HomePolitical leadershipHas the new US legislation left the UK out in the cold in its response to the energy crisis?

Has the new US legislation left the UK out in the cold in its response to the energy crisis?

On Sunday, the US Senate passed the most important domestic climate legislation in 30 years: the Inflation Reduction Act. It has been a very long time coming. To find something more significant you have to go all the way back to 1992, when Congress passed the renewable energy production tax credit. It enabled renewables to go from ten per cent of US power in 1992 to 21 per cent in 2020. By contrast, the UK now gets nearly 45 per cent of its power from renewables, up from around six per cent in 2010.

Cue smug smiles from this side of the Atlantic. Britain spent the last decade or so (since the Climate Act in 2008) on a tour de force of green growth. It is principally British policy makers that made offshore wind the cheapest source of power in the UK, at around £37 per MWh, now a quarter of the cost of running a gas power station. From 1990 to 2019, the UK saw GDP rise six per cent, while seeing emissions fall by over 40 per cent, more than the G7 average.

It was a very American turnaround
Meanwhile, in Washington, carbon pricing legislation died in 2010, and Barack Obama’s (non legislative) 2015 Clean Power Plan was gutted by Donald Trump in 2016. By COP26, US inaction on climate was embarrassing. By early this summer, it was obvious that, if climate legislation didn’t happen before the US midterm elections, it would be another lost decade of climate inaction, with consequences for the whole world. That is why US advocates had been so gloomy over the near death experience that the Inflation Reduction Act experienced just a fortnight ago.

Winston Churchill allegedly said that “Americans will always do the right thing, only after they have tried everything else.” The Inflation Reduction Act’s surprise passing may be one of the better examples. It could credibly cut US emissions by 41 per cent by 2030, but this statistic underplays both the breadth and depth of the law.

On depth, the law is an industrial strategy to retain US pre-eminence in a net zero economy. It puts significant incentives into domestic manufacturing of clean technologies. In doing so, it delivers on its headline goal of inflation reduction: it could credibly cut gas prices by 20 per cent, and overall energy costs by eight per cent by 2035.

On breadth, it will, of course, build renewables at scale, but it will also do the same for electric vehicles, grids, home retrofits, heat pumps, carbon capture and storage, advanced nuclear, low carbon construction and heavy industry, methane reduction, low carbon farming and forests. It has a big spending programme on climate justice, to cut air pollution in low income communities and ensure home retrofits and heat pumps are available for all Americans, not just those able to pay. Its total value of $739 billion underestimates its effect, because the spending is mostly in payments that are conditional on private investors putting in most of the money for clean technologies.

The UK has fallen badly behind
Meanwhile, back in Blighty, the bold leadership that once characterised the government has transformed into a policy of studied inaction: Boris Johnson has passed the challenge of energy bills and inflation to his successor. The British energy security strategy bets big on a new fleet of nuclear reactors after 2035, but does nothing to cut demand for gas in the meantime – and it is gas that is driving up energy bills and, therefore, inflation, and gas that is funding Vladimir Putin’s war in Ukraine. It is not for nothing that the Climate Change Committee recently warned that, across the UK’s decarbonisation effort, “tangible progress is lagging the policy ambition.”

Outside the Anglosphere, our European neighbours have acted to cut bills, cut carbon and secure their energy supplies. Germany just authorised a €14 billion per year building retrofit programme, Italy will spend €12 billion a year on the same, the Netherlands will insulate a third of Dutch homes by 2030. Ireland, though obviously English speaking, also falls into the camp of the ignored: it will spend €1 billion per year this decade, for a population that is a tenth of the UK’s.

The UK is alone in its inaction. Out in the cold, you might say.

Why not have a British Inflation Reduction Act?
We will have a new prime minister in under a month, and the prospect of £4,000+ energy bills is enough to bring down any government, as is an inflation rate of 11 per cent. What should this act include? Here are three ideas:

A big investment in retrofits
Matching Ireland’s energy efficiency retrofit policy on a per capita basis could see most UK homes upgraded to EPC band C – saving 25 per cent on bills forever – and also make homes easy to retrofit with heat pumps. Of course, this takes time, but every pound spend on a retrofit is a pound the government (and householder) doesn’t have to spend next year on heating.

Get the power system off fossil fuels
Sixty per cent of the UK’s power comes from non-fossil fuel sources, almost all of which costs below £50 per MWh, but the price is almost always set by gas, which costs around £200 per MWh. Put simply, renewables are deflationary at a time when we really want some deflation. National Grid will be able to run the system without any fossil fuels by 2025, but only for minutes at a time if we don’t change the power system’s capacity market. Today the government’s capacity market mostly pays for fossil fuel power, but it should buy zero carbon flexible and firm generation instead.

Climate justice investment
British policy makers should take a leaf out of Joe Biden’s book and see the political appeal in making sure that the cost savings from insulation, heat pumps and electric cars are available to everyone. This does come at a cost, but the price of not acting is measured in the billions: the £1,400 increase in average bills will cost us all £36 billion this winter.

Whilst Boris Johnson may have passed the rather large buck of inflation and energy bills to his successor, his last words of advice: “stay close to the Americans”, has some logic and, after all, imitation is the sincerest form of flattery.

Written by

Policy director at Green Alliance. Tweets at @dustin_benton.