Does it matter that UK energy policy is dissolving?
Or will it make net zero difference anyway?
Queuing next to me to board a busy British Airways flight back from New York was Mayor of London, Sadiq Khan. Our plane was delayed, but it would arrive early given the tailwinds.
It was very late on a Wednesday night in the middle of an extraordinary week.
The mayor, a few UK officials largely ignored at home, and a cast of serious international investors and policy makers gathered in New York this week to debate how to solve some of the greatest geopolitical and climate challenges facing the world today.
Earlier that evening, I had a front row seat to witness President Zelenskyy walking on stage, unguarded, at the Atlantic Council Global Citizen Awards dinner, which our firm, SDCL, co-chaired, to deliver an inspiring and sincerely personal address to an audience of heads of state and world leaders from business, finance, media, and society. On a notably rare night out with his wife, he was accepting his award alongside German Chancellor Olaf Scholz, President Yishida of Japan, Treasury Secretary Janet Yellen and our own business partner, Victor Chu. The Atlantic Council selected my new book, ‘The Edge: How competition for resources is pushing the world, and its climate, to the brink – and what we can do about it’ to distribute to all 600 guests. I even had the privilege to present a copy personally to the German Chancellor.
I had raced to the airport to make it home in time for the 11th birthday of my son, Zachary, after the caprese salad appetiser, but before the main course. That was dinner. The same happened at lunch, where we hosted over 100 investors and industry experts at the Harvard Club, together with Nicole Iseppi of the Bezos Earth Fund, talking about how the largest, fastest, and cheapest source of greenhouse gas emission reductions, economic productivity gains and energy security is energy efficiency. I had been challenged over the starter by one of the largest state pension funds in the United States to say something different, so while everyone else ate their main courses, I spoke not about renewable power, but about the opportunities to invest in profitable solutions to the biggest problem in the energy system – that we waste most of it. Over breakfast, generously hosted by E&Y, we had all learned how few US companies have a decarbonisation plan, and that if they have one, they don’t believe it. So, as the Financial Times was to cover on Friday in its decarbonisation special report 'Improving energy efficiency top of the agenda in fight for net zero', following an interview with us, we explained how energy efficiency should come first.
The UK political week seemed to have got off to a reasonable start when it came to energy policy, given that the UK Chancellor, Jeremy Hunt, had written to the CEO of the UK Infrastructure Bank to provide his support for energy efficiency financing. But by Friday, Lord Callanan, Minister for Energy Efficiency and Green Finance, had written to the Energy Efficiency Task Force, which had been set up months before, to ‘dissolve’ it. According to his letter, the task force had been ‘developed’ around Dame Alison Rose as chair, later dismissed. Leaving aside why this had been the case (my admittedly limited internet searches have failed to reveal any evidence of hands-on experience with delivering actual energy efficiency projects), the letter went on to say that the new Secretary of State for energy had apparently carefully deliberated and concluded that the task force’s work could be streamlined into ‘on-going Government activity’. Bearing in mind that the government uses some 14% of the UK’s energy and wastes most of it, this was not the most assuring read.
Back to Wednesday. Those of us who were navigating the New York street grid to make a difference were reading the news flow coming in at the same time as the journalists were calling. For whatever reason, the UK government chose New York Climate Week as its moment to announce a handbrake turn. Green policies faced the red light. The phasing out of petrol and diesel cars (which waste around three quarters of the fuel they burn) and fossil fuel heating for off-grid homes was postponed. Going after policies that would apply to the period between 2030 and 2035 is one thing. Someone clever will explain to me why this matters much to life in 2023. But the government’s life extension for fossil fuels flummoxed and angered car manufacturers and investors, easily unnerved by inconsistent and contradictory policy. Inconsistent policy is a deterrent for investment. Including by us. To ice the cake, the government then went for the jugular, rolling back requirements for buildings to meet energy efficiency standards. A harbinger, it turned out, of things to come.
In a, by now, fitting policy zigzag, and prospective win for the heat pump sales lobby, the Prime Minister’s pronouncements, no doubt equally carefully deliberated over as the Secretary of State’s conclusions later in the week, revealed a whopping 50% increase in subsidy to £7,500 to replace a gas boiler. This is most welcome in my household, because almost exactly this amount of money has already gone up in smoke in the costs of planning application consultants, acoustic tests, and lawyers before I get the privilege of spending £5,850 on a heat pump to replace it. If only my local authority would get back to me with permission to install it, I might be able to avail of the government’s generous offer to pay me back for some of the money I have wasted so far. Ed Lucas’s excellent article in The Times at the end of August describes the fiasco, and its context, in more detail.
Meanwhile, the policy reveal pretty much completely misses the point and does little or nothing for net zero energy targets, cost of living or energy security.
Most energy in the UK goes up in smoke through heat losses from energy inefficient generation, exacerbated by transmission and distribution losses. It is crucially important to use less. Most (over 80%) of the world’s energy still comes from oil, gas and coal, and electricity, which is gradually decarbonising thanks to renewables, represents only 20% of energy. As an energy importer, the UK always pays the price and even more so this week as oil prices approached US$100 a barrel again. So, it is energy efficiency, often referred to as the ‘first fuel’, that represents the largest, fastest, and cheapest source of greenhouse gas emission reductions, energy security and energy productivity.
Clean and efficient on-site generation – using, instead of wasting, heat generated - and energy efficiency - reducing energy wasted in lighting, heating, and cooling - offer the opportunity to do more with the same or less energy. It is both ingenious and stands to reason. Using less costs less requires less to be made in the first place. So, the rolling back of energy efficiency initiatives, objectives and standards appears an extraordinary assault on the common senses. Although the focus should be on the public, industrial, commercial and transport sectors (where most energy is used) rather than on private rented homes per se, disincentivising the very thing that can make a big difference to energy costs, carbon, and security in a short period of time risks sacrificing a crucial tenet of energy policy on the altar of petty politics.
Carbon is becoming the cannon-fodder of a new culture war, a backlash against ‘net zero’ and ‘woke capitalism’. Pushing back on green policies is designed to appeal to voters looking for fiscal responsibility and forcing political opponents on the other side of the House into the trap of arguing for policies that seem to hit voters in the purse. The political games towards the next election begin.
But the real problems are as follows:
First, flip-flopping on public policy is bad for investor confidence and this has real life consequences. As an investment manager with a FTSE 250 listed investment company to look after, it was extremely frustrating to have to field calls asking if this was bad for our portfolio. As it happens, it wasn’t. 90% of our investments are overseas in markets such as the United States and the EU that have long-term and, by and large, relatively consistent policies that positively incentivise efficient and decentralised generation of energy. The dynamics of these markets leave the UK in the dust.
Second, and a longer-term problem, none of the government’s announcements this week will probably make that much difference. I am very sorry to say, as a contributor to it, that no-one was listening to the little progress that the Energy Efficiency Task Force was making anyway. The task force was instructed to look for solutions in industry, in business and in homes, rather than the public sector, whereas it is crucial for the government to first clean up its own act in the NHS, education, defence, and transport - all bigger than any single private sector energy user. Once the government has taken action to sort out its own estate, it would then have the grounds and authority to impose ambitious targets on the private sector to cut energy waste. It would need to support businesses with credit guarantees for projects to attract financing, and with co-investment for feasibility studies. And the targets should be much higher. The task force was asked to look for a 15% energy reduction by 2030. Europe achieved a 15% reduction in gas use last Autumn. Rather than watch the international community disappear into the distance, the UK, which pays more, should be focussed on energy productivity, to secure a competitive advantage.
Generally, despite pockets of deep knowledge and expertise in the civil service, national government policy making is still looking the wrong way. While these policies have been unable to get new offshore wind farms off the ground so far this year and are still focussed on generating too little renewable power too late, they still don’t address the need to provide scale solutions for decentralisation, heating, cooling, transport, and demand reduction at the point of use. That less than half of lights in the NHS have been changed to LED remains an infuriatingly frustrating illustration of wasted energy and opportunity. We will never get to net zero without putting energy efficiency first.
While the winds at national level are too low to move the vessel, perhaps there is more hope of tailwinds at sub-national government level? The plane I was on with the London mayor this week at least landed ahead of schedule …