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Leadership contest: candidates' climate and energy policies

Sam Hall (Director at CEN)

The climate policy debate in the Conservative leadership contest is underway. Detailed plans are still lacking - perhaps unsurprisingly, given a fast-paced political campaign is not the ideal context for policy-making. Nor have climate issues been that prominent. Again this is not necessarily a bad thing, as it points to the fact there is consensus among the candidates and no great desire to break from Boris Johnson’s policies. Nonetheless, with some new commitments over the past couple of days, now is a good time to review the candidates’ statements so far.

Both candidates signed our Conservative Environment Pledge, committing them to net zero by 2050. As part of the pledge, they also promised to continue reforming farm payments, unleashing British renewables, helping people insulate their homes, and backing new clean technologies. While clearly not a comprehensive manifesto of what is needed to hand on a healthy environment to the next generation, this pledge signals their intention to avoid going backwards in some key areas.

In the CEN caucus hustings, the candidates went further. They set out their overarching approach to the environment. Rishi Sunak said he wanted to continue with the net zero policies he agreed to as Chancellor. In particular, he highlighted his push to get more private finance to deliver better climate outcomes. Many experts agree that the net zero transition can be predominantly privately financed. However, some public funds to accelerate clean technology development and ensure fairness will also be required.

Liz Truss also confirmed she supports net zero by 2050 and wants to marry climate action with strong economic growth. She saw an alignment between her environmental policies and her goals of liberalising trade and reforming EU regulations. Liberalising trade can certainly benefit the environment, such as when barriers to green goods and services trade are removed, but it can also harm it if there aren’t mechanisms like carbon border adjustments to prevent polluting products from unfairly undercutting cleaner ones. The same is true of deregulation more generally.

Both candidates have set out policies to address rising energy bills. Liz Truss wants to suspend green levies for three years, although she clarified in the CEN caucus hustings that she’d fund them out of the exchequer rather than attempt to cancel legal contracts. Green levies are falling in absolute terms, fund important measures to cut expensive gas use, and will be a small share of energy bills (likely below 5%) after the next price cap rise. Some green levies are now effectively negative because the prices agreed with renewables generators are lower than the current wholesale price, and so generators are paying back to suppliers, suppressing bill rises.

Taking the levies for legacy renewables schemes off bills and funding them out of general taxes is a good policy from an environmental perspective. It would address the current distortion whereby the lower carbon fuel (electricity) has to bear all the policy costs and carbon taxes, while higher carbon gas has hardly any. Rebalancing electricity and gas prices in favour of electricity will sharpen the incentives for electrifying heating. The rebalancing should be permanent, however, either by encouraging Renewables Obligation Certificate holders to move to cheaper, more secure Contracts for Differences (see my colleague Jack’s recent blog) or by moving the levies on to gas bills.

Rishi Sunak, meanwhile, has announced he would cut VAT on energy bills for a year. As with Liz Truss’ green levies policy, this will have a relatively small impact on energy bills given the scale of the rise coming this autumn. Although it could be carried out faster, it would have none of the benefits of rebalancing electricity and gas prices in a greener direction. Both candidates are likely to have to announce additional and more targeted support for fuel poor households this winter.

Sunak has also pledged to launch a new energy efficiency scheme focused on cheap, easy-to-install measures such as cavity wall insulation. While unlikely to help much this winter due to supply chain constraints and lead-in times, boosting home insulation would curtail our gas demand over the medium term, reduce household energy bills permanently, and plug a crucial, long-standing gap in the UK’s net zero strategy.

However, it is concerning that he has floated paying for this by defunding the Boiler Upgrade Scheme - the key policy for reducing the UK’s long-term dependence on gas for home heating. This could jeopardise new heat pump investments by energy companies like Octopus, badly damaging investor confidence and setting back private sector efforts to make this critical technology cheaper. While it is very welcome that Rishi Sunak has recognised the potential for insulation to ease the cost of living crisis, neither candidate has yet grasped the scale of the home retrofit programme that is now required on energy security grounds.

Both candidates have policies for boosting energy supply too. They have said they are open to lifting the fracking moratorium if there is local support. The ban was put in place in 2019 due to the frequent earth tremors that were triggered by fracking operations and the judgement that the political price for the Conservatives relaxing seismicity limits wasn’t worth the minimal gas production that a UK shale industry is likely to yield. Although energy security concerns have grown since then following the Russian invasion of Ukraine, hardening public opinion and the still unfavourable UK geology means the fundamental calculus against fracking remains unchanged.

Rishi Sunak has set a goal for the UK to be energy independent by 2045 by boosting offshore wind capacity. Due to our vast wind resource and coastline, the UK could certainly become a net energy exporter in the future. It will require significant private sector investment and more supportive regulation, but it’s achievable, affordable, and will give the UK much-needed protection from volatile fossil fuel markets.

It was disappointing, however, that he ruled out new onshore wind in England, even where local communities support it and even when companies are willing to offer local communities energy bill discounts in return for hosting the infrastructure. Recent Public First polling shows that bill discounts are effective at reducing residual local opposition to new wind farms. Onshore wind is significantly cheaper than gas generation, can be built more quickly than nearly any alternative, and can make a meaningful contribution to energy independence. It is also much more popular, including among Conservative voters, than fracking and nuclear.

Large gaps in the candidates’ net zero plans remain - for example, over the electric vehicle rollout, industrial decarbonisation, or carbon pricing. Besides an eye-catching commitment from Liz Truss to lead a delegation to the biodiversity summit in Canada this year, few statements have been made on tackling the nature crisis. That’s despite local water quality, for example, and the biodiversity impacts of new housing being highly salient issues in many marginal constituencies.

Conversely, tackling sluggish economic growth through supply side reform has been a major focus of the leadership campaign. This liberalising approach can be applied to net zero too, which has a huge role to play in stimulating investment in the industries of the future - whether it’s introducing a more targeted super-deduction on green machinery once the current one expires, offering stamp duty rebates on energy efficient homes, or unblocking onshore wind where there’s community support.

Overall it is positive that neither candidate wants to deviate significantly from the current net zero strategy. This reflects the broad support among the public and the parliamentary party for climate action, as well as the strong economic case. But whoever wins will need to strengthen climate policies - for instance, on home energy efficiency - if they are going to meet the net zero target they are now committed to. In doing so, they can advance other critical agendas, such as tackling the cost of living or boosting growth.


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