Labour policy brief - energy transition

In this series of blogs, experts from Just Communications and Project Rome examine Labour’s emerging sustainability policies, how they differ from the current Government’s, and what the impact might be were Labour to prevail in the next General Election.

If your organisation is interested in a more in-depth briefing on these topics please contact  julius@justcommunications.co.uk or karl@projectrome.co.uk. 

Brief #1 - The clean energy transition

On 30th March 2023 the UK Government laid out its detailed plans for the net zero transition. 

A total of 44 documents published across ‘Energy Security Day’ (formerly ‘Green Day’) provided policy papers, consultations, and responses required by the Climate Change Committee (CCC), and the High Court.

Amongst the 2,840 pages some of the most important were the Carbon Budget Delivery Plan (CBDP), the Government’s response to the 2022 High Court ruling that found the UK’s net zero strategy unlawful due to a lack of sector specific detail. 

The CBDP now provides this detail on the sector by sector policy actions to decarbonise the UK economy from 2023 to 2037.

Here we take a look at the energy generation sector.

Where is the UK today?

In 2021, according to the CBDP, power generation accounted for 54 Mega Tonnes of CO2 equivalent (MtCO2e) of the UK’s 426 MtCO2e total, around 12%.   

These emissions primarily came from the burning of natural gas to generate electricity. National Grid, the UK’s Electricity System Operator (ESO), provided the following 2022 breakdown for electricity generation by technology:

Gas: 38.5%

Wind: 26.8%

Nuclear: 15.5%

Biomass:5.2%

Solar: 4.2%

Imports:5.5%

Hydro: 1.8% 

The UK is in a strong position compared to other developed nations, thanks to a rapid growth in offshore wind over the past two decades. This growth in offshore wind has been a key part of the UK’s achievement to cut carbon emissions by 48% between 1990 and 2021. Successive Governments have appreciated this island nation’s natural advantages in developing offshore wind and have provided a stable regulatory environment that has attracted inward investment.

Decarbonising the UK’s power system is at the heart of the UK’s net zero strategy not just for the direct CO2 emission savings but because abundant clean electricity is crucial to decarbonising other parts of the economy.

The transition from internal combustion engine vehicles to EVs, the electrification of domestic heat by using heat pumps rather than gas boilers, the creation of green hydrogen to drive heavy industrial processes, all require clean electricity to replace fossil fuels.  According to the Economist while electricity accounts for 20% of the world’s energy consumption today, a global net zero pathway sees that go above 70% by 2050. 

What has the current UK Government committed to?

Offshore wind remains a cornerstone of the transition. The Government has committed to growing the current installed offshore wind capacity of 10 Gigawatts (GW) to 50GW by 2030, of which 5GW should use floating technology.

At the heart of this remains the Contracts for Differences (CfD) scheme. This auction system results in the UK Government guaranteeing a future energy purchase price to scheme developers, reducing risk and incentivising others to invest.

The Government also announced a Floating Offshore Wind Manufacturing Investment Scheme to provide up to £160mln to kick start investment in port infrastructure projects that would support floating wind’s development.

However, one area where the Conservative Government has been slower to act is onshore wind. Onshore installations are cheaper to build and maintain than offshore, but the Conservatives have an uneasy relationship with onshore due to opposition from Tory heartlands, usually on aesthetics grounds. Former Prime Minister David Cameron effectively put a stop to onshore wind development in 2016, and this decision is only just being challenged now by his successors. 

In the CBDP the Government commits only to “consult on developing local partnerships for onshore wind in England so those that wish to host new onshore wind infrastructure can benefit from doing so”. By its own admission in the same document “the consultation does not include any policies that will directly drive the deployment of onshore wind.”

Onshore wind has therefore been kicked into the long grass, and this positioning will most likely be the one taking us into a 2024 General Election.

In contrast solar received strong backing from the UK Govt which took up the recommendation of the independent Skidmore Review of the Net Zero Strategy to achieve a fivefold increase in solar generation (to 70GW) by 2035.  

A notable figure in the Government’s plans is the £20bln financial support to develop Carbon Capture Utilisation and Storage (CCUS). A figure dwarfing the £160mln for floating offshore wind pilots, and even the investment in nuclear technologies (see below).

CCUS, where CO2 is captured, stored or used to prevent it escaping into the atmosphere, is an enabling technology to decarbonise certain types of power generation, and industrial processes. For example the creation of blue hydrogen where natural gas is split into hydrogen and CO2 and the CO2 is captured and stored indefinitely in an old gas or oilfield.

The Government’s focus on backing CCUS at scale has raised concerns from some campaigning groups that it will allow the fossil fuels industry to continue to extract oil and gas for longer than is recommended by the International Energy Agency (IEA) and other bodies to meet net zero targets.

These groups note that green hydrogen, where water is split into hydrogen and oxygen via electrolysis, produces no CO2 as long as the electricity used is renewable.

One new announcement on Energy Security Day was the creation of Great British Nuclear, an arms- length public body with the responsibility to drive the delivery of new nuclear power projects, backed by funding as needed. Its first priority is to launch a competitive process to select the best Small Modular Reactor (SMR) technology for the UK. The Government has previously announced £210mln funding for SMR development in the UK. The overall ambition is for 24GW of nuclear capacity by 2050. 

What might Labour do?

The UK’s official opposition Labour Party are framing their arguments on the UK’s energy transition within the global context of recent U.S. and EU legislation to drive the green economic transition in those territories.

Joe Biden’s Democrats took a leap forward in the summer of 2022 when their Inflation Reduction Act (IRA) was signed into law. Amongst other measures the IRA sets out a $369bln package of tax incentives, grants and other funds to catalyse the U.S. economy’s transition to net zero and attract global private sector investment.

While the U.S’s international allies have objected to what some see as protectionist aspects within the legislation the Biden administration has stood firm. This has prompted the EU to respond with its own similar Green Deal Industrial Plan to “enhance the competitiveness of Europe's net-zero industry and support the fast transition to climate neutrality”.         

However, UK Chancellor Jeremy Hunt said of the IRA in March 2023 that “We are not going toe-to-toe with our friends and allies in some distortive global subsidy race”. He said the UK Government’s  full, but different style of response, will be announced in the Autumn.

Labour has criticised this approach and said it would respond to the U.S. and EU moves with greater publicly funded support for the green economy transition, and that this will be led by a publicly owned clean-energy company GB Energy backed by a new national wealth fund.  

These institutions will deliver Labour leader Keir Starmer’s mission to ‘Make Britain a clean energy superpower’, one of the five missions that will form Labour’s manifesto for the next General Election. A striking target within this ‘clean energy superpower’ mission is the pledge to end the use of fossil fuels in the UK’s power system by 2030.

This will require a significant acceleration to the clean power generation agenda, most notably in onshore wind. Labour’s proposal is to “quadruple offshore wind, triple solar, and double onshore wind production by 2030”. Nuclear is lower profile in Labour’s announcements, but there will also be backing for growth and development of both large and small modular reactors (SMR). 

The doubling of onshore wind will be pushed through as part of wider planning system reform that Labour’s Shadow Chancellor Rachel Reeves maintains can “get planning decisions on renewables  down from years to just months.”  

The power sector transition forms part of Labour’s Green Prosperity Plan to “re-industrialise the UK to create 200,000 direct jobs and 260-300,000 indirect jobs over the decade”. The GPP takes inspiration from the U.S. IRA approach with Reeves a proponent of adopting US Treasury Secretary Janet Yellen’s “modern supply side economics”.

“A modern supply side approach means government taking on a more strategic role, to expand the productive capacity and the resilience of our economy… by providing catalytic investment and strategic partnership with business, through our Green Prosperity Plan, through our modern industrial strategy, and through the work of our start-up review.”

Were they to be elected in 2024 Labour would have an ambitious mission to deliver on these commitments in just six years, particularly as the current planning consent system requires years to clear clean energy projects. A tough task and one with high stakes as the rest of the globe looks to seize the initiative on the race for green energy, jobs and growth. 

For more information on these or any other sustainability policy issues please contact karl@projectrome.co.uk or julius@justcommunications.co.uk.