2030 Decarbonisation Target Critical for Securing Investment in Low Carbon Energy Generation
Joint Chair of GLOBE UK and Vice President of GLOBE International, Barry Gardiner MP, argues that a 2030 decarbonisation target is vital if the UK is to secure long-term investment in its low carbon energy sector.
I pay tribute to the Government for committing £7.6 billion under the levy control framework for the development of low-carbon electricity generation up to 2020. It is £7.6 billion from people’s energy bills that will pay for new low-carbon energy generation that will increase energy security, reduce the cost of energy bills in the long term and ensure that we meet our moral and legal obligations to reduce our greenhouse gas emissions. Industry too has welcomed the commitment, but has also clearly said that it is not enough. The £7.6 billion is security for only seven years. In the words of DONG energy “it is a case of having a cliff edge at the moment; 2020 is a big milestone."
Andrew Buglass from the Royal Bank of Scotland told the Energy Bill Committee that the cliff edge is making it very difficult for supply chain investors to invest in the UK. Overcoming the insecurity created by the 2020 cliff edge does not require more public money, or even the promise of more money; it requires coherence, in the form of a 2030 target that proves to industry that the demand for low-carbon energy will continue to rise beyond 2020. The shadow Minister has quoted Mr Buglass in a sitting of the Energy Bill Committee, saying that “a 2030 target ‘is absolutely critical from the conversations I have with potential supply-chain investors because they quite rightly point out that it is very difficult for them to take investment to their board if they really only have visibility on three or four years-worth of work.’”
It is clear that what we are facing in 2020 is a cliff edge—a milestone—and the Government, without necessarily committing considerable excess funding at this stage, somehow have to be able to give a signal to industry and investors that this is the direction of travel the Government are taking and that they can confidently lay down their investments in the knowledge that they will get a clear return.
The Committee on Climate Change estimates that in the absence of a 2030 target, offshore wind might cost as much as £140 per megawatt-hour. With such a target, the cost, under the committee’s scenario, drops to £100. The difference between the two costs is about the presence of a competitive supply chain in the UK. We do not have one, but what we do have is at risk.
Let us remember that the Government’s proposals are not that we should set a target in 2016, but that we may not set one until at least that date. Those are two very different propositions. Siemens recently told the Energy and Climate Change Select Committee that if we wait till 2016 to set a decarbonisation target for 2030, it and many of its competitors are likely to delay or cancel planned investments in the UK.
In March, six of the largest supply chain investors wrote to the Chancellor, the Secretary of State for Business, Innovation and Skills and the Secretary of State for Energy and Climate Change to register their strong support for the decarbonisation amendment tabled Tim Yeo MP and myself, which to date is supported by 41 Members from all parties in the House.
They wrote: “Projects can take 4-6 years from investment decision to construction and operation. We are already close to the point where lack of a post-2020 market driver will seriously undermine project pipelines. Supply chain investment decisions depend on reasonable assurance for manufacturers that a production facility to be constructed during this decade, costing hundreds of millions of pounds, will have an adequate market for its products well into the 2020s. Postponing the 2030 target decision until 2016 creates an entirely avoidable political risk. This will slow growth in the low carbon sector, handicap the UK supply chain, reduce UK R&D and produce fewer new jobs. This is not in keeping with the Government’s aspirations for the UK to be the global leader in low carbon technologies such as offshore wind and marine.”
The amendment would require a 2030 decarbonisation target for the energy sector to be set by the Secretary of State, on the advice of the Committee on Climate Change, by next spring, which would ensure that the Energy Bill sent a coherent signal to investors. By securing investment in a competitive UK supply chain, the amendment would not only reduce the cost of decarbonising our energy infrastructure, but ensure that the investments that we are committed to make produced a significant growth multiplier and contributed to the essential rebalancing of the British economy.
Recent peer-reviewed studies from the London School of Economics and Berkeley have concluded that the fiscal multiplier for productive infrastructure investment in current economic conditions is likely to be about 2.5 in the UK. The amendment would ensure that the £7.6 billion produced secure investable propositions, creating significant numbers of construction jobs and long-term high-value jobs in communities around the UK, where both are scarce.
Part of the problem is that, in considering electricity market reform, the Government have been like a phlebotomist looking at the body politic. They have been obsessed with the energy flow around the system, as a phlebotomist is obsessed with the blood flow around the body, but they have failed to consider the health of the whole organism. That makes for a very poor doctor; we would not want a GP who was simply a phlebotomist.
The Government’s approach has not taken enough cognisance of how the energy sector fits in with powering our economy as a whole. A good example is the ramping down of funds available for carbon capture and storage. Coal and CCS will be vital for us. There will be significant jobs, and if we invest in and develop CCS, it will become a major part of our exports in skills and technology around the world, from which we can benefit. It is part of our wider economy, and the same is true of the renewables industry the more we invest in it and adopt the position of being the global leader.
I am afraid that we have already lost that position, because other countries have invested far more, including what we are prepared to do in CCS. Unless we invest, we will not develop the export capacity that we need to drive our economy as a whole. We cannot simply be what Gary Smith of the GMB often refers to as the Meccano men of Europe, who simply fit together a product made elsewhere. We must have supply chains in the UK, create the jobs and invest in companies here.
If we build a competitive supply chain fast enough, we can expect significant investment in the UK almost immediately, which will mean that British companies are well placed to export to a renewable energy market that the International Energy Agency predicts will be worth at least $6.4 trillion by 2035. If we do not lay the foundations for a competitive supply chain, we will see the cost of decarbonisation rise, along with our trade deficit, as we hand over the growth benefits from public investment to countries that have already taken steps to remove the policy risk from low-carbon infrastructure investment.
Businesses are calling for demand security beyond 2020, which the Energy Bill could provide at no cost. The Committee on Climate Change is the body trusted by the industry to set the right target. The Minister will know only too well the letter written by the newly appointed chair of the CCC to the Secretary of State on 25 February. He described how the Government’s plans entail a “high degree of uncertainty about sector development beyond 2020. This will adversely impact on supply chain investment decisions and project development, undermining implementation of the Bill and raising costs for consumers.” He went further, however, and referred to “the need to resolve uncertainties about the direction of travel for power system development”, specifically the “dash for gas” and the danger that it presents to low-carbon generation. I trust that Minister will reconsider the proposals on the decarbonisation target in the Department and that we may yet see some progress.