The Climate Committee is right - the government created this appalling investment climate

Put yourselves in the shoes of a senior executive at an energy company or investment bank. You want to invest in new energy infrastructure and have plans in place to do so, but each time you try to move these complex projects forward the policies and regulations that will determine their success or failure threaten to change again.

Or envisage yourself as a senior executive at any forward-thinking UK firm. You want to step up investment in renewable energy generation and efficiency projects in order to meet your environmental targets and reduce your long-term operating costs, and yet every time you meet with your finance director or CEO the papers are filled with talk of government dithering on the green agenda. Given BusinessGreen's audience profile, these feats of imagination really shouldn't be too difficult.

The uncertainty you face over the future direction of the UK's energy policy is without doubt one of the most appalling political scandals of recent years. It's not one of the hands-in-the-till, conflict-of-interest scandals that excite the red tops and make the rest of us deeply depressed at the entire political process, but instead the kind of real political scandal that jeopardises the UK's long-term prosperity and security.

When they write the history of the coalition government, the Conservative leadership's shameful undermining of long-standing plans to deliver a modern, secure, stable and sustainable energy network will enjoy a special status as the place where ideological infatuation, political clumsiness and policy incompetence united to screw over both the businesses that were poised to lead the recovery and the British public as a whole.

The crippling uncertainties and contradictions that have defined the past two years are too numerous to list, but consider this a short précis:

1. The Prime Minister starts off by declaring that his government will be the "greenest ever", and ministers start work on a comprehensive Energy Bill designed to drive new infrastructure investment over the next decade, keep the lights on at reasonable cost, and ensure the UK remains within its legally binding carbon targets.

2. The Chancellor sticks his oar in with a none-too-subtle campaign to resist the adoption of the next wave of carbon budgets running through to the mid 2020s, and starts publicly bad-mouthing the entire concept of the green economy and investment in low-carbon infrastructure.

3. The Prime Minister defies his Chancellor and approves the demanding new targets, but the anti-green dogs are off the leash. Conservative MPs publicly campaign against wind farms, the right-wing media circulates clear inaccuracies about the cost of green policies, and the Prime Minister bottles it, shelving a promised speech on the green economy and backing away from his "vote blue, go green" strategy.

4. Meanwhile, the Energy Bill gets ever more complicated as ministers battle with the all-but-impossible task of creating a policy framework that is stable enough to drive investment, yet capable of adapting as the cost of different energy technologies evolves over the next decade. The desire to engineer a balanced energy mix without being seen to "pick winners" results in a package of proposals so complex that MPs describe them as "unworkable".

5. Emboldened by the confusion, Osborne seizes the chance to delight both his anti-green backbench MPs and his close allies in the gas industry, using a separate debate over how to cut renewable energy subsidies to push his vision for the UK as a "gas hub". The proposals are so ill thought out they are laughable – a gas hub when North Sea oil and gas are declining and there is no certainty over EU shale gas reserves; an economic strategy built on a volatile source of energy we have to import from countries that are often hostile towards the UK. But Osborne is playing hardball, and pushes the Department of Energy and Climate Change (DECC) to deliver a more overtly pro-gas policy and remove the one thing standing in the way of a dash for gas – the proposed target to decarbonise the electricity sector by 2030.

6. The Prime Minister removes the minister most closely tied to the Energy Bill, Charles Hendry, and is rumoured to have instructed his replacement John Hayes to deliver a victory for the party faithful by putting yet more barriers in the way of wind farm developments. He also promotes ministers who have been publicly critical of green groups and the green economy, while continuing to refuse to make any meaningful statement on the future of the Energy Bill or the government's wider low-carbon strategy.

All of which brings us up to today. Set against this backdrop, the Committee on Climate Change's staggeringly blunt letter to Energy and Climate Change Secretary Ed Davey – effectively warning that the Chancellor's gas hub plans would be illegal under the Climate Change Act – is both hugely welcome and somewhat overdue.

The political row the intervention will spark should make for great viewing, with the Lib Dems and green Conservatives pointing out that the Chancellor's fixation with gas would break the law and Osborne and his acolytes trying to work out a way to circumvent a Climate Change Act that the party used to support.

But arguably the most important aspect of the letter has nothing to do with political intrigue, and a lot more to do with business reality. It is worth quoting at length:

"The apparently ambivalent position of the Government about whether it is trying to build a low-carbon or a gas-based power system weakens the signal provided by carbon budgets to investors. It makes more pronounced the perceived risk that the Electricity Market Reform (EMR) will perpetuate the current stop-start approach to investment in low-carbon technologies. As a result, the cases for low-carbon business development, capital allocation, innovation and supply chain investment are undermined, damaging prospects for required low-carbon investments. This has been made clear to us in our extensive discussions with the energy and supply chain companies who it is hoped will fund the very significant investments needed in power generation over the next two decades, and who have suggested to us that the sector investment climate is currently very poor."

In the midst of a double-dip recession, the government – and, more specifically, the Chancellor – is wilfully creating an investment climate that is "very poor", blocking multi-million pound investments so effectively that Osborne might as well sign negative planning rulings himself.

And all for what? The fact that we simply don't know is arguably the most scandalous aspect of this whole affair.

Osborne's outriders in the press and think-tank community have repeatedly made vague arguments about low-carbon investment being too costly and shale gas being a panacea for our energy woes. But these arguments pay little or no attention to climate change and legally binding emissions targets, gloss over the economic implications of gas price volatility, and draw on an evidence base that is as shaky as a fracking-induced earthquake.

We are all waiting to hear the Chancellor publicly explain his position. Does he really want to turn the UK into a "gas hub"? How does he respond to those who believe such an approach would expose the UK to worsening levels of energy insecurity? Does he really regard shale gas as the answer, despite the EU's warnings this week that it poses significant environmental problems? Does he still want to comply with the Climate Change Act, and does he accept the CCC's warning that a decarbonisation target is required to do so? These questions and many others need answering if the government is to have any hope of delivering the £100bn-plus of new energy infrastructure investment that is required this decade.

Without wishing to labour the point, this crippling uncertainty could be ended tomorrow with the right statements from the Prime Minister and Chancellor. There is another way. It is the route the government repeatedly said it wanted to pursue; a strategy based on the Energy Bill's central assumption that we need a balanced low-carbon energy mix featuring renewables, nuclear, and fossil fuels with carbon capture and storage, all managed by new smart grid technologies. This is what the government said it would do, this is what the law requires, and this is what businesses and investors have been planning for. It is utterly inexplicable that influential figures within government would now want to rewrite this route map.

When the Climate Change Act was passed in 2008, it was generally accepted that there would be three to four years to sort out the policy framework and then a decade to start seriously delivering modern low-carbon infrastructure at scale. That initial period is now over, and yet still we wait for the clarity and certainty business investors need.

The government must now respond positively to its expert advisers and adopt the decarbonisation target that is essential if ministers are not to land themselves in court facing a judicial review. But more importantly, those at the top of government need to call a truce and end the scandalous mismanagement of a low-carbon energy industry that is ready, willing, and able to invest.

They could start by instructing the Chancellor to put himself in the shoes of those private-sector executives he wants to lead the economic recovery and asking whether they really want to see further years of investment uncertainty just to keep a handful of gas industry lobbyists and ideological MPs happy. Again, the answer should not take too much imagination.

Further reading

Breaking: Climate Change Committee says "dash for gas" would be illegal

• Policy
• 13 September 2012

Climate Change Committee Energy Bill warning letter - in full

• Policy
• 13 September 2012

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