This is a guest post by Duncan Brack, formerly Chris Huhne’s special adviser and now a freelance researcher. It is part of a series on big ideas to reduce the UK’s environmental impact.
My big idea is for the government to be consistent in its support for its own energy and climate policies. Hardly a radical proposal, but one it is not achieving.
The coalition programme that was agreed in 2010 is clear in its intention to ‘cut carbon emissions, decarbonise the economy and support the creation of new green jobs and technologies’. It contains the following commitments: to increase the target for energy from renewable sources, if feasible; encourage, in particular, marine energy, energy from waste and community renewables; investment in carbon capture and storage (CCS) technology; an emissions performance standard; the reform of energy markets to deliver investment in low carbon energy; and the Green Deal domestic energy efficiency programme.
On top of this, in May 2011 the government agreed the fourth carbon budget representing a 50 per cent cut in emissions from baseline by the mid-2020s, the most ambitious target of any industrialised country.
Lack of support
Unfortunately, however, one of the leading members of the government – the chancellor – seems determined to undo all of this. Displaying an approach reminiscent of that of his backbench colleagues over Lords reform, who seem to regard coalition promises as merely optional, rather than binding commitments entered into in good faith, George Osborne has done his best to inhibit growth in renewables.
In May last year he opposed DECC’s proposals for the fourth carbon budget, unsuccessfully; though, in the end, he forced a review of the target in 2014. In October, in his Conservative conference speech, he launched an assault on green regulation as a ‘burden’ on business and, in November, he did it again in the autumn statement. Earlier this year he attempted to reduce support for renewables, again unsuccessfully; though he is rumoured to be trying it again, in exchange for agreeing Energy Secretary Ed Davey’s proposals for including a carbon intensity target in the forthcoming electricity market reform bill.
Why he’s doing this is not entirely clear. It may arise from a belief that environmental targets are a luxury that can wait until the economy is stronger; a desire to increase differentiation from his Liberal Democrat coalition colleagues; or simply a decision to appease Tory backbenchers, the Daily Mail and the Daily Telegraph, given the slowness to deliver on his economic policies.
Whatever the reason, the outcome is clear: a continued muddling of the government’s message on low carbon energy which means, in turn, a negative impact on investors.
Investor uncertainty
If I learned anything from my period as a special adviser in DECC, it’s the meaning of ‘policy risk’. All low carbon technologies require government support, partly because they deliver non-monetary benefits in terms of carbon emissions avoided and, partly, because they are relatively immature technologies, whose costs will come down in time. At the same time, many low carbon technologies, such as wind farms, are characterised by high initial investment expenditure and very low running costs. Investors have to be certain they’ll get an adequate return before they commit the initial capital. Every time the chancellor drops a hint that the government support framework may change, the cost of capital for these investors rises, as the investment gets riskier.
No wonder the CBI warned in July that ‘the UK has made a great start tapping into green economic opportunities, but mixed signals from the government are setting the UK back’. No wonder that two different groups of industries warned the chancellor in October that low carbon investments were in danger of being delayed or cancelled.
Consistency, consistency, consistency
What does the government need to do to reverse this trend and increase investor confidence in its long term commitment to low carbon energy?
There’s a long list, but I’d suggest, as priorities, policies which restate or reinforce existing commitments: scrapping the 2014 review of the fourth carbon budget target; including a carbon intensity target in the electricity market reform bill; getting a move on with awarding CCS demonstration project funding; and removing the borrowing restriction on the Green Investment Bank. Above all, the chancellor should support the low carbon strategy that he himself helped to negotiate in the coalition programme.
Consistency on this agenda isn’t hard to achieve if every member of the cabinet takes responsibility for delivering the agreements and the direction the coalition has already set out.
