ARTICLE
17 April 2023

"Green Day" – UK Government Unveils Suite Of Climate Policy Announcements

On 30 March 20223, the UK Government unveiled a comprehensive package of policy announcements relating to climate policy, energy security and green finance.
United Kingdom Energy and Natural Resources

On 30 March 20223, the UK Government unveiled a comprehensive package of policy announcements relating to climate policy, energy security and green finance. Together, they set out a roadmap to reaching the Government's goal of net zero fossil fuel emissions by 2050 while achieving independence from fossil fuel imports.

Two of the key proposals include:

In this blog, we provide a brief overview of the key takeaways from each of these announcements.

Powering up Britain Plan

The Powering up Britain Plan, overseen by the Department for Energy Security and Net Zero, encompasses two key components, the Net Zero Growth Plan and the Energy Security Plan, and aims to deliver on four core ambitions:

  1. Energy security, by achieving greater independence from fossil fuel imports;
  2. Consumer security, by reducing energy bills and making wholesale electricity prices among the cheapest in Europe;
  3. Climate security, by supporting industry in moving away from fossil fuels; and
  4. Economic security, by reducing inflation, boosting growth and delivering high-skilled jobs.

The plan also contains the Government's response to the outcome of the Independent Review of Net Zero (the "Net Zero Review"). The Net Zero Review was commissioned in September 2022 by then-Prime Minister Liz Truss, in order to assess how the UK could better meet its net zero commitments in a manner that is affordable, efficient, pro-business and which takes into account the dynamic geopolitical landscape.

Net Zero Growth Plan

The Net Zero Growth Plan sets out a delivery framework for the UK's long-term decarbonisation trajectory, with a view to improving the competitiveness of the UK economy. It is based on three key pillars:

  1. Ensuring a clean and secure supply of energy;
  2. Reducing demand by increasing the energy efficiency of homes and businesses; and
  3. Supporting the economy through the energy transition.

The Net Zero Growth Plan also responds to the Climate Change Committee's 2022 Progress Report to Parliament and provides an update on the delivery of the Carbon Budget, in discharge of the Government's statutory obligations under the Climate Change Act 2008.

While the full suite of proposals and announcements included in the Net Zero Growth Plan is too comprehensive to cover in detail, some of the key points include:

  • Offshore wind: the Floating Offshore Wind Manufacturing Scheme, which will provide up to £160 million in funding for port infrastructure projects required to deliver floating offshore wind installations;
  • Solar: formation of a taskforce to oversee delivery of 70GW of solar generation capacity by 2035;
  • Nuclear: setting up Great British Nuclear to deliver a new nuclear programme, starting with a competitive process to select the best Small Modular Reactor technologies, commencing in April 2023;
  • Carbon Capture, Usage and Storage ("CCUS"): a list of eight projects selected to move to Phase 2 of Track 1 of the Government's CCUS clustering process and a selection process to bring in further CCUS projects within the Track 1 clusters by 2030, due to commence later this year;
  • Hydrogen: confirmation of first winning projects from the £240 million Net Zero Hydrogen Fund and introduction of new legislative powers to design the new hydrogen transport and storage infrastructure business models by 2025;
  • Sustainable Aviation Fuel ("SAF"): a consultation setting out full details of the SAF mandate policy;
  • Gas/electricity rebalancing: outlining a clear approach to gas/electricity rebalancing by the end of 2023/4;
  • Heat networks: extension of capital support for low carbon heat networks to 2028, including £220 million for the Heat Network Transformation Programme over 2025/6 and 2026/7;
  • National Policy Statements for consultation, covering:
  • Carbon Leakage: a consultation, closing on 23 June 2023, on a Carbon Border Adjustment Mechanism ("CBAM") and mandatory product standards in order to mitigate the risk of carbon leakage undermining domestic decarbonization measures. The proposal draws closely on the EU CBAM (previously covered here), which is set to apply from October 2023.

Energy Security Plan

The Energy Security Plan sets out a roadmap towards making the UK more energy independent, secure and resilient, in view of the adverse impact on the UK's energy security caused by the war in Ukraine. The plan seeks to build on the ambitions set out in the 2022 British Energy Security Strategy and the 2021 Net Zero Strategy for increasing the overall share of domestic energy production and reducing energy demand.

The increase in the overall share of domestic energy production is to be achieved through the twin principles of scaling up domestic renewable electricity generation capacity (including putting an appropriate policy framework in place by 2024 to support investment in large-scale, long-duration electricity storage) while maximising the production of UK oil and gas as the North Sea basin declines. In addition to the framework for increasing renewable energy generation capacity set out in the Net Zero Growth Plan, the Energy Security Plan also notes that a second consultation on the Review of Electricity Market Arrangements ("REMA") will be forthcoming in Autumn 2023. The original consultation, (previously covered here) closed on 10 October 2022, with the Government's response published on 7 March 2023. A key outcome was that, while decoupling gas and electricity prices remains on the table, the Government will not adopt pay-as-bid pricing.

The plan sets out a number of actions aimed at enhancing security of gas supply. Key commitments include:

  • An update on the role of gas storage in ensuring security of gas supply, to be published in Autumn 2023;
  • An assessment of security of gas supply, to be conducted by the Future System Operator (which is to be established pursuant to the forthcoming Energy Bill); and
  • A consultation on a policy framework for biomethane from 2026, following on from the current Green Gas Support Scheme.

The plan also sets a new target of reducing energy demand from buildings and industry by 15% by 2030 through a £6.6bn integrated plan, with a further £6bn earmarked for the period 2025 – 2028. Key measures will include improving the energy efficiency of buildings, products, business and industrial processes, and replacing fossil fuel heating with clean heat alternatives.

Update to Green Finance Strategy

The update to the 2019 Green Finance Strategy sets out the UK Government's ambition to become the first global Net-Zero-aligned Financial Centre and the means by which it intends to mobilise the investment needed to meet its climate objectives.

The Strategy sets a target of raising at least £500 million of private finance annually by 2027 to support the achievement of the UK's environmental targets, rising to more than £1bn by 2030. The Strategy recognizes that in order to achieve this target, central government, public finance institutions and local authorities all have a role to play in: (i) helping the private sector identify sound investment opportunities, (ii) providing incentives to de-risk projects and (iii) formulating clear policies to boost investor confidence.

A number of fora are devised in order to foster cooperation between the public and private sectors, including a Global Investment Summit to be held in September 2023, building on the Global Investment Summit held in 2021, as well as a new partnership with business and finance leaders, the Net Zero Business & Investment Group.

Importantly, the Strategy notes that more detailed investment roadmaps for areas including offshore wind, hydrogen, CCUS and heat pumps will be published throughout 2023. The Government has also committed to exploring the design of funding schemes for net zero projects ahead of the next Spending Review, and to work with the Green Finance Institute to explore how blended finance models can be used to more strategically mobilise private finance to support green objectives. We have covered the Strategy in more detail here and here.

Comment

The 30 March proposals, while ambitious, do not match the scale of US Inflation Reduction Act or the EU Net Zero Industry Act. Several areas were also conspicuously left unaddressed. In particular:

  1. Though several proposals, notably the CBAM consultation, draw on existing EU policy, the announcements do not set out a clear agenda for cooperation with the UK's EU partners;
  2. Bioenergy with carbon capture and storage ("BECCS") was not included in the list of eight projects moving on to Track 1 of the CCUS cluster process (though a response to the "Power BECCS" consultation, which concluded in October 2022, was published in March);
  3. Contrary to the Government's previous indications, no changes were announced to the Energy Profits Levy, (nor to the Electricity Generator Levy); and
  4. The Energy Security Plan did not include the greenlighting of new North Sea exploration projects.

Much of the detail, however, remains to be fleshed out in the coming months and years, with the passage of the Energy Bill later this year slated to be a pivotal moment.

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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