This week, Forefront Advisers’ new Managing Director of Sustainability, Dustin Benton, spoke with our UK Politics Managing Director James McBride about UK net zero and energy policies under the new Labour Government. This is a summary of the event.
| Key takeaways Although the party dropped its big £28 billion pledge, ESG and net zero will be a key area of focus for the Labour party. However, policymaking will operate at very different speeds; Ed Miliband has previous experience running a Department, and DESNZ is ahead of Defra and DBT. Labour thinks the private sector has a large role to play in the energy transition, despite talk of GB Energy. There’s an active debate over whether GB Energy should focus on building established onshore wind and solar by leveraging the brand’s popularity and connection to community energy or whether it should pioneer floating offshore wind and tidal. The risk is that its remit falls somewhere in between, and the entity lacks purpose. Regarding REMA, nodal pricing is off the table, and zonal pricing is less likely than retaining the status quo. Labour will try to align the UK and EU ETS to shield the UK exports from CBAM. The only questions are the timing of the deal (2025 vs. earlier) and the role of UK electricity trading. Introduction Within Labour, the two obvious players in energy are Chancellor Rachel Reeves and Energy Secretary Ed Miliband. The role of Jonathan Reynolds is somewhat less appreciated, who, as Secretary for Business and Trade, will steer Labour’s industrial strategy. Labour’s dropping of the £28 billion pledge was not just an electoral gambit meant to reassure moderate voters of the soundness of their economic policy. The party is truly convinced that the private sector can and should cover a big chunk of the cost of the transition. Why? Labour thinks green energy is profitable. It also sees that while GB Energy polls very well, its first priority is to fix the economy and bring back growth. Despite the large majority, Labour knows that its energy policy will not be short of challenges. The party knows that meeting the 2030 targets will be extremely difficult and that CfD-led renewables investment must rapidly increase. Beyond energy, Labour will need to tackle three further issues: perceptions about food security, water quality, and getting the UK on track to its nature targets, which will require land use change and potential action from food companies. UK-EU alignment Labour is keen to reduce friction between the UK and the EU. As part of its plan to shield UK exports from CBAM, Labour is likely to link the UK ETS with the EU ETS. The main question is when. This could happen in 2025 when the TCA comes up for renewal. Or even sooner if the Government proactively negotiates it outside of the TCA framework. The former option is more likely. The key question that UK and EU negotiators will need to address is the treatment of UK electricity exports. REMA REMA is another key issue that the Labour party will need to address. Nodal pricing looks right in theory but is very difficult in practice. Influential figures like former Labour MP Alan Whitehead, who may retain an important role in the Government, were strongly opposed to nodal pricing. A zonal pricing system also presents some challenges, which is why neither solution is likely to be adopted in the short term. Labour’s difficult 2030 target requires deploying sufficient renewables alongside clean, flexible power. REMA changes designed to increase market efficiency, like locational pricing, will likely be second-order concerns. Nascent technologies There is a strong case for Labour to invest in nascent technologies like floating offshore wind. Labour could invest in supporting infrastructure like ports and cabling facilities. Investments in tidal energy may happen but are likely to be on a smaller scale. Miliband is a big supporter of green hydrogen. This makes good political sense – green hydrogen means Labour’s ending of new oil and gas licensing isn’t in conflict with energy security. It’s unclear whether Labour will see the case for blue hydrogen as a bridge. GB Energy Labour has yet to explain what GB Energy is. There are two competing views on this. The first is that GB Energy should be a risk-taking entity investing in nascent technologies. The alternative view is that GB Energy should invest in existing technologies leveraging its strong public profile to reduce consenting risk. The risk is that we will fall somewhere in between, and that GB Energy lacks a clear remit. Social tariff and green levies There is a strong political case for a social tariff to drive down the retail price of electricity for the least affluent. But it will be expensive, and the key decision on a social tariff rests on finding a revenue stream and persuading the Treasury that electricity prices will actually fall, so the cost of supporting a social tariff also falls over time. Another solution Labour is likely to consider is moving most of the green levies from the electricity bills to general taxation. Conclusion Energy policy will be a key area of focus for the Labour party. The key priorities will be giving GB Energy a clear mandate, aligning the UK and EU ETS, and allowing the private sector to play a meaningful role in the energy transition. |
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