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UK government divided over clean energy targets in bill

The UK's energy bill, which states the UK will aim for a 34% reduction in its carbon footprint by 2020, will now be debated by the House of Lords

The UK's energy bill has passed a crucial stage, bringing it closer to becoming law. But there is deep division within the government over how it can cut carbon emissions while bridging the looming electricity supply gap.

On 4 June, the UK government's energy bill passed its third reading in the House of Commons. Just eight members of parliament (MPs) voted against the bill, while 396 voted in favour. The bill will now make its way through the House of Lords, where if it is passed, it will eventually become law. 

At the heart of the UK's energy bill is the need to ensure that the country can generate enough electricity to meet its growing demand as older gas-fired and oil power plants are taken offline. 

It aims to do this through electricity market reform in areas such as power generation pricing, diversification of the UK's energy supply and by setting carbon reduction targets.

The bill states that the UK will aim for a 34% reduction in the carbon footprint from electricity generation by 2020, rising to an 80% reduction by 2050. This is taking into account the legally binding European Union (EU) targets to for 15% of UK energy to be supplied from renewable sources by 2020. 

The European Commission (EC) wants Europe to reduce its greenhouse gas (GHG) emissions by 20% from the 5.5 billion tonnes recorded in 1990, by 2020.

As part of its 20-20-20 targets, the EC wants 20% of Europe's energy to come from renewable sources and a 20% increase in energy efficiency in the next seven years.

Supply crunch

Britain's power regulator Ofgem said last year that electricity supply would tighten as margins, the amount of spare generation capacity on the country's electricity grid, could fall from 14% in 2012 to just 4% per cent in 2015-2016.

Ofgem said a combination of the global financial crisis, tough environmental targets for reducing carbon emissions and the closure of ageing power stations would all tighten supply and would likely lead to higher prices for consumers.

Around 20% of the UK's existing electricity generating capacity will be shut down over the next 10 years, the government said.

The government said that creating new power capacity while reducing the UK's carbon footprint will require around £100bn ($160bn) of investment in new electricity generation and transmission infrastructure by 2020, double the current rate.

Edward Davey, the UK's Secretary of State for Energy and Climate Change, said that the energy bill being approved at this stage was a positive sign for investors in the sector. "A clear message has been sent to investors that we are providing the security they need to work with us to revolutionise the energy sector and produce cleaner energy, keep the lights on and people's bills down," Davey said.

Divided government

The energy bill aims to enhance the UK's energy security while cutting its GHG emissions but the government is divided on how to achieve this. Tim Yeo, a conservative MP and Chair of the Energy and Climate Change Select Committee (ECCSC), wanted to amend the energy bill to force the government to commit to tough GHG cutting measures.

The amendment suggested that the UK power sector should use more renewable energy, carbon capture and storage and nuclear power in electricity generation to cut GHG emissions to nearly zero by 2030.

It was based on a number of recommendations the ECCSC made to the government in July 2012 in response to an initial draft of the energy bill. In the report, the committee scrutinised the proposed energy bill and suggested the UK set a target for reducing carbon emissions from electricity generation by 1 April 2014.

The bid to amend the energy bill was narrowly defeated in the UK's parliament on 4 June 2013: 267 MPs voted in favour of allowing the amendment and 290 MPs voted against it.

The government has now said that the target for cutting carbon emissions will be set in 2016. It did, however, concede that it will review the fourth carbon budget, which stipulates how much carbon dioxide the UK can produce each year up to 2027, before then.

Yeo said the UK government had "missed an opportunity to provide more clarity for investors" on the future direction of UK energy policy. He added that the rejection of this amendment means it will be harder for the UK to meet its long-term carbon reduction targets and it will force future governments to take more costly action to curb emissions.

For the UK's Department of Energy and Climate Change (DECC) to meet its target of cutting GHG emissions by 80% by 2050 it will also need to improve energy efficiency.

However, DECC has not yet set clear targets for energy efficiency savings, stating only that the country could save 196 terawatt hours in 2020 through investment in energy efficiency measures. This is the equivalent of around 22 power stations worth of energy, according to the government.

In the new energy bill the government has pledged to more than triple its subsidy commitment to low-carbon energy generation from £2.4bn in 2013 to nearly £10bn by 2021. But there was no clear indication of how the funds would be allocated to different power-generation industries and under what conditions. The government is hoping private investment will help to make up the £100bn shortfall.

According to government targets, renewable energy should make up around 30% of electricity consumption by 2020, up from around 7% last year. It is also promoting shale gas, having given the go-ahead for hydraulic fracturing last year.

In March, Chancellor George Osborne announced tax breaks to help the nascent shale-gas industry get off the ground and to boost the UK's economic growth. Nuclear power and carbon capture and storage technology also feature in its low-carbon power generation strategy.

Investment uncertainty 

Yeo says that instead of offering clarity to investors delaying the carbon reduction target decision "leaves investors wondering whether the UK is really serious about decarbonising its electricity sector". Longer-term certainty is needed to encourage investment in low carbon energy development projects beyond 2020, Yeo said."Unfortunately this could mean that urgently needed investment in our energy infrastructure will be slower and the risk of a capacity crisis greater," Yeo said. "The continuing uncertainty that will result increases the perceived risk of investment and will therefore raise capital costs, meaning that consumers may ultimately pay more for the new power plants that need to be built."

Investment in new gas-fired power, carbon capture and storage and nuclear power is already at risk. The government is still negotiating with EDF over a minimum guaranteed price for nuclear power generation under long-term contracts. Under the contracts for difference scheme the government would compensate EDF if the wholesale price for nuclear power dropped below that agreed level. This has been a major sticking point in progressing nuclear power development in the UK.

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