Clive Moffatt is an energy market analyst and former chairman of the UK Economic Security Group.
Back in April, the Government set the world’s most ambitious climate change target to reduce carbon emissions by 78 per cent by 2035 (compared to 1990 levels) with emissions targeted to fall to net-zero by 2050.
Cutting out coal from the electricity generation mix was the main reason why in 2020 the UK was able to slash emissions to a level 51 per cent below 1990 levels, but this had little economic impact and was only made possible by the existence of plentiful and cheap natural gas. The next stage will be far more difficult and costly.
Realising the targets will require nothing less than a complete overhaul of the energy network, the removal of natural gas from the energy mix – not to mention the plans to change dramatically how we move about and what we eat.
Looking at the energy sector alone, there are so many technological uncertainties that estimates of the costs of transition to zero vary considerably, with capital cost estimates alone ranging from £50 billion per annum for the next 30 years (Climate Change Committee) to £100 billion per annum (National Grid). Furthermore, the bulk of the costs in terms of consumer levies and/or taxation is likely to fall on those less able to pay.
What has been sadly missing from the debate so far is a clear and agreed set of policy guidelines and criteria to evaluate policy options and replace advocacy at any cost.
For a start, the UK cannot afford to go it alone and what we do should be based on what others do to meet the global challenge.
Second, there is no point transitioning to net zero if there is an increased risk of energy shortfalls – heat and light – and so the security of affordable supplies must be considered.
Third, the Government’s does not have a good record at picking technology winners and so the market must be allowed to deliver least-cost solutions.
Finally, natural gas supplies the bulk of our domestic heating and power requirements and will continue to have a critical role to play in the energy mix up to and beyond 2050.
On this basis, a slower but more secure and affordable route to net zero is possible and the following 10 action points could form the basis of a detailed policy framework to be announced in a white paper ahead of the next General Election in 2024 or earlier.
- A longer and more gradual rising CO2 price to underpin new investment in “green” energy and allow time for industry to become more energy efficient.
- Incentives eg tax rebates and/or subsidies to allow heavy industry to cut emissions – based on agreement at a sector or company level.
- Carbon equalisation tax on imports – to offset unfair competition to UK industry from imports from countries with less onerous emissions restrictions.
- No more nuclear fission after Hinkley C – the costs of large scale nuclear far outweigh the economic benefits in terms of both additional baseload capacity and emissions reduction.
- Cut wind capacity target from 40GW to 20 GW by 2040 to avoid incurring massive transmission constraints and system balancing costs associated with intermittency.
- To underpin baseload power security of supply, use capacity payments to support the construction of efficient CCGT capacity with potential for carbon capture but not imposed at the outset.
- Gas (without CCS), Demand Side Reduction (DSR) and batteries to compete in open cost/reliability based auction to deliver peak flexible supply at key points in the local distribution network.
- Evidence to date suggests that Carbon Capture and Storage (CCS) would increase power prices sharply, The Government should support prototypes pending a more detailed impact assessment.
- We will be reliant on imported natural gas for heat and power up to and beyond 2050. So we need to underpin new investment in flexible gas storage – currently less than two per cent of annual gas demand.
- Date for outlawing new gas domestic boilers to be no earlier than 2035 and dependent on a detailed welfare assessment of the reliable options available to replace natural gas.
Looking ahead to COP26 later this year, the UK and a very hesitant EU are the only ones among the world’s 18 largest greenhouse gas emitters to have submitted detail emission reduction plans.
So now would be good time for the Government to come clean and “tell it how it is”, namely that for very good reasons – such as technological constraints, security of supply, industrial competitiveness and especially affordability – reaching the net zero target by 2050 might not be possible.
Boris Johnson would be criticised for being a COP26 “party pooper”, but industry and consumers would probably breathe a sigh of relief.