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UK Energy - Are We Heading For a 2020 Cliff Edge?

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This has been quite a month in the world of climate and energy policy. Just in the last month, we have seen major institutions such as the International Energy Agency, the United Nations and the World Bank all warning that without urgent and significant shifts in investments towards energy efficiency and low-carbon technologies, the world would be locked into temperature rises well in excess of 2ºC. This would have significant implications for our environment ranging from impacts on food production to the availability of water resources.

Here in the UK, after years of consultation on proposals to reform our electricity markets and months of government infighting fuelled in particular by a handful of Conservative backbenchers and ministers, the main details of the Energy Bill were finally announced today.

Two key points came out of this morning's announcement. First, the coalition government has agreed a financial pot out to 2020 (referred to as the 'Levy Control Framework') which should be sufficient to fund projects to meet the EU's 2020 renewables target that the UK is legally bound to. Whilst this is good news for some project developers, it is a depressing indictment of the process that we must applaud the government's willingness to meet a legally binding target.

Secondly, in what is being seen as big victory for Chancellor George Osborne, the government kicked into the long grass any decision on a target to commit the UK to have a near carbon-free power sector by 2030 (referred to as a 'decarbonisation target'). They will not decide on whether to have such a target until after the next general election in 2015. The lack of a target, which had been strongly recommended by the Committee on Climate Change as a pre-condition to reducing our carbon emissions by at least 80% by 2050 under the Climate Change Act, means that what will happen in the UK's energy market post 2020 is far from clear. This matters because it could deter long-term investment in the UK's 'green business' sector, a sector which the CBI predicts could halve our trade deficit by 2014/2015.

I spoke earlier this week at a conference organised by the UK Sustainable Investment and Finance Association on the future of green infrastructure in the UK. I was struck by two key themes that dominated the conference. The first is that, despite regular claims to the contrary, there is a considerable amount of private sector money available to invest in UK green infrastructure - and especially renewable energy - but that money is currently sitting in low interest saving accounts because of a lack of confidence to invest. A recent report from LSE and the Grantham Research Institute showed for instance that the UK private sector generated a surplus of some £110bn in 2010, which compared with total investments in the UK's clean energy sector of only £2bn in that same year.

The second is that in order to continue growing, the green infrastructure sector does not require large amounts of public money. What it does need, however, is robust policy signals to unlock the large amounts of private sector capital currently available. It was clear that on both counts, the introduction of a decarbonisation target for 2030 would have made a big difference in unlocking that investment and putting the UK's green sector on a long-term path of growth. The audience were in near-universal agreement that they wanted solid milestones from 2012 all the way to 2050.

If the prime minister David Cameron wants to honour his pre-electoral commitments of making the UK a leader in tackling dangerous climate change and an industrial leader in the clean energy race, he cannot afford to postpone a decision on a decarbonisation target until after the next election. We need strong leadership, not dithering and delays. Such a target is not only a pre-condition to meeting our Climate Change Act commitments which Mr Cameron played such a big role in getting through parliament just four years ago, it is also key in allowing the continued growth of one of the few promising areas of the UK economy.

For someone who claimed earlier this week that he was leading a government, which "was not afraid of taking tough decisions", it is high time for the prime minister to bring his government and party together in support of a stronger, better Energy Bill. This would avoid a cliff edge in renewable energy investment which would undermine the UK's environmental credentials and one of its best chances for a sustained economic recovery.

 
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