UK: UK Energy Policy In Crisis

Last Updated: 1 May 2012
Article by Becky Johnson and Edward Craft

UK energy policy has displayed bipolar characteristics for at least the last ten years; however, we do require our politicians to wrestle with this particularly complex and very pressing issue.  Energy policy must respond to global themes and impacts all of our lives and the UK economy.

We charge our politicians and regulators to make very difficult decisions about our energy future.  We must be supportive of those we mandate to make such difficult decisions, and must accept that they may not always get it right first time round and are prone to criticism and legal challenge from all angles.

Recent climate change challenges

Recent months have highlighted a number of key instruments that have been promoted by either the Coalition Government or the former government which now seem to be at risk of failure and/or unable to deliver either security of supply or the required behavioural changes to enable us to meet the immense climate change challenges we face.  This article highlights some of the recent developments.

Some key elements of Climate Change Act 2008

Feed-in tarriffs - Being reviewed and challenged
Renewable heat incentive - Being reviewed
CRC Energy Efficiency Scheme - Being reviewed, might even be abolished
Mandatory greenhouse gas reporting - Not being pursued
Committee on Climate Change - Remains

Feed-in tariffs

The Supreme Court has finally determined that the Secretary of State is not able to appeal against the judicial review case which was lost by him regarding changes to the feed-in tariff arrangement1. The court has confirmed that attempts by the Secretary of State to change the feed-in tariff rates without specific statutory authority are unlawful. This case presented interesting issues regarding the retrospective nature of legislation, particularly in the context of taxation.  The court has reached a correct decision: Government is not able to circumvent the clear will of Parliament as enshrined in statute and statutory instrument.

More generally in relation to feed-in tariffs, it is interesting that a champion policy to deploy specified low carbon technologies is now being criticised by the Government for being too successful in delivering solar photovoltaic projects: it is rare that Government changes its own policy decisions on the basis that a policy proves to be too popular!

Renewable heat incentive

The feed-in tariff pays a subsidised rate to generators of certain low carbon electricity in conjunction with the renewal heat incentive which applies to the generation of low carbon heat. 

The cost of the feed-in tariff is borne by us all as consumers through a hidden tariff added to our utility bills. However, the cost of the renewable heat incentive is paid through taxation revenues. Accordingly, it is no surprise that the renewable heat incentive is now also being reviewed.

The CRC Energy Efficiency Scheme

The CRC Energy Efficiency Scheme (the Scheme) was a creation of the last Labour government to waterfall down the principles of carbon trading set out in the EU Emissions Trading Scheme (EU-ETS) to businesses and major public sector organisations not otherwise participating in EU-ETS. One of the key weaknesses of the Scheme was that it was only ever focused on the UK. 

As has been regularly commented since October 2010, the Scheme which was engineered to incentivise low energy use within organisations and efficient use of that energy, has become a taxation cash grab by removing the recycling payments due to those who delivered significant reductions in energy use. In so doing, the Government has destroyed goodwill and placed a significant unnecessary and unbudgeted cost burden on businesses. 

It is somewhat ironic that since that October 2010, the Government has been seeking to reform the Scheme on the basis of cost benefit analysis and unnecessary bureaucracy. All of the complications of the Scheme are the creation of the Government itself.  These points were repeatedly made to the Government as the Scheme was developing but were not taken on board.

A further review of the Scheme is currently underway. If significant cost reductions cannot be delivered (which must be anticipated) the Government has indicated that it will replace the Scheme with the general carbon tax. The simplicity of the carbon tax is to be encouraged as this could be collected through simple existing schemes and structures such as the client change levy.

Mandatory greenhouse gas reporting

The Climate Change Act 2008 is a very important piece of legislation.  The major achievement of this legislation was to establish the Committee on Climate Change and to charge that body with holding the Government to account in relation to carbon performance year on year.

The Climate Change Act 2008 also contains an important provision requiring the Secretary of State to either create regulations for greenhouse gas reporting for corporates by 1 April 2012 or to report to parliament explaining why no such regulations have been made.

Over the spring and summer of 2011, the Department for Environment, Food and Rural Affairs (DEFRA) carried out a significant consultation process on mandatory greenhouse gas (GHG) reporting.  This process received an unprecedented 2,018 submissions and as part of the consultation significant meetings were held between stakeholders.  Through this consultation Wedlake Bell LLP represented the views of the Quoted Companies Alliance as well as itself. 

It is bitterly disappointing that the report issued by the Secretary of State at the end of March explaining why no mandatory GHG reporting regime will be put in place contains only eight paragraphs. After receiving 2,018 submissions and pursuing constructive engagement with many corporates and other stakeholders the Government has only deemed it appropriate to deliver a one page response.

The response itself states that the ministers require additional time to further analyse the situation and represents an abdication of responsibility – "no decision to make regulations has been reached". It fails to set any time frame as to when a decision will be made.

Businesses have a reasonable expectation that the Government will behave in a certain and decisive manner. Whilst it is understandable that through the current economic downturn it was unlikely that the Government were to seek an additional burden to be placed on businesses, an indication of evolving views and supporting analysis would have been useful.

Nuclear power

The Government's options in relation to our low carbon energy future seem to be narrowing. There was a high expectation that a lot of future base load generation would be delivered by new nuclear generating stations. 

However, in a further blow to the Government's current policy, the horizon joint venture of E.on and RWE has recently decided to pull out of new build nuclear.  It remains unclear as to where this leaves our security of supply and puts further pressure on the need for instruments that will deliver effective new build distributed energy (such as renewable).  EDF and Centrica have restated their intentions of investing in new build nuclear. The outlook is uncertain and one of increasing worry to commentators.

A glimmer of hope?

One area where low carbon policy seems to be going in the right direction is in relation to energy performance certificates (EPCs) and display energy certificates.

Amendments to the EPC Regulations have widened the scope of EPCs, and also ensure that prospective purchasers and tenants obtain information about the building's energy performance without delay.

From 6 April 2012 an EPC is required for both residential and commercial properties whether for sale or for rent (unless caught by any exclusions in the Regulations). Sellers and agents must ensure the EPC is commissioned before the property is marketed and must use all reasonable efforts to ensure the EPC is actually obtained within seven days of the property being put on the market (and in any event within a further 21 days). The updated Regulations confirm you cannot delay providing the full EPC until just before exchange, it must be provided up front.  It used to be possible to include the asset rating of the property only with the particulars, but now the entire first page of the EPC must be included (electronic particulars are also in this). Fines can be imposed for failure to comply with the Regulations.

Provided the new rules are effectively enforced, parties buying or renting properties should be able to make a more informed decision with regards to the property's energy efficiency.

Where next?

Perhaps some of the confusion is created by the multiple number of stakeholders at Government level.

The Department for Energy and Climate Change was created to bring together all relevant experts within the civil service working on climate change and energy mandates.  However, GHG reporting work is being delivered by DEFRA and responsibility for EPCs remains with the Department for Communities and Local Government.  Added to that, it is the Department for Business Innovation & Skills which must take responsibility for the narrative reporting framework and analysis of the economic effect of climate change initiatives.

The UK deserves a clear and consistent climate change policy to be delivered by the Government.  Responding to anthropogenic climate change is an area we must all be engaged in, but we do deserve more consistent and coherent policies and political structures to spur us to action.


1. The Secretary of State for Energy and Climate Change v Friends of the Earth and Others UKSC 2012/0052.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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