The Centre for Energy Policy urges the new UK Government to seize the opportunity to deliver secure and affordable energy, which could generate near-term economic growth as well as set the foundations for a prosperous and more equitable net zero transition.
Alongside the UK’s legal commitments on climate change, the global economy is ‘going green’ with commercial opportunities arising at pace. We must not squander this moment to ensure our place in the race. This means exploiting the UK’s renewable resources, and the skills and capacity base laid in hosting the oil and gas industry for five decades.
We have identified four key areas of action for a new UK Government seeking to maximise economic gains from moving to a low-carbon economy, ensure a fair transition, sustain UK competitiveness and strengthen public consensus around net zero.
1. Deliver policy certainty, stability and integration to enable the energy and net zero transitions
To date, the UK’s efforts to decarbonise its economy have been hampered by uncertainty, short-termism and a lack of coordination. This must change.
Establishing GB Energy could play an important role in creating this policy certainty and stability. By establishing a national energy company, the UK Government could help seed and support the strategic investment required for the net zero transition. Here a key objective must be providing leadership in ensuring the development of strong domestic supply chains that are both deeply and extensively embedded. The oil and gas industry has provided an exemplar not nearly matched so far by renewable energy supply. There must also be a focus on reflecting the lower cost of renewables in consumer bills.
However, it is important to be clear on the scope of such an initiative, where attention must be on crowding in rather than crowding out the private investment necessary for delivering a green economy. Going forward the new Government must consider the appropriate role for the state in regulating what will predominantly be private sector investments and assets to ensure they deliver for the UK’s climate ambitions, its economy and its people.
The new Government’s commitment to deliver an industrial strategy is welcome, particularly considering the backdrop of an increasingly competitive global environment in green economy activity characterised by policies such as the US Inflation Reduction Act and EU Green Deal. This will provide an important framework against which choices and decisions can be made, and a clear direction of travel set.
Crucially, net zero is proving to be as much if not more of a public policy rather than purely a technological challenge and, thus, needs to be integrated within wider economic decision-making. Therefore, effective coordination between Government departments (HM Treasury and the Department for Energy Security and Net Zero) is vital, as is interaction between central, devolved and local governments.
2. Provide leadership on the timing and sequencing of net zero actions
Net zero will require multiple actions to take place within limited timeframes. Upgrades to the electricity network, deploying carbon capture, utilisation and storage (CCUS), building new nuclear, and improving energy efficiency – the list goes on, and this must all happen alongside other infrastructure investments, e.g., roads, schools, hospitals etc.
Commitment to action over longer timeframes can reap rewards, both in terms of allowing domestic supply chains to build and enabling actors to make better investment decisions. For example, CEP research on energy efficiency has highlighted that Government commitment to longer-term retrofitting programmes could deliver greater energy efficiency gains and sustained bill reductions for households, as well as supporting more jobs and generating higher levels of GDP.
However, there are also challenges in terms of a potential congestion of net zero projects competing for a limited pool of labour and other resources. Here, the new Government needs to provide leadership on – and possibly incentivise - timing and sequencing to ensure the best return for the economy and for households and businesses.
Our work on CCUS has demonstrated that without effective planning even moderate congestion linked to decarbonising four of the nation’s regional industry clusters could drive distortive peaks in wage and other prices that drive up costs to projects and the wider economy without delivering commensurate sustained real income gains for workers and households. The timing of projects will also be an important consideration in relation to how freed up capacity in sectors such as the oil and gas industry could be redeployed in emerging industries such as CCUS.
3. Engage and support industry and workforce around a planned and just transition
More broadly, the long-term future of the industry that currently extracts and supplies oil and gas (what Nick Butler quite rightly refers to as ‘the first generation of North Sea production’), with crucial emphasis on its role in enabling and delivering the energy and net zero transition, needs to be the focus of a new Government. The Government must ensure it engages fully and on a sustained basis with industry, supply chains and the workforce to ensure an ordered and just transition, which does not see jobs, GDP and emissions being offshored overseas, with no reduction in global emissions and a greater reliance on imported energy.
There is also an urgent need for the UK Government to work with industry and research communities to better understand the extent of jobs and income generation currently dependent (directly or indirectly) on the oil and gas industry. Moreover, what the full implications are for the transition and where substantial action on renewable alternatives, such as offshore wind, needs to happen, quickly. From above, this is a key area where GB Energy could play a role.
One crucial area for action and investment will be on upskilling, retraining and more generally addressing persistent worker and skills shortages in the UK. Our research across the net zero space, and which contributed to the jointly led Centrica and GMB Future Energy Skills initiative, has consistently shown that economic gains generated by investment in net zero actions can be maximised if action on skills and worker shortages is taken.
The new UK Government has a real opportunity to support decent work and good jobs through investment in net zero. However, it must work to avoid the mistakes of the past where communities did not see the benefits of new industries such as wind or were left devastated following the decline of industries such as steel, where the risk remains a live one.
4. Make decisions on how the costs for net zero will be met, how and when
Finally, and crucially, the new UK Government must make decisions on how and when the costs for net zero will ultimately be met, based on a full understanding of the knock-on implications of any given approach for the wider economy and different groups in society.
Questions of who ultimately pays, how and when are fundamental to our research, which has consistently shown that these decisions can have real implications for competitiveness and fairness.
Transparent decision-making and coordination in this area is vital. For example, in informing and delivering the Seventh Carbon Budget, which needs to be based on analysis of how the costs of net zero will be met and their implications for macroeconomic and distributional impacts.
The time to act is now
The new Government doesn’t have much time to settle in. Answering the energy question and stepping up to the challenges and opportunities of net zero is crucial for this and all generations to come. The UK, her devolved nations and regions are abundant in the resources and capacity to step up but much needs to be done if we are to maximise our domestic strengths and not be left behind in a rapidly changing word and global economy. Ultimately, we believe that if the new Government takes action in the four areas suggested here and engages collaboratively, it can set the UK more squarely on a trajectory to a transition that delivers sustainable and more equitable prosperity.
Image credit: flirckr.com, CC BY-NC-ND 2.0