The UK government reshuffle: the implications for energy and climate policy

by Inline Policy on 24 Jul 2014

Now that the dust has settled a little, it’s worth examining Prime Minister David Cameron’s recent reshuffle in more detail, and what it might mean for the coalition’s policies on climate change and energy between now and next May’s General Election.

Focusing on the personalities (for a moment)

Much has been made of the surprisingly sweeping changes which the Prime Minister made to his cabinet team across the board. This applied to the climate and energy briefs more than most. At one stage, the advance speculation even had Ed Davey being removed as Secretary of State. This would have made no sense from either a policymaking or political viewpoint, and of course it was proven to be unfounded.

Nevertheless, when taken together, the replacement of Michael Fallon by Matthew Hancock as Energy Minister (occupying offices in both the Department of Energy and Climate Change(DECC) and the Department for Business, Innovation and Skills,(BIS) and Greg Barker’s sacking as Climate Change Minister (to be replaced by Amber Rudd), still make up a sizeable change. Hancock and Rudd both have a strong association with Chancellor George Osborne. So is this the moment, despite Ed Davey’s best endeavours, when the Treasury takes over energy and climate policy? That could be the immediate, possibly lazy conclusion. But let’s move away from personalities to hard polices and examine the evidence.

Five Policy Takeaways

1. There will be an even closer scrutiny of the coalition’s policies to ensure they are delivering value for money. Consequences for competitiveness - for industry and for the consumer - will be to the fore. This will apply to the Government’s renewables regime, where critics will not be slow to point the finger if they judge that subsidy regimes (now coming under the umbrella of the coalition’s electricity market reforms and specifically the new Contracts for Difference (CfD) mechanism) are too costly. Worries about cost-effectiveness might also start to creep in further when detailed consideration is given to structural reform of the EU Emissions Trading Scheme and whether its impact on future carbon prices will be more than the energy-intensive sector will want to stomach.

2. The UK Government was already determined to lead the way, leapfrogging Poland (where progress has fallen behind), in Europe on developing an indigenous shale gas sector. It was a policy on which Ed Davey and Michael Fallon could find common ground (despite their different starting points): Matt Hancock’s elevation will mean more of the same. Away from the contentious headlines about fracking, the Government has been busy building the economic case and laying the practical groundwork for the sector to go forward on a more robust basis. In April, DECC published a report on the economic benefits to the UK of a shale gas supply chain; this was followed in May by the launch of a consultation on proposals to simplify deep underground access for shale gas industries. Ministers have also made clear their satisfaction with the line the European Commission has so far taken on fracking - to quote from a speech given by Fallon just before the reshuffle: “a proportionate approach on the regulation of shale…the hope that UK work will inform the new Commission and the new Parliament on the need to incentivise exploration, rather than bureaucratise.” Hancock will now oversee the imminent shale licensing round and he can be expected to share the enthusiasm for shale gas (and gas-fired generation, more generally) of his ex-boss, the Chancellor.

3. The Conservative Party has been tacking to the right for a while on the subject of renewables. The sceptical views of Fallon’s predecessor as Energy Minister, John Hayes, were all too-well-known.  Fallon was more of a diplomat and team player, but he could never quite hide his doubts. The policy path on renewables and fiscal support for the subsidies regime, with the introduction of the CfD in the autumn and the Levy Control Framework running until 2020, is clearly set out. But the rhetoric of the new DECC Ministers - perhaps it will be just as much about what they don’t say as what they do - will be worth monitoring. Eric Pickles’ (Secretary of State for Communities and Local Government),hands-on role over renewables projects planning procedures (e.g. his recent decision to refuse applications for two large-scale solar farms) will continue, possibly emboldened by the changes at DECC. Even if overall policy isn’t going to change over the next 10 months, Ministers will retain the ability to wield significant influence on fiscal and planning decisions.

4. Moving away from policy measures which have a direct budgetary impact, Ed Davey should be able to maintain a strong position. For example, there are no signs that the UK is going to dilute its stance on a reasonably ambitious emissions reduction target for Europe in 2030. EU policy officials are optimistic that member states (notwithstanding Poland’s opposition) will agree on a 40% target in October this year, and the UK can be expected to be one of the leading advocates for that. The news earlier this week that the UK’s targets for the Fourth Carbon Budget, covering 2023-2027, will remain unchanged, shows that Davey (even though he may feel surrounded by low-carbon sceptics) will be no pushover. This decision looks like it was part of a coalition deal which will also promote shale gas; nonetheless, Treasury views on the anti-competitiveness implications of an ambitious mid-20s carbon target had been expected to prevail, and that didn’t materialise.

5. Finally, the single energy market will undoubtedly be a priority for the coalition over the next 10 months. Ed Davey consistently majors on the need to complete the third energy package, promoting liberalisation and better interconnectivity. He will get backing from his DECC ministerial colleagues on this. And it squares with the wider rhetoric of the Government, from Cameron downwards, that single market issues should now in this “new European world” be an absolute priority for the EU and for the new Commission under Jean-Claude Juncker. In that conext, the UK Govt will have been heartened by the Italian EU Presidency’s decision to make the single energy market one of its priorities; and by Juncker singling it out on his recently-published agenda.

Conclusion

It will be a whole different ball-game after next May’s election, depending on the result. But for now, even if Ministers will more likely be place-holders than game-changers, the energy and climate agenda over 2014/15 is sufficiently weighty for this reshuffle to matter. The evidence suggests that the Treasury and the “treasury view” may not get all its own way. But a cost-effectiveness approach, at least in the rhetoric, will probably be a dominant theme as the new Ministers settle into their briefs and the election comes ever closer.

policy-regulation-tech-sector-guide

By Richard Folland, Energy and Environment Consultant at Inline Policy

(Photo by Bilfinger SE, CC BY-ND 2.0) 

Topics: UK politics, Energy policy, UK business, Economic policy

Inline Policy

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