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Green economy

Published: 20 July 2016
Sector: Energy

The UK’s green economy can still prosper in a post-Brexit world

Amidst all the turmoil of Brexit, the last couple of weeks have seen a number of significant developments on the UK climate change front.

Earlier this month, the Committee on Climate Change (CCC) gave its cautious support to fracking in the report, The Compatibility of UK onshore petroleum with meeting the UK’s carbon budget’s. They examined the new duty introduced by the Infrastructure Act 2015 to advise government on the implications of onshore petroleum exploitation for meeting UK carbon budgets.

The CCC’s support was conditional, stating that shale gas production on a significant scale was compatible with UK carbon budgets only if three tests were satisfied:

• that carbon emissions during shale gas development should be closely monitored and controlled

• that shale gas production should displace imports so that overall has consumption does not increase

• that emissions from shale gas production should be counted as part of the UK’s carbon budgets.

The report was timely, with the government announcing at the end of June that it would set the 5th carbon budget at the level recommended by the CCC - a 57% reduction in UK emissions from 2028 – 2032 on 1990 levels. This latest carbon budget is designed to be the latest indication of the trajectory towards achievement of 80% emissions cut by 2050 set in stone by the Climate Change Act 2008.

The CCC’s annual report on the UK’s progress towards this 2050 target, released alongside the government carbon budget announcement, shows that emissions have fallen by 38% below 1990 levels. However reductions have come almost exclusively from the power sector, and far greater progress is needed in other sectors but which are currently lacking the necessary policy measures.

Renewable energy

In parallel with all of this, and to reinforce the message, National Grid released on 5th July its latest Future Energy Scenarios. In this report, National Grid concludes that the UK will likely miss its binding EU 2020 targets for renewable energy (of a 15% share, across electricity production, heat and transport). Whilst progress was good on renewable electricity production, notably wind and solar, the uptake of electric and hydrogen vehicles, and renewable heating systems, needed a massive boost.

National Grid was also clear that the UK's carbon reduction target of 80% by 2050 would not be met unless tougher policies were imposed very soon.

Why is all of this important?

Firstly the CCC’s report on onshore petroleum exploitation provides much needed ammunition to those who need to work harder to change public perceptions of shale gas. This needs to be managed, not only around safety concerns regarding the fracking process but also to address the issues of those who are worried that developing new sources of onshore gas production can never be compatible with a drive towards decarbonisation.

The UK needs a diverse portfolio of domestic energy sources, and the CCC has set out how shale gas can play its part in the energy mix. Surely Brexit has made this even more vital (and as it happens possibly easier, as the European Commission has never been especially keen on shale gas)?

Secondly, Brexit has raised all sorts of questions about how the UK energy sector can or should be disentangled from Europe. We’re actually heavily entwined with the rest of the continent through pervasive EU energy law and policy across the supply chain, not to mention physical sub-sea interconnections, which play an important part in our security of supply, and it is going to take quite some time for the medium and long term consequences of Brexit to become clear.

In the short term, the implications are likely to focus around delays in investment in new generating plant, as financing costs increase amidst market turmoil. With a hefty investment need for infrastructure improvements over the next few years, this is going to make it even more important that the government moves very quickly to reduce political risk, by reinforcing clear and long term policy objectives.

In light of this backdrop the recent announcement to merge Department of Energy & Climate Change (DECC) with Department for Business, Innovation & Skills (BIS) into a new Department for Business, Energy and Industrial Strategy is particularly interesting. For some in the green lobby, the fear is that it’s the latest sign that climate change has been relegated from the government’s top policy priorities. On the other hand, a more charitable view is that an alignment of climate change objectives with industrial strategy heralds the sort of joined up thinking we need if we’re to really give the green economy a boost post-Brexit.

Putting aside the recent government restructuring, for the low carbon economy, the CCC’s report on shale gas, and the government’s setting of the 5th carbon budget, are a welcome and timely reminder for investors that the UK has a strong and ambitious low carbon framework set by the Climate Change Act. This is a binding piece of UK law which still has Parliamentary support, and crucially is entirely independent of our EU membership.

For more of our thoughts around Brexit and the implications for your business read here.

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