Fudging the future – political divisions over a 2030 decarbonisation target are threatening the economy, energy security, bills and climate change.
Richard Hoggett, IGov Team, 27th February 2013
The last few weeks have seen growing evidence from a broad range of organisations and commentators on the need for the Energy Bill to include a 2030 decarbonisation target (as well as the inevitable counter arguments in much of the media, and political circles). The problem is there is no simple route for developing a secure, affordable, low carbon energy system. Regardless of the path taken, we still need to attract the necessary investment for new infrastructure; to access energy resources; develop supply chains; and deploy new technologies, etc. The Energy Bill should be helping to provide confidence, but it is clear from many in the investment community, including suppliers, developers and supply chain companies, that it is not. Confidence from the industry in the regulator and government are also low, and policy decisions continue to ignore evidence and best practice from elsewhere.
Ofgem’s estimate is that the UK needs around £110bn of investment by 2020 in its energy infrastructure and the focus should be on how to enable this, whilst maximising economic opportunities, minimising impacts on fuel bills and reducing carbon emissions. Delivering on such a broad range of goals is possible, not least by creating a stable and consistent policy regime that reduces risk, and perceptions of it for investors. This is true for incumbent technologies, as well as emerging technologies. Get it right and investment decisions follow, creating diverse and thriving supply chains, which stimulate growth and create jobs. It should also lead to reduced costs from economies of scale, learning rates from technology roll out, and from competition between companies within the supply chain. Get it wrong and investment can go elsewhere, as the willingness of companies to invest in technologies, infrastructure, or a supply chain are reflected by the policy regime that is in place in any particular country. Those countries that are more successful in implementing efficient low carbon policies are attracting investment, leading them to become major centres of production and influence for a range of technologies. Obviously, policy confidence also reduces the cost of capital; ultimately making the transition to low carbon cheaper for the economy and our fuel bills.
So how has it got so messy? Why is it that the Energy Bill is falling short of expectations for low carbon investors? And why is policy uncertainty still rife? Leaving the complexity around many parts of the Energy Bill aside, a key short term issue is the uncertainty caused by the lack of a 2030 decarbonisation target within the bill. This has happened, despite efforts to support its inclusion from, inter alia, a letter to Ed Davey from a number of big power engineering firms last year; an open letter from over 50 big household business names to George Osborne, as well as support from academics, some of the big six and wider civil society. In addition, political support came from both Labour and the Liberal Democrats to introduce a target and even David Cameron gave at least a nod towards the need for decarbonising the electricity sector back in 2010. However, what transpired in the Energy Bill was a weak policy fudge, with Ed Davey losing the internal battle with the Treasury and George Osborne. The result was an agreement to look at it again at some point in 2016: prolonging political uncertainty for investors, by neither giving the certainty that there will be a decarbonisation target in place, nor the certainty of not having one.
Since then, the Conservative MP Tim Yeo and Labour’s Barry Gardiner have tabled an amendment for the inclusion of a 2030 decarbonisation target within the Energy Bill. There have also been a number of key developments and insights, not least, last week’s joint statement from a broad coalition of organisations calling on MPs to support the amendment – which cut across different parts of society, including one of the big 6, supply chain companies, investment companies, renewable energy companies, faith groups, as well as a number of NGOs. There have also been a number of insightful overviews of the issues, showing there are no good arguments against the adoption of a decarbonisation target; including a balanced overview of the challenges, risks and ways forward from SSE, who continue to differentiate themselves from the other big energy companies. As well as insights into the political divisions behind the target and a number of online campaigns to gather support for the amendment. Most recently Paul Ekins, in setting out UKERC’s latest work on modelling the UK energy system in 2050, highlighted there is no reason not to include a 2030 target with the Energy Bill, as without radical decarbonisation of the system there will be no chance of meeting the 2050 carbon target cost effectively.
Not only is there cross party support, but there is also strong existing and new support for introducing a target and growing case on why it is needed. So what’s the problem? Some have pointed towards the economic crisis being the main driver in the rhetoric against a 2030 target, whilst others have highlighted the role of political ideology in preventing progress and leading to the 2016 fudge. Regardless of how it’s framed, a failure to introduce a target as part of the bill, would as James Murray highlights, be a Westminster tragedy. We need policies that make political, environmental and economic sense, this amendment goes some way to offering these, as its introduction would be good for all political parties, it would help the faltering economy, and it would create confidence needed to bring investment forward. Importantly, it would also help to reduce energy bills, increase energy security, and tackle climate change. Let’s hope MPs are willing to reflect on the evidence to overcome the Coalition whips’ call for MPs to oppose the Yeo-Gardner amendment.