UK energy policy is in a muddle and we need a clear strategy now

The UK’s energy policy is in a muddle and lacks momentum. A clear strategy is desperately needed says Matthew Farrow.

In my day job I don’t spend much time on general energy policy, as at the Environmental Industries Commission our focus is more energy efficiency and broad environmental protection policy than energy production. But having been the CBI’s head of energy and environment for much of the 2000s I am continually struck by how little has moved on since I was actively involved. 

For example, my main recollections from that period are meetings with EDF UK boss Vincent de Rivaz  when he would explain his frustrations over trying to get new nuclear up and running (while the problems at the Okiluto and Flamenville EPRs were already being talked about in the energy industry), the DTI spending a huge amount of time trying to work out whether to support CCS, political concerns over the dominance of the ‘Big 6’ energy companies, arguments over how to support renewables, and worries of the low price of EU ETS allowances. Sound familiar?  Of current energy topics only the shale debate was missing.

All of which got me thinking as to why as a country we have become so bogged down on energy policy, seemingly unable to generate any sense of strategy or momentum despite millions of words of analysis being published and periodic changes of ministers, governments and departmental structures.

To start to answer this we have to go back to the early 1980s, when then energy minister (and current climate sceptic) Nigel Lawson made a ground-breaking speech in which he argued that energy was basically a commodity which could be provided more cheaply and efficiently by the market than by state ownership and planning. This paved the way for the privatisation of the energy industry in the late 1980s, which for quite a while appeared to have been exactly the right course of action. In the 1990s the market delivered a secure supply at low prices to consumers, and even falling emissions (part of the drop in power sector GHG emissions in the 1990s was due to the privatised nuclear reactors increasing output due to more efficient management).

By the 2000s however the Lawson approach was starting to unravel. The financial collapse of British Energy in 2002 showed the difficulty of trying run nuclear power on a commercial basis.  Growing recognition post-Kyoto of the need to slash emissions meant that a market framework that had successfully incentivised energy security and price competition was no longer fit for purpose.  Climate change and air quality concerns also meant that reliance on indigenous coal ceased to be a possibility while the need to substitute declining North Sea gas production with gas imports meant the ‘dash for gas’ option was now caught up in the anxious geo-politics of a post 9/11, Putin-featuring world.

Any one of these developments would have posed a significant challenge to UK energy policy – the fact they all came to a head in the same few years led to policy-making being overwhelmed by events. Ministers and white papers came and went, nuclear was put back on the menu, staggeringly complex market mechanisms designed to conjure that elusive goal of a ‘balanced energy system’ were repeatedly consulted on, launched and then endlessly tinkered with, the need for proper heat and energy efficiency policies was belatedly recognised without either being fully focused on, and departmental responsibilities were furiously reshuffled.

A further challenge was that all electricity generation technologies had become indelibly associated with qualities that were both symbolic and divisive. Gas was ‘Russian’, coal ‘dirty’, wind power ‘an eyesore’ and/or ‘inefficient’, fracking ‘polluting’, nuclear ‘scary’. Whether or not these epithets were deserved, they meant that public debate on UK energy options was hard to conduct in a rational way.

As someone whose job it was to try to devise a coherent CBI view on all this (at a time when CBI members were often divided over the way forward), I have a lot of sympathy for the ministers and officials who have grappled with these issues, but equally it does feel like a slow-motion, collective failure of government and policy over three decades.  

The Lawson approach probably was the right one in the context of 1983, except that as circumstances began to change rapidly 15 years later it didn’t really allow for any easy change of strategy, given that the traditional energy sector was by then owned by private (and often non-UK) investors who were wary of government attempts to intervene to meet new policy goals, yet were themselves viewed with suspicion by both the public and much of the nascent renewables industry.

And where now? I’m not sure that the abolition of DECC really matters – it had a very troubled first couple of years, had hardly solved the problems I’ve talked about and in my experience the personal instincts of the relevant ministers has a greater impact than departmental structures. I have my doubts as to whether Hinkley C is worth pushing ahead with (though I have to say I am glad I’m not the person who makes the final decision - welcome to the prime ministership Mrs May…). 

I guess my hope would a combination of smart technology revolutionising  both energy efficiency and demand response, combined with cheaper renewables and shale gas (or imported gas if shale proves uneconomic – I think its environmental impacts can be managed) as a bridging fuel (with a tough 2030 decarbonisation target to ensure that the bridge does not become the destination).

Whether new secretary of state for business, energy and industrial strategy Greg Clark sees it this way, or has a different energy strategy in mind, we will soon find out.

Matthew Farrow is executive director of the Environmental Industries Commission. This article was first published on the Business Green website.