Battle over clean energy policy to be resumed in the House of Lords, as businesses face up to continued uncertainty
Like a phoenix from the flames or an unrelenting zombie, depending on your point of view, this afternoon's narrow defeat of the Energy Bill's decarbonisation target amendment will singularly fail to kill off the increasingly vocal campaign for a binding clean energy target.
First up, the narrow nature of the government's victory - a Commons majority of 23 means the amendment would have passed if just 12 more Lib Dem backbenchers had voted in line with their party's official position - means that it is inevitable the House of Lords will take a very close look at the amendment.
Green campaigners are pretty confident enough peers will back the amendment to create an almighty headache for the government. My understanding is the Lib Dem leadership are all too aware they face a major challenge whipping their peers into blocking an amendment supported by many party activists, while a number of the Bishops and cross bench peers who sit in the House of Lords are also preparing to back the decarbonisation target.
The worst case scenario for those green businesses and NGOs campaigning for the amendment is another narrow defeat that still serves to raise the profile of the green energy cause. The best case scenario is a defeat for the government that could yet force it to look again at some form of compromise agreement. The chances of George Osborne caving and adopting the target are even slimmer than the government's majority proved in this instance, but a Lords rebellion could pave the way for some form of compromise that either offers some alternative succour to the green economy or provides stronger assurances that a target will be properly considered when the carbon budget covering the crucial 2030 period are agreed following the next election.
So the battle for a decarbonisation target will continue for at least the next few weeks, and has the potential to drag on for a while yet should the Lords and Commons engage in a game of legislative ping-pong.
Moreover, even if the government does manage to finally decapitate this amendment, it remains on track to pass legislation that gives the next government the power to introduce a decarbonisation target for 2030 in 2016. As Labour pointed out this afternoon, the Energy Bill does not require the government to introduce such a target in 2016, it simply bans it from introducing a target before 2016. But with Ed Miliband hammering his colours to the mast in favour of a target and the Lib Dem leadership still insistent it would have backed the amendment were not for the constraints of coalition, only an outright Conservative victory at the next election (by no means impossible) would stop the debate being revived post-election. Meanwhile, many of the arguments that underpinned the debate surrounding the decarbonisation target and the need for greater policy certainty for the green economy for the 2020 to 2030 period look set to be repeated next year when the government undertakes its controversial review of the post 2020 carbon budget.
Whether businesses like it or not, and given the desire for policy clarity on all sides they do not like it, the debate over the decarbonisation target and the related arguments about the most cost effective way to decarbonise the UK's energy sector is going to run and run. This uncertainty creates numerous challenges, but it is also not without its opportunities for savvy green businesses.
The risks are well documented and were convincingly outlined by the many businesses that wanted to see a decarbonisation target adopted immediately. The Energy Bill may well deliver the promised £110bn of clean energy investment through to 2020, but without a clearer indication of what happens after 2020 businesses will be reluctant to locate supply chain infrastructure in the UK, resulting in missed economic opportunities and higher costs in the long term. Opponents of the decarbonisation target argued that the over-arching carbon budgets should provide sufficient certainty that decarbonisation will continue, but enough potential investors rejected this argument for its credibility to be questioned. Ministers should be very worried about the extent to which their ability to convince clean energy supply chain firms to locate in the UK has been compromised, which is why the House of Lords should now back the amendment and the coalition should look again about how to strengthen post 2020 policy clarity.
There is a very real risk that the investment prospects for renewables, carbon capture and storage, nuclear, and even gas have been harmed given the fact we now face two years of uncertainty over whether or not a target will eventually be adopted. At the very least, the cost of capital will be higher than it should otherwise have been as a result of the political risk.
However, while these challenges remain a real cause for concern, it would be wrong to suggest the outlook is universally gloomy as a result of this policy confusion. The Energy Bill has the potential to unlock a surge in clean energy investment as soon as the details of the contract for difference and capacity mechanisms are confirmed this summer. The renewables, nuclear, and energy efficiency sectors, in particular, are on the cusp of what could prove to be an historic breakthrough. It would be churlish of supporters of the green economy to not at least acknowledge this reality.
Clean energy firms now have an opportunity to not just mobilise investment, but also continue to make the case for the government to embrace greater ambition through the 2020s. They have the opportunity to prove that their arguments are sound, that their technologies are becoming more cost effective, and that their warnings about over-reliance on gas power are justified. For all the noise created by the fracking-addicted, climate sceptic cabal of right wingers that seek to monopolise the headlines, the continued passage of the Energy Bill and the government's support for an energy portfolio approach proves they remain in a distinct minority. Meanwhile, the way in which the government argued that the Climate Change Act and the support mechanisms contained in the Energy Bill made a decarbonisation target superfluous to requirements at this point means the onus is now on ministers to prove that is ineed the case and secure rapid investment in new clean energy projects and, crucially, factories.
Those businesses and campaign groups committed to holding the government to account over its bullish predictions for the Energy Bill now also find themselves reinvigorated by the on-going battle for a decarbonisation target. The chatter across much of the green community is that the past month feels like something of a tipping point. This may prove to be painfully optimistic, and there have been plenty of false dawns in the past. But there is no doubt that traditional green campaign groups proved far more savvy at marshalling business support and making compelling economic arguments for decarbonisation than they have been during some previous campaigns. The result is that Labour was able to take an unashamedly pro-green economy position, and the group of Lib Dem rebels and green Conservatives saw their hand significantly strengthened. The decarbonisation target may have been defeated, and the Chancellor may have secured a modest victory for his reckless dash for gas, but the green economy's momentum has continued to gather pace - and from where I am sitting it looks more like a phoenix than a zombie.
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