The writer chairs the Lords economics affairs committee and is an adviser to Banco Santander
As in so many nations, the impact of Russia’s invasion of Ukraine on energy prices has been a wake-up call for the UK, exposing the vulnerabilities in the country’s energy security. Record temperatures have been a reminder — if one is needed — of the need to tackle climate change. Put together, these events beg a question: what is the plan to deliver affordable and reliable energy as we transition to net zero?
Answer: there isn’t one. This is not to say that the government lacks commitment: it has passed a law to hit net zero carbon emissions by 2050, and has a target to decarbonise the power system by 2035. Nor is it short of ambition, having increased the role that low carbon energy, especially nuclear power, will play. But a six-month inquiry by the Lords economic affairs committee concluded that the government lacks an overarching net zero delivery plan which takes an account of energy security, setting out what needs to be done by whom and by when. This must be a priority for the next prime minister.
Such a plan is critical to mobilise sufficient investment to hit government targets. In 2020, £10bn was invested in low-carbon technologies but the Climate Change Committee advises the government that £50bn a year is needed by 2030. Investors have a healthy appetite to plug this gap. If they are to invest more, though, ministers need to act now to increase confidence.
Our committee identified several areas for action. Market models need to be created to incentivise investment in low-carbon technologies such as hydrogen, carbon capture and storage, and long-term storage. The planning system in England needs to include energy security alongside climate change objectives. The new UK Infrastructure Bank should focus on financing innovative and potentially riskier projects, signaling their viability to investors. Meanwhile, more investment in the North Sea should be enabled, while ensuring any extension of oil and gas exploration or investment focuses on projects with short lead times and payback periods, limiting the risk of stranded assets.
Action on all the above, and more, is needed now to provide affordable and reliable energy during the transition — this is a prerequisite for public support for the changes required to hit net zero. However, none of it will address the current energy shock. There is nothing ministers can do to lower the price of energy in the short term. Yet there are steps that could be taken now to mitigate its impact over the next few winters.
Some necessary measures — such as prolonging the life of coal power stations due to close — are already in hand. But policy gaps remain. Speedier home insulation and other measures to improve energy efficiency are needed. Ways are already being sought to provide incentives to local communities for onshore wind farms in their area; given they can be built relatively quickly, ministers should now re-examine their ambitions. It is crucial to know that there is an agreement with European partners on energy co-operation, as there is none in place to manage energy supply emergencies.
In all this, the financial sector, including regulators, needs to be aligned with government policy. For example, the former chancellor has instructed financial regulators to have regard to energy security in what they do: those regulators must set out how they are interpreting this. Any green taxonomy should avoid giving the impression that projects are either green or brown, which may stifle innovation and fail to reflect the process of transition.
Politicians love to talk up “joined-up government”, but rarely deliver it. This time we must. If we fail to ensure that the UK’s energy is reliable, affordable and renewable, the transition to net zero will be disorderly — and we will all pay the price.