From fracking to fuel switching: Where are the energy and climate political dividing lines in this election?
by Inline Policy on 30 Mar 2015
Energy and environmental policies have been a regular talking-point during the period in office of this coalition government. Most of the public will have heard of David Cameron’s ambition that his should be the “greenest government ever”, while few speeches from Ed Miliband have grabbed the spotlight in the manner his “price freeze" party conference speech did in September 2013. Subjects which used to live in the world of policy and markets wonks - the link between wholesale and retail prices, the impact of energy efficiency measures, the cost of renewables, Russian gas pipelines, not to mention the controversies generated by fracking - have become almost mainstream topics.
This article will not dwell on the past. Rather, it will analyse the energy and climate policy approaches of the main parties - even though the manifestos haven't been published yet - and consider whether any issue has the potential to spark into life as a major campaign flashpoint. The analysis will also take the opportunity to highlight various urgent, cross-cutting and strategic themes which should be prominent in policy thinking once the new government (whatever party or combination of parties it might be!) is in office.
Decarbonisation - how serious are you?
The outgoing (even if he doesn’t think he’ll be back in the same job) Energy and Climate Change Secretary, Ed Davey, is fond of quoting the energy trilemma in his speeches: in short, the policy requirement to cut emissions while maintaining the UK’s energy security, all at energy prices which are affordable and competitive. The first part of the trilemma - decarbonisation - is an area where Davey has a strong track record and which the Liberal Democrats can expect to prioritise during the election campaign. In recent weeks Davey has been trailing the Lib Dems’ “Green Magna Carta”, five green bills which will, inter alia, include a green transport bill and low-carbon Britain bill. Two key provisions in the latter will be a 2030 power sector decarbonisation target (Labour supports this too) and emissions performance standards on existing coal plants.
The Lib Dems therefore remain very serious about advancing decarbonisation. They are also probably more vocal about the benefits of green growth than the other parties. But where perhaps all of the three main parties are starting to get serious is on phasing out coal. The Valentine’s Day 2015 announcement - brokered by the Green Alliance, carrying the signatures of David Cameron, Ed Miliband and Nick Clegg - on climate action carried a pledge to end the use of unabated coal for power generation; and for that reason alone, plus the strong show of bipartisanship (in glaring contrast to the yawning political divide on climate which has now opened up in the US), it’s a step forward under-reported and under-valued in its significance.
That announcement has also served to shore up David Cameron’s green credentials, faced as he is with leading a party not always comfortable in its skin when addressing matters concerning decarbonisation and climate change. Stoked up by some of the media or challenges from UKIP, we shouldn’t be surprised if the odd eruption about onshore wind farms should come during the campaign from a Tory candidate or even a Cabinet Minister. There are reports that they will take a tough line against onshore wind subsidies if they do return to office. But it’s hard to see clean energy becoming a major election issue. Incidentally, the Conservatives would benefit from having a senior climate and energy political lead to take on the other parties.
For Labour, led by a former Energy and Climate Change Secretary whose principal achievement in office was the Climate Change Act, decarbonisation should be fairly comfortable territory. However, while Labour Shadow, Caroline Flint, might not be as ambitious or as bold as her Liberal Democrat opponent, the priority she and her party are placing on energy efficiency is striking. Plans for a major efficiency programme, which will target Britain’s ageing housing stock and will within that address fuel poverty, and warm homes, will feature prominently in Labour’s manifesto. Part of Labour’s motivation here is the coalition’s failure with the Green Deal.
Two other points: it will be interesting to see the bidding war between Labour and the Lib Dems on future borrowing powers for the Green Investment Bank, a measure George Osborne is unlikely to allow into the Tory manifesto. And watch out to see if any of the parties, within the context of global climate action, introduce the concepts of the carbon bubble and stranded assets - subjects gaining traction here and internationally.
Security of Supply - we’re more serious than you
One charge that no credible Energy Secretary of State can tolerate is that he or she would put Britain’s energy security at risk, where electricity blackouts are major possibilities. There is a worry among experts - more legitimate than DECC that would like to admit - that capacity margins are too tight. Add to this the plausible concerns that the EU collectively (and by extension the UK, even if we don’t import gas direct from Russia) can’t afford to be over-reliant on Putin’s inclination to use energy as a political lever, and this is an area ripe for deploying political capital. In that context, the Conservatives’ decision to prioritise shale gas within its overall energy policy makes obvious sense.
Where, however, the Tories have left a flank exposed is that, in their enthusiasm to go “all out” for shale gas, they are insufficiently taking into account public and environmental concerns around fracking. Moreover, Ed Davey for the Liberal Democrats freely admits that there is no evidence to date that shale gas will be transformational for the UK. The government says that it has put a robust regulatory regime in place and that the recent amendments to the Infrastructure Bill seems basically to have assuaged Labour concerns. This won’t stop the Greens and anti-fracking campaigners from continuing to make their case, which incorporates the strongly-held view that subsidising the shale gas industry is incompatible with UK climate targets. It’s worth mentioning here that the Cuadrilla application to resume fracking in Lancashire (after the three-year hiatus following the earth tremors incident) is about to come to a head. Lancashire County Council is running a consultation until 17 April and is expected to announce its decision shortly afterwards on whether to allow Cuadrilla to resume operations - should that announcement be made before the election on 7 May, it’s not impossible that shale gas could become a flashpoint in the campaign. Fracking and trust are still not words which easily sit together.
On other energy security topics, the main parties are pretty well united on the need to provide fiscal support for North Sea oil and gas. The Greens, inevitably, disagree with that. Just as the Greens also continue to advocate running down the UK’s nuclear power capability - again in contrast to all the main parties (the Lib Dems having done their volte-face on nuclear in coalition); although Labour say that in power they will want to look at the numbers of the (still unsigned) Hinckley Point deal.
Energy Prices and Competitiveness - nothing could be more serious
The impact of gas and electricity bills on British households has been the battleground over the last year, and is the energy issue most likely to feature in the campaign. The parties’ positions haven’t really changed: Labour will implement a price freeze for 18 months (“bills can only fall and not rise”); the Tories and Lib Dems will oppose that (Ed Davey as vehemently as anyone on the Conservative side) and put their faith in more competition and greater ease of switching. But it is worth noting how the Labour line has evolved. Caroline Flint now says that the freeze is partly about accounting for the utilities’ misdemeanours in the past and the 18 months will give Labour in government the time to restore trust in the energy market and make it more transparent so that companies can be held to account.
The three main parties are all signalling that they would welcome more new entrants into the market to make it more competitive. The policy differences in this context probably hinge more on means than ends - witness Labour’s suggestion that they might not be prepared to await until the end of the year, when the Competition and Markets Authority publishes the full report on its investigation of the energy market, before taking tougher regulatory action. In the bigger picture, the debate on pricing shows that the parties still have moderately competing philosophies on markets. That said, the consensus has certainly moved on from ten years ago in that climate change and decarbonisation have made market intervention more acceptable and energy more “political”, points even the Conservative hierarchy would accept and that Ed Davey consistently voices. But all the parties, including Labour, are still careful to say the right things about developing market frameworks, not picking technology winners and the importance of getting to where mature renewables sectors no longer require subsidies. They all assert the absolute prerequisite of attracting long-term investment for the energy sector. A key question will be: which mix of policies is best equipped to secure that investment?
The Short-Term In-tray
Whoever takes office in May will have to wrestle with a number of big decisions. In addition to those mentioned above, the following should be highlighted:
- the UK’s Fifth Carbon Budget (for the period 2028-2032) has to be set in 2016. The process for this decision has begun, with a call for evidence from the Committee on Climate Change which has just been issued;
- what happens to the UK Carbon Price Floor, given the structural reforms of the EU Emissions Trading Scheme now going through and the all-party emphasis placed on carbon pricing as a policy instrument;
- the Levy Control Framework out to 2029, fundamental to determining the degree of support for renewables subsidies;
- overseeing the rollout of 50 million smart meters for 26 million households, a vast infrastructure challenge which could have a transformative effect on consumer behaviour;
- how much support should continue to be given to energy-intensive sectors to maintain their international competitiveness;
- for Labour, if elected - the successful implementation of their big idea, the Energy Security Strategy Board;
- the countdown to the Paris climate change COP in December: would any Secretary of State dare to advocate a more ambitious emissions reduction target than the 40% target by 2030 the EU has collectively committed to overall?
The Select Committee published a report earlier this month on challenges for the next Parliament touches on some of these topics.
The Key Themes for the Longer-Term
If those weighty issues will be pre-occupying the policymakers post-May, some longer-term themes will also be worth keeping in mind as the political parties go into battle to secure a mandate for the next five years. Such themes as:
- how DECC (no reorganisation, please!) works with the Treasury (NB: not for the Treasury) and across Whitehall to ensure that strategic issues such as decarbonisation are not subordinate to short-term financial constraints;
- a constructive EU policy on climate and energy where it makes sense to work across the borders with our European partners. The Energy Union initiative now launched in Brussels is a clear example of where more European co-operation - on an integrated market, on a stronger external energy security policy - is in the national interest (even if the jury will be out for some time yet on whether the Energy Union can be Europe’s strategic response to US shale gas). The European approach will presumably assume greater relevance, should the Conservatives win the election and schedule the in/out referendum for 2017);
- more support for R&D, on low-carbon technologies in particular such as next generation renewables and energy storage (which might be the ultimate answers to the trilemma);
- when to shut down coal? The Valentine’s Day announcement might declare the phasing-out of unabated coal, but there are no clues to the deadline. And, on that subject, where is carbon capture and storage going?
- the flip side of phasing out coal is how to restore gas-fired power on an upwards trajectory (a problem not unique to the UK, of course). A policy framework which supports fuel switching from coal to gas ought to be a pro-trilemma measure;
- reconciling the tension between planning policy and local community concerns, and energy infrastructure projects (wind and solar as well as shale gas);
- the key yardstick, especially for business and investors, of regulatory predictability and stability;
- a joined-up approach, where energy and climate are mainstreamed into economic policy and considered integral to long-term infrastructure planning.
In conclusion, it is very doubtful that energy and climate will feature in the election campaign to the same extent as the economy, NHS, immigration and Europe. But although the main parties might agree on various elements of energy policy, there are sufficient differences - on several substantive issues - between them which will make the new energy and climate change government team after 7 May of considerable significance.