Clean energy investment will continue, but the failure to set a decarbonisation target for 2030 means costs will be higher and jobs will be lost overseas
First, a caveat: the defeat of the decarbonisation target amendment is not a crisis for the green economy. Nor is it a calamity, a catastrophe, or a cataclysm for the clean tech sector. Climate Change Minister Greg Barker has a point when he argues the debate on a decarbonisation target is something of a "diversion". The Energy Bill is edging towards Royal Assent and when it is granted it will drive huge investment in clean energy projects for the rest of this decade, backed by over £7bn in support mechanisms, a number of crucial Treasury loan guarantees, and a broad, if at times shaky, political consensus.
But that said, the failure of peers to back a decarbonisation target for 2030 represents a huge missed opportunity that will make the cost of the low carbon transition higher than it would otherwise have been, while ensuring many of the resulting financial and job opportunities will be snapped up by foreign companies and governments.
To understand this debate you need to put yourself in the shoes of an offshore wind turbine manufacturer, nuclear components provider, or sustainable biomass fuel supplier. You know a wave of new clean energy projects are coming between now and 2020 (or in the case of nuclear one new project is coming between now and 2023), but while you suspect further projects may come during the 2020s you are also concerned the Chancellor's much touted dash-for-gas will badly constrict the market for your clean technologies post-2020. Do you invest when a multi-million pound factory will require orders during the 2020s to generate attractive returns?
Some will decide they will take the risk and we are likely to see a number of encouraging announcements from the clean energy supply chain in the coming months and years. But, as many companies have consistently argued, others will hedge their bets and either delay their investment decision until the next government declares whether or not to back a decarbonisation target in 2016 or opt to locate new facilities on the continent instead.
The government has countered, not unreasonably, that these investors already have plenty of certainty. The Climate Change Act means the UK faces legally binding emission reduction targets that mean decarbonisation of the power sector is all but inevitable during the 2020s, while the government is currently pushing for an even more ambitious EU target for 2030. It is a fair point and the likelihood is that the UK will continue to invest in a mix of clean energy technologies throughout the 2020s.
But investors will be forgiven for asking for an explicit commitment to decarbonisation when a single party conference speech can apparently lead to the Prime Minister tearing up a key plank of the UK's green policy framework. It is an open secret that a decarbonisation target is being blocked because the Chancellor wants to leave the door open for more unabated gas investment in the 2020s. Clean technology manufacturers will remain understandably reluctant to invest when they fear a Conservative government would introduce a whole new energy strategy that could leave their factories shuttered within seven years of their being opened.
Why does this matter? Well, as the independent Committee on Climate Change has argued the failure to build a domestic supply chain for wind turbines, solar panels, nuclear reactors, and biomass power stations will push up the cost of decarbonisation and result in a failure to maximise the economic gains that are on offer.
We already know our nuclear reactors will be developed by French and Chinese companies, while our offshore wind farms will be developed by firms from Denmark, Germany, Ireland and Abu Dhabi, to name but a few. But the failure to deliver a decarbonisation target means these flagship projects will also be ordering many of their parts from France, Germany, Denmark, and the US. Moreover, if we don't sort out looming skills shortages, many of the jobs on offer will also go to overseas contractors. There is a sizable and ambitious clean energy supply chain developing in the UK, boasting a host of hugely competitive companies that will no doubt secure orders as a result of the low carbon transition. But the prospects of this supply chain expanding and being able to really take on more established overseas rivals has just been dealt a blow by the government's failure to agree on a decarbonisation target.
Barring a repeal of the Climate Change Act and a ditching of EU climate targets - both of which, for all the bleating of the Tory Tea Party tendency, remain very unlikely - the UK will continue to invest in the decarbonisation of its power sector. But without a decarbonisation target we risk a blow-for-blow repeat of the experience of other infrastructure industries, as contracts, revenue and returns all flow to overseas conglomerates, many of which are state-owned. Imports will increase, carbon emissions will rise, and jobs will be lost overseas, driving up costs in the process.
All of which makes Conservative opposition to a decarbonisation target and misleading claims that the policy will drive up costs extremely hard to understand. Yes, a decarbonisation target would require the continuation of some clean energy subsidies into the 2020s, but the large scale deployment of these technologies post 2020 would help slash wholesale power costs, curbing bills for households and reducing the UK's exposure to volatile global gas prices, while driving clean tech export opportunities. Moreover, this transition is going to have to be made one way or another as the UK responds to escalating climate change threats, we might as well do it in a manner that minimises costs and maximises economic returns.
The failure to deliver a decarbonisation target in the Energy Bill is a missed opportunity for UK clean energy manufacturers and developers, which will once again leave our economic competitors rubbing their hands together and marvelling at our failure to deliver a coherent domestic industrial strategy. The absence of a decarbonisation target is not a fully fledged disaster, investment in clean energy will continue, it is just that the biggest beneficiaries will not be British companies, British workers, or British consumers.
Whoever forms the next government should make the adoption of such a target one of their top priorities - the future of the UK's competitiveness in the fast-expanding global clean tech market depends on it.
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