. Nick Winser, the electricity networks commissioner, recommended homeowners should get “generous” compensation in exchange for agreeing to have high-voltage power lines built nearby. How far to go to reduce the planning burden and how much to spend on getting support for new developments are ultimately political questions.
How are we going to afford this?
The biggest question hanging over the net zero transition is about cost. Successive governments will have to stump up hundreds of billions in subsidies, investments, and grants to achieve the 2050 target. Finding the money would be a challenge even if the economy was growing at a reasonable clip - but the post-Covid fiscal landscape makes it virtually impossible. This is exemplified by Labour’s struggle between the need to maintain financial responsibility and the desire to roll out its green prosperity plan.
Certainly, technologies will require considerable government backing to create the market. Hydrogen and nuclear power are the prime examples, and we can expect ongoing subsidies for things like air source heat pumps.
Passing the cost on to the taxpayer through green levies on energy bills, general taxation, or increased borrowing is hardly palatable. Although private capital will be mobilised, and as renewable technologies become more proven and slowly cheaper so the costs will reduce, the fact is net zero will be a weight on the public purse.
The evidence of the last decade is that politicians are going to have to design very robust policy strategies – and make their case very carefully to voters – if the net zero transition is to happen smoothly.
By Rolf Merchant, Director and Lucy Thompson, Senior Associate at Audley