Climate Change

Political energy?

Good morning from New Economy Brief.

If we are to heed scientists’ warnings, we have almost run out of time to limit the very worst effects of the climate crisis. The next government’s actions will therefore be critical in determining the UK’s role in the fight against climate catastrophe.

With ‘Carbon Budgets’ (essentially, checkpoints on the UK’s route to Net Zero) due for assessment both this year and in 2029, the next government will have not just a moral obligation but also a legally binding duty to prioritise climate action. You only need to look back a few weeks to the political upheaval in Scotland to know how seriously these pledges are taken.

At the same time, the cost of living crisis is still voters’ top priority, with high energy bills a key worry for households and businesses. While some on the right of British politics view Net Zero as an unnecessary and expensive barrier to raising living standards, others see the two issues as one and the same. Labour’s Great British (GB) Energy, for example, is promoted as a way to “cut energy bills for good”.

There have been very few significant economic policy announcements early in the campaign, with GB Energy one of the few ideas that has sparked real debate. This week, we explore that discussion, including criticisms of the proposal from other parties, and look at how energy and climate change are being framed in this election campaign.

What is Great British Energy?

Labour first proposed GB Energy in 2022 as a new, publicly owned company that will harness the power of renewable energy "to cut bills, create jobs and deliver energy independence". GB Energy, which would be headquartered in Scotland, aims to build 35GW of onshore wind and 55GW offshore, along with 50GW of solar capacity. The goal is to fully decarbonise the energy grid by 2030. GB Energy is a survivor of Labour’s £28 billion climate pledge U-turn earlier this year and remains one of the party’s flagship policies. Keir Starmer says it will create 650,000 new jobs, and has earmarked £8.3 billion for it (to be spent over the course of the first Parliament), raised through higher windfall taxes on “oil and gas giants”.

When is an energy company not an energy company? GB Energy is described as a “publicly-owned clean power company”, but this does not mean we’ll soon be getting bills with “Great British Energy” stamped on the front. Nor will the company necessarily have exclusive ownership of the solar panels and wind turbines needed to reach Labour’s target. Keir Starmer described GB Energy as an “investment vehicle”, through which public money will be used to trigger private investment in renewables while Shadow Energy Secretary Ed Milband has clarified that GB energy will “own, manage and operate” clean power projects.

Co-investing in new technologies. Labour has three initial priorities for working alongside private partners on GB Energy. The first is to co-invest in new technologies, the hope being that by injecting  public investment into things like floating offshore wind, tidal power and hydrogen, the government will be able to “crowd in” more private investment in these young technologies.

Scale up existing technologies. The second is to accelerate the large-scale roll-out of mature technologies like wind, solar and nuclear. This will involve partnering with existing private sector companies to speed up deployment and coordinate energy megaprojects like nuclear power stations.

Make it local. The third and final initial priority is to scale up municipal and community energy. This involves partnering with energy companies, local authorities and cooperatives to develop small- and medium-scale community energy projects, whose profits will “flow directly back into local communities”. Labour says this third priority will help create a more decentralised and resilient energy system with more local generation and ownership.

Taking it further. Great British Energy is inspired by proposals from Common Wealth. However, those proposals go much further, suggesting that a publicly owned energy company should also generate power itself, using state-owned generating assets such as wind farms. The think tank has also suggested that there could be a public retail arm to keep bills down. Mathew Lawrence, Common Wealth’s Director, has said that by taking such steps and approaching GB Energy with “ambition”, Labour could create a “national institution” akin to the NHS.

How have other parties reacted?

“Nowhere near enough”. The Green Party, which has criticised Labour’s £28 billion U-turn, has said that committing £8.3 billion over the course of the Parliament looks “tiny” in the face of the climate crisis. The Greens’ climate policies are much more ambitious, aiming to eliminate all emissions in 10 years – a goal over whose feasibility even Friends of the Earth has expressed some scepticism in its analysis of the main parties' climate policies.'.

SNP backlash. It’s unsurprising that Labour wants GB Energy to be headquartered in Scotland, given that energy production is such a hotly contested issue north of the border, and that the transition to renewables depends on buy-in from Scottish oil and gas workers. In the Scottish leaders’ debate on Monday, the North Sea industry was a key point of tension. The SNP has been extremely critical of Labour’s energy plan, arguing that it would cost 100,000 Scottish jobs (dwarfing the figure of 2,000 used in the Conservative Party’s criticisms). This is compounded by Labour’s pledge not to issue new licences for oil and gas projects. The SNP’s Westminster leader Stephen Flynn said that “Starmer's plans would take Scotland's energy wealth and spend it on nuclear projects in England.”

Decarbonise, but do it later. It turns out that Labour and the Conservatives do actually agree on something: decarbonising the energy grid. The difference is that the Conservatives aim to do this by 2035 rather than 2030. However, Friends of the Earth has said that even 2035 is ambitious given the Conservatives’ current aversion to onshore wind. For their part, the Conservatives argue that the GB Energy plan is too expensive and won’t have the impact on bills that Labour claims. The Liberal Democrats want 80% of the UK’s electricity to come from renewables by 2030, but have yet to outline how they’d do this, or when the final 20% could be decarbonised.

It’s all about security.

Listening to Labour Party comms this week, you’d be forgiven for forgetting that GB Energy has anything to do with climate policy at all. Once again leading with the theme of ‘security’, Starmer has said it would “close the door on Putin”. With climate policies so often presented as a metropolitan elite luxury, focusing on the benefits to living standards and national security resonates much more strongly with those who wouldn’t typically be wooed by green issues. GB Energy does so far seem to be very popular with voters, with a February YouGov poll showing that 66% of voters support the idea of a publicly owned energy company. If Labour do become the government in July, only time will tell if £8.3 billion is enough to deliver the goods.

Weekly Updates

Election round-up

Bank of England key to fiscal space? The Bank of England could transform the next government’s fiscal room for manoeuvre by slowing or stopping its quantitative tightening programme, according to Bloomberg.

Won’t somebody think of the children? Votes could be up for grabs on childcare, as IPPR finds the issue (barely mentioned in the campaign so far) is particularly important to swing voters.

Don’t rule it out. Political parties should stop limiting their options with blanket promises not to raise taxes, argues the IFS’ Helen Miller.

Prudence with a purpose. If Labour wins the election, it should embrace fiscal prudence by raising taxes on wealth, rather than by slashing spending, according to Colm Murphy and Patrick Diamond.

The price of change. The transformation the country needs will require both more borrowing to invest and reform of the tax system, argues the FT’s Martin Sandbu.