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Lord Bridges: We'll all pay the price of a disorderly transition to net zero

Lord Bridges: We'll all pay the price of a disorderly transition to net zero
4 min read

Since 2021, energy prices have been rising sharply. Vladimir Putin’s war in Ukraine has pushed prices higher still.

Governments across Europe are trying to mitigate the impact. While many countries, including the United Kingdom, are extending the life of existing power plants, they are also increasing their targets for low carbon energy generation to reduce dependency on volatile gas markets. Energy security and net zero objectives are increasingly aligned.

Both objectives require investment if they are to be delivered. To mobilise capital, investors will need clarity on government policy. Today, the Lords Economic Affairs Committee has published a report which sets out how the next Prime Minister can provide this clarity. Our main conclusion is simple: the government needs to publish a net zero delivery plan that takes account of energy security and makes clear what decisions are needed, from whom, and by when. That plan needs to include a range of actions to be taken now if we are to hit the government’s targets and have an orderly transition to net zero.

Our report identified a significant gap between the government’s net zero ambitions and the practical plans that are needed for their delivery

First, action to improve investor confidence and enable investment in the transition. The government should design market models for low carbon technologies – long-duration storage, hydrogen, and carbon capture and storage – to make energy pricing more predictable for investors. It should clarify its position on the energy profits levy, especially whether the levy will be extended to all electricity generators since the lack of clarity is undermining investor confidence.

The planning system in England should be reviewed; energy security objectives should be included in the National Planning Policy Framework alongside the climate change objectives. Ministers should enable more investment in the North Sea, while ensuring any extension of oil and gas exploration or investment should focus on projects with short lead times and payback periods, to limit the risk of stranded assets.

Next, action to ensure the financial sector, including its regulators, is aligned with government policy. The Chancellor has instructed financial regulators to have regard to energy security in what they do: those regulators should set out how they are interpreting this. A proposed “green taxonomy” for guiding investors in what is sustainable should avoid giving the impression that projects are either green or brown, as this may stifle innovation and fail to reflect the process of transition.

Third, looking at the short term, action to mitigate the impact of high energy prices over the next few winters.  Ministers should harness public concern about high energy bills to speed up the pace of home insulation and other energy efficiency measures, which will be needed in any case to meet the net zero target. The government should re-examine its ambitions for onshore wind, while being mindful of local opposition. They should press on with exploring how communities can benefit from the energy that is produced in their areas.

Fourth, action to address the global implications of the current crisis and the transition. The government should urgently seek an agreement with European partners to manage energy supply emergencies. Looking further ahead, the government’s forthcoming critical minerals strategy should set out the steps the UK needs to take to avoid becoming reliant on strategic competitors, notably China, for the critical minerals required for low carbon technology; and the strategy should examine supply chain vulnerabilities and policies to mitigate them.

Overall, our report identified a significant gap between the government’s net zero ambitions and the practical plans that are needed for their delivery. Action is required to build investor confidence, mobilise capital and accelerate the deployment of renewables over the decades ahead. The message to the government is clear: act now and close the gap or risk a disorderly transition.

 

Lord Bridges is a Conservative peer and chair of the Lords Economic Affairs Committee.

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