Why No 10’s Unexpected Policy Changes are out of Step with the Evidence

21 Sep 2023

Yesterday the U.K. Prime Minister Rishi Sunak announced that the government would scrap or postpone a number of key ‘green’ policies. In a press conference in Downing Street the PM said he was “absolutely unequivocal” about the commitment to reach net zero carbon emissions by 2050 but that he wanted to take a “more pragmatic, proportionate and realistic approach”. Whilst the speech was leaked by the BBC earlier in the week, the announcements have taken the energy policy community by surprise. Many industry leaders have responded with shock, since delaying or watering down key targets undermines the policy certainty that investors need.

It will take some time to work through the implications of the changes in detail, and some analysis is likely to come from the Climate Change Committee next month.” UKERC’s focus is on energy policy in the round, not just delivering net zero, and our analysis encompasses many dimensions of energy security and affordability. In this initial response we consider the potential implications across these domains, noting the need for further analysis to work through the full implications of the announcements.

Several of the PM’s announced changes were never government policy anyway. This includes a scrapping a supposed policy for households to have seven recycling bins, and new taxes on flying. However, changes to policy on the phase out date for petrol and diesel cars, for gas and oil fired boilers, and to energy efficiency requirements on private rented properties are significant and are our focus here.

Why did we have these targets?

It is important to reflect on the origins of the various goals and targets that the Prime Minister has scaled back. In the run up to the UK’s presidency of the climate change negotiations in 2021 (COP26), the UK government announced net zero strategies across each of the principal energy using sectors of our economy, as well as an overarching net-zero strategy. In part this was to ensure that the UK was showing global leadership at a time when the UK government was keen to achieve progress in the global climate change talks.

The goals and measures set out in these strategies also reflect the advice to government provided by the Climate Change Committee under the Climate Change Act. The Act requires the CCC to set ‘carbon budgets’ to ensure that the UK is on a path to meet its legally binding 2050 decarbonisation target. Most relevant to the scaling back announced by the PM is the CCC’s Sixth Carbon Budget, that set a target for emissions reduction out to 2035. In the detailed analysis accompanying the Sixth Budget the CCC requirements to decarbonise heating and road transport feature prominently, alongside continued progress with power sector decarbonisation and action on industrial and other emissions. This is because it is not possible to achieve deep reductions in carbon emissions in the absence of progress in the main emitting sectors. For both cars and home heating, electrification features strongly. This is what underlies the planned phase outs of fossil fuelled vehicles and boilers. The target dates set by the CCC were not arbitrary but reflected their analysis of a plausible trajectory to 2050.

Bending the curve

The CCC’s duty to set sequential carbon budgets, and to report to Parliament on the government’s progress, is a key reason the announcements from the PM have been greeted with shock by many energy industry stakeholders. The phase out of fossil fuels in cars and home-heating were a central plank of the government’s plans to meet the CCC sixth carbon budget. The key point here is steady progress with the infrastructural, technological and societal changes needed to meet climate change goals is essential. Without this, the targets become harder and harder to meet over time. We cannot for example roll-out electric vehicle charging, install large numbers of heat pumps or upgrade our electricity networks in a very short space of time. For this reason, rolling back on interim targets whilst insisting that the 2050 target is not in question is unrealistic. Substantial changes to the energy system require several decades to implement. In energy system terms, 30 years is not a long time, and the 2030s are tomorrow. Simply put, if government decides that it does not want to do very much in the short term, then it will not be possible to do very much in the long term either.

A false trade off?

A central rationale for the changes the PM announced is to ease the pressure on hard-pressed households. However, this suggests that there is a straightforward choice between ‘greener but more expensive’ and ‘dirty but cheap’ energy. In the past this was probably true, though the 1990s dash for gas busted the myth in power generation as cheaper and cleaner gas displaced more expensive coal. Indeed, many energy efficiency and renewable energy projects were initiated in the 1970s in response to the oil price shocks of that time. Now, renewable energy is cheaper than gas-fired power, and at both the household and national level there are trade-offs between upfront costs and running costs.

In rolling back energy efficiency requirements for privately rented properties the PM is indeed saving the owners of those properties money, possibly a significant outlay. They will no longer need to make some of the investments needed to reduce household energy demand and ultimately move away from gas for heating. However, not making these energy efficiency improvements also means that the tenants living in those properties will need to burn more gas to keep their homes warm and will be more exposed to the vagaries of gas prices. Whilst not all rental landlords are wealthy, and not all rental tenants are poor, the change will save landlords money, but cost tenants money.

Similar considerations play out at the macroeconomic level. In responding to the gas price shocks of 2022, the British Energy Security Strategy doubled down on efforts to move away from fossil fuels and towards renewable and nuclear energy. This only makes sense as a security of supply strategy if it applies across the economy – which means electrification of heating and transport. This requires substantial capital investment. The payback is that it greatly reduces ongoing fossil fuel import dependence and commensurate financial outflows from the British economy, as well as offering much more stable prices.

Not enough progress – so go slower?

The one aspect of the PM’s announcement with which most energy sector stakeholders would concur is that the UK is not on-track with the roll-out of electric vehicle charging and that there is no credible plan to get from the low levels of electric heat pumps installed at present (estimated at below 60,000 per year) to the target of 600,000 by the late 2020s. This is where dispassionate analysis of policy impacts gives way to important questions about political leadership. Mr Sunak is probably right that tough choices were not being made and that his government was not being entirely upfront about the significance of some of the changes to homes or lifestyles that are needed to meet net zero.

Taking the cross-party commitment to net-zero as a given, many energy policy stakeholders may have been assuming that policy action would be stepped up, whoever wins the next election. This is now far less certain, and it is possible that the UK’s long-standing political consensus over action on climate change has been shaken. However, it is also important to be clear about the many co-benefits that these changes could provide. These include improved local air quality, stable energy prices over the long term, reduced dependence on imports of fossil fuels, and more comfortable homes that are less expensive to keep warm. Healthier diets and more active travel can also improve quality of life as well as help reduce emissions, even though there were in fact no policies in these areas for the Prime Minister to ‘scrap’.

In short, if the positive case for the energy transition is not made by political leaders it is unsurprising if the political and media discourse focuses only on the challenges, and the negative. The consequences of climate change have been apparent throughout a summer of wildfires giving way to an autumn of storms and floods. For some, this is motivating enough. But the evidence base developed by UKERC and others working on energy issues in the round shows that the energy transition is also about lower and more stable bills, more secure energy, and a wealth of co-benefits.