Energy and climate politics in a post-election, post-Brexit world

I must admit, when I agreed to deliver this speech I thought 'that'll be easy'.

Energy and climate politics in a post-election, post-Brexit world. 'Simple', I thought.

All I'd have to do is read through the Conservative manifesto, and tell you what's in it - because what normal person reads a manifesto?

Make a joke at George Osborne's expense.

Talk about the perennial tensions in the Conservative Party over energy and climate policy.

Make a joke at Jeremy Corbyn's expense.

Run through some of the ways Brexit is going to be a full spectrum, wake in the middle of the night screaming, nightmare.

Make a joke at David Cameron's at expense.

And job done.

If only I'd known.

As you can imagine this speech has now gone through more rewrites than George Osborne's got jobs.

 

You should know everything that follows comes with the William Goldman disclaimer. Goldman was the Hollywood producer who famously declared 'nobody knows anything'. He was right.

For what it is worth, going into the election I thought Labour would do slightly better than expected, but the Conservatives would still secure a reasonable majority.

Ultimately I was wrong - very wrong.

We now have a minority government.

A Prime Minister who won, who looks like she lost.

An opposition leader who lost, who looks like he won.

And a government facing the biggest challenge since the Second World War with no plan, no clear mandate, no leverage, no capacity, and an approval rating that is in freefall.

I'd like to sugar coat this, but the inflation rate means I'm not sure I can afford the sugar.

 

This morning I'm going to try and answer three questions:

• What the hell happened?
• What happens now?
• How should businesses repond?

My focus is on energy and climate issues, but it is worth noting this is a topic that does not fit neatly into a box.

We have a joke at BusinessGreen that we write about the economy and the environment, which means we write about everything.

Energy and climate policy touches upon everything, and as a result many of the energy and climate issues that arose in the past few weeks were mirrored across the political landscape.

 

So, what happened?

One of the few things everyone can agree on is Labour ran their best campaign in years, the Lib Dems and Greens got squeezed, despite an attractive policy offer on energy and climate issues, and the Conservatives ran a terrible campaign that ignored a number of hard political truths.

The first of these truths is James Carville's famous assertion that it is always 'the economy, stupid'.

It is historically difficult to win elections when living standards are being squeezed.

The Conservatives had some good proposals for revitalising the economy and creating good new jobs, several of which related to the energy industry and green economy.

There was the promise of £700m for electric cars through to 2020, plans for an industrial energy efficiency scheme, and a pledge to look again at improving domestic energy efficiency.

There was also a massive £23bn National Productivity Investment Fund, promising lots more cash for clean tech R&D and low carbon infrastructure.

But for whatever reason the Conservative leadership soft-pedalled on these proposals, and adopted a line on the economy that offered little beyond yet more austerity.

The one sop to cost of living concerns was an energy price cap that half the party hated and which was never clearly explained to the public.

 

Which brings us to the second political truth, don't take the public for mugs.

As the FT's John Gapper observed the Conservative manifesto was "the vaguest suicide note in history".

The Conservative leadership's desire to seek a mandate without ever really spelling out its plan was best embodied by Theresa May's robotic responses to questions, the failure to cost its manifesto, the wilful absence of a Brexit plan, and the Prime Minister's refusal to turn up for the TV debates.

But, again, if we look specifically at energy and climate policy this deliberate opaqueness was also evident.

The manifesto said the Conservatives opposed onshore wind farms in England and supported them on Scottish islands. But it said literally nothing about them on mainland Scotland, Wales, or Northern Ireland. Vast swathes of the country and potential multi-billion pound project pipelines were ignored.

There was clearly an effort to leave the door open for more onshore wind in the UK on the grounds it is the most cost effective form of new capacity available.

But the leadership did not have the nerve to upset the anti-wind farm brigade, so it ducked the issue.

Similarly, there was nothing on solar power, nothing on clean energy support post-2020, little on air quality, nothing on the promised 25 Year Plan for Nature, and nothing on the future of the carbon floor price.

Fundamental decisions impacting massive industries, thousands of jobs, and the UK's ability to meet legally binding climate targets were glossed over.

One proposal that was put forward was for an Energy Cost Review designed to keep energy costs low "while ensuring a reliable supply and allowing us to meet our 2050 carbon reduction objective".

But leaving aside the fact this is what the government and the Committee on Climate Change do all the time, the review simply adds to the sense of uncertainty.

Sources briefed the right wing press the review would target 'green levies', but at the same time renewables groups were led to believe an independent review would likely highlight how cost competitive wind and solar now is. Confusion reigns.

 

This strategic vagueness did not start with Theresa May.

David Cameron's 2015 manifesto showed similar contempt for the electorate with its inherently contradictory commitment to deliver decarbonisation at least possible cost and halt the development of low cost onshore wind farms.

But the approach reached a nadir in this election campaign.

As David Dimbleby witheringly put it when the exit poll broke: "Theresa May hasn't got the massive support from the country she was hoping to get to allow her to do whatever it is she wanted to do which she never told us."

 

Finally, the Conservative's forgot about hygiene issues.

Hygiene issues is a phrase I first heard used by Matthew Spencer, the former director of the Green Alliance think tank. His contention was the environment is a hygiene issue: green policies may not win you many votes, but their absence will lose you votes.

It's like a restaurant. After a meal no one ever says, 'you know what I liked about that place, it had all its hygiene certificates'. You expect that as a given.  Equally, if it is dirty then you are not going back.

By the same reckoning, no swing voter is going to vote for you because you want to keep the ban on fox hunting, but if your stated desire is to tear up some foxes then you alienate a lot of people.

The Conservatives had some good green policies, but post-election polling confirmed the promise of a free vote on fox hunting and the suggestion the ban on ivory trading could be watered down cut through with the public.

I suspect the failure to take a stronger line against President Trump's decision to exit the Paris Agreement had a similar effect, especially amongst the young voters who played such a crucial role in the election.

 

It is worth noting Labour's manifesto and campaign had its flaws too.

Labour also has a dubious price cap proposal and there was a similar lack of clarity on how Corbyn proposes to meet his ambitious targets to source 60 per cent of the UK's energy from low carbon sources by 2030.

Similarly, it was never explained how nationalising parts of the energy industry would improve anything, and Corbyn mirrored May in dodging all the big questions on Brexit.

However, Labour had the cover provided by being able to say its plans were costed, even if its maths looked heroically optimistic.

And on Brexit, Corbyn had a plan: it was to point at Sir Keir Starmer and gently hint 'doesn't he look a lot more competent than Boris Johnson and David Davis'.

Most importantly, Labour's proposals fitted into a narrative of national revitalisation. May's energy and climate plans - or rather the mishandling of them - fitted into a narrative of opportunism, complacency, and mounting economic insecurity.

 

So, what happens now?

Well, as the old Yogi Berra line goes, it's tough to make predictions, especially about the future.

The government could collapse, the Prime Minister could be toppled, and the potential Brexit scenarios range from war with Spain to writing to the EU to ask if we can please have our Article 50 back.

However, there are some predictions we can make.

The first is the government has to come forward soon with a plan to ensure the UK meets its carbon targets for the mid-2020s onwards.

We know this because a) the government has been working on its Clean Growth Plan for almost a year; and b) it is legally required to publish it.

There is talk of legal action in the offing if it doesn't appear soon.

 

Similarly, before we were so rudely interrupted by the election the government was working on a new 25 Year Plan for Nature, an Ofgem-led review of smart and flexible grids, an energy price cap plan, an air quality plan, and a £290m clean energy auction.

Meanwhile, the Treasury in-tray includes a decision on the future of the carbon price floor and the level of clean energy funding from 2020 onwards.

These decisions have to come soon, not least because without them the energy industry is heading for a crippling development hiatus.

According to an analysis from Green Alliance low carbon infrastructure investment could fall 95 per cent by 2020 unless some clarity is provided soon.

Without urgent action green infrastructure investment could soon follow the same trajectory as David Cameron's political career - only with fewer lucrative speaking engagements.

 

There are, thankfully, reasons to be optimistic on all these fronts.

The Clean Growth Plan is at an advanced stage and my understanding is it contains some really encouraging new plans for electric vehicles, energy efficiency upgrades, smart grids, green heat, and clean power.

Many of these proposals could have made it into the manifesto, if only the leadership had decided to run a less defensive campaign.

There is a growing recognition in parts of government renewables are cost competitive and can be integrated into the grid.

Some Ministers will find it hard to resist the opportunity to deliver a new wave of onshore wind farms outside of England that could provide 1GW of power with virtually no subsidy.

Contracts will be awarded to a new wave of offshore wind farms in the autumn and investment is continuing to mobilise in the fast-maturing energy storage and smart grid space. Only this week £35m of government funding was awarded to innovative new green heating projects.

Politically, the Conservatives were denied a majority in large part because it did not listen to the concerns of younger voters and clung to a stale austerity narrative.

In this light, it is not just bad for the economy to water down decarbonisation efforts - it is bad politics too.

 

However, there are also two reasons to be pessimistic.

Firstly, there is a basic resourcing issue. Whitehall is stretched to breaking point and it is about to be hit by a tsunami of Brexit related complexity.

The biggest tragedy of Brexit is all the important things we could have been getting on with instead.  

At the Business Department the admirable Greg Clark remains in place, but there are two new junior ministers with responsibility for energy and climate policy.

By all accounts they are not from the head-banging wing of the party, but they will need time to get up to speed.

The risk of these crucial decisions being delayed further is considerable.

 

This risk is amplified by the second reason to be concerned about the future of energy and climate policy: the raw politics of it all.

The Conservative manifesto's energy cost review, the lack of clarity on whether onshore wind would be revived, and the vagueness of the energy price cap promise were all attempts at triangulation.

They were designed to appease the climate sceptic wing of the party and set up yet another battle over the next phase of the UK's decarbonisation efforts and wider energy policy framework.

It is worth noting the manifesto commitment to the Climate Change Act mentioned the need to cut emissions 80 per cent by 2050, but made no mention of shorter term targets - that felt deliberate.

This internal battle over the pace of UK decarbonisation will happen, but it will now include the DUP and the knowledge the government's majority is almost non-existent.

 

Let's just take one quick example of how this could play out.

The Treasury has to confirm the size of the budget for clean energy contracts beyond 2020 - the so-called Levy Control Framework. But it knows when it does so certain newspapers will take the highest number they can calculate, ignore all the benefits associated with this investment, and run headlines slamming 'green levies'.

Climate sceptic MPs, who show negligible interest in cost of living concerns in any other context, will pile in and demand a rethink.

You would like to think these media outlets would enter a period of reflection, given the 360 degree incompetence of their election coverage.

But I think any such hopes disappeared the moment the Daily Mail decided to respond to the appalling tragedy of Grenfell Tower by trying to pin the blame on environmental policy.

It will take a brave and principled politician with a genuine commitment to the long term national interest to explain how clean energy contracts are not simply 'green levies', but a means of delivering greater security and more affordable energy in the long term for the UK.

From renewables policy to energy efficiency and air quality to carbon taxes it is easy to see how a government with such a small majority could be spooked into inaction.

 

All of which brings us to Brexit.

Where to begin? Which, by the way, should be the departmental motto at DExEU.

The first thing to say in these polarised times is there were good, credible reasons to vote for Brexit - most of which relate to sovereignty and the failures of the Brussels' machine. Equally, we must all now hope the government can deliver a successful deal.

The vast majority of people in the energy and environmental business space were pro-Remain, but it is worth acknowledging there are areas where the EU's approach has been flawed.

On state aid, import restrictions on solar panels, VAT rates, agricultural subsidies, and bioenergy, the EU has at times hampered green investment. Brexit offers an opportunity for a new approach.

 

However, my view of Brexit remains that these potential upsides are dwarfed by the risks and challenges we face.

Like any divorce you have to consider not just what you gain - a bit more sovereignty perhaps, the freedom to hook up with other trading partners - but also what you lose. In this case, those potential losses include tariff free access to the world's largest market, compliance with a largely effective regulatory system, and friendly relations with our closest neighbours. 

 

Energy and climate is not the most complicated component of Brexit. Just take a look at the implications for chemicals regulations or air traffic control or agricultural policy - that stuff is just horrible.

However, the energy and climate aspect of Brexit is anything but simple.

The only steer that's been provided by the government to date is that it retains its long-standing antipathy towards renewable energy targets, which it feels distort the market, and is planning to leave Euratom.

There have also been some vague pledges to protect the UK's environment and continue decarbonisation efforts.

But beyond that it remains unclear whether the UK government intends to stay in the EU emissions trading scheme, retain air quality rules, keep EU eco-design and energy efficiency standards, join the Energy Union, or honour recycling targets.

It is also unclear how it plans to replace Euratom, although it is clear it could have huge implications for both the nuclear industry and cancer treatments.

I understand officials were bemused and frustrated at Number 10's assertion that Brexit meant Brexatom. Bemused and frustrated is civil servant speak for apoplectic.

 

Even if the government privately has a credible position on all these issues, the big question is how much importance does it place on them?

In each of these areas there is a strong commercial and economic rationale for a deal that keeps us pretty close to the status quo - essentially the Norway option, where the country is outside the EU but tied in to a lot of EU energy and climate policy.

There is also a strong political rationale for a 'soft Brexit' on environmental issues, given a recent poll by the Bright Blue think tank showed overwhelming support, even amongst Tory voters, for the retention or strengthening of environmental policies post-Brexit.

For example, 92 per cent of Tory voters wanted air pollution targets retained, and 85 per cent felt the same about both renewable energy generation targets and rules to improve the energy efficiency of household appliances.

However, while co-operation with the EU on these policies makes sense it often runs smack bang into Theresa May's premature and guileless declaration the UK would quit the ECJ.

Any attempts at a compromise that would benefit all parties and command considerable public support are hampered by May's naïve decision to deliberately minimise the UK's flexibility going in to the talks.

 

And then, once again, there's the politics.

Last summer, after the referendum vote The Sun proposed "10 ways to say up yours to EU". They, of course included the "return of blue Brit passports".

But they also said we could:

• Have cleaner carpets by swapping weak, EU-regulated vacuums for powerful ones.
• Have drier hair by avoiding planned EU energy rules on powerful hairdryers.
• Defend our morning tea and toast by using appliances free of energy constraints.
• See the light by bringing back the incandescent bulb, phased out by EU regs, and
• Reclaim countryside from turbines and solar panels, built to meet EU targets.

This places the government in a bind. The policies the Sun, the Telegraph, and many Tory backbenchers loathe are popular with the public and, in the case of energy standards for appliances, save households and businesses millions of pounds.

The official estimate is these rules will save the average household £153 a year by 2020 and the average large business £24,000 a year.

Moreover, the European Parliament has made absolutely clear one of its red lines for any trade deal is the UK's continued adherence to energy and climate policies.

To be precise it:

"Stresses that any future agreement between the European Union and the United Kingdom is conditional on the UK's continued adherence to the standards provided by international obligations, including human rights and the Union's legislation and policies, in, among others, the field of the environment [and] climate change."

The question of what constitutes "adherence to" will obviously be at the crux of the negotiations, but it is crucial to remember the clock is ticking and the UK has very limited leverage - hence our conceding on the order of the negotiations within hours of them getting underway.

 

Since last summer we have alienated and insulted our partners, limited our flexibility on crucial issues, and actively reduced our leverage to the point where our main card seems to be the ethically unconscionable hint we could limit security co-operation. 

It is entirely possible to conceive a scenario where the EU says if you want a trade deal you need to continue to honour every single environmental target and every last bit of climate and energy legislation.

Given most of these policies deliver net benefits to the UK and the impact of a no deal scenario would be catastrophic it should be a no brainer.

But at that point the Prime Minister, whoever that may be, will have to decide whether they are willing to crash the economy and watch queues tail back from Dover to Watford because The Sun is upset about hairdryers.

I hate to say that given the past year I am not entirely convinced they would make the sensible choice.

Logic and reason and the UK's economic security points to a soft Brexit on energy and climate issues, but I fear logic and reason and the UK's economic security does not have the currency it once did.

And here's the real kicker, if we do crash out of the EU in order to secure control over our product standards there will be no benefit for British businesses. Any manufacturer wanting to sell into the EU will still have to honour the EU's standards. We'll have opened the UK up to low cost competitors with rubbish products, while hampering our own industry.

 

The political backdrop against which this great diplomatic drama will be crucial. Will the DUP or eurosceptic 'bastards' hold the whip hand, or will the Tory moderates refuse to buckle on these crucial issues?

How will public opinion move? Currently, the British public wants both a hard and soft Brexit - focus groups and polls show they want an end to free movement and a no divorce bill, but they also want tariff free trade to continue and the economy to prosper.

Will Jeremy Corbyn work with Tory moderates to ensure a more sensible approach or will he prefer to keep kicking the government while it is down and hope to clean up at the next election?

Energy and environment issues could be embraced by all parties as a means to detoxify the current political climate and finally offer something to young voters, or it could emerge as a major battleground in an ever more intense ideological war.

 

How should businesses respond?

There are three bits of advice worth considering.

The first is to believe what politicians say. It is not a hard and fast rule, some politicians dissemble, but it happens less than you think.

If Theresa May says 'no deal is better than a bad deal', she means she is willing to crash the economy over Brexit.

If Donald Trump says he is quitting the Paris Agreement, then chances are he will.

If the UK's two main political parties say they want an energy price cap, then they will likely get one.

If Jeremy Corbyn says he wants to nationalise large parts of the energy industry, it is advisable to look closely at the plans and consider what they could mean for your business.

Interestingly, Labour is not actually proposing full nationalisation of the energy industry, it is proposing the introduction of new regional publicly-owned companies to increase competition in the market and the nationalisation 'over time' of grid infrastructure.

This is less communism on steroids, but an attempt to emulate the market structure in parts of Europe. That said, the lack of detail is troubling and the question remains as to whether a massive shake up of the market is required at a time when crucial investments in smart grids are underway.

My point is this: there is a tendency amongst business people to dismiss or downplay policy ideas they think are illogical or self-harming or unworkable or simply a break from business-as-usual.

That is a mistake. Believe people when they tell you what they will do.

At the macro level this means when virtually every government on the planet says they want to build a net zero emission economy believe them. 

 

The second piece of advice is that it is time to get politically engaged.

There are long-standing reasons why businesses like to avoid overt engagement with political issues, but those reasons look less 'strong and stable' by the day.

There are good, committed politicians on both sides of the aisle who want to adopt more ambitious energy and climate policies. But they need cover from businesses to do so. They need to clearly hear what your asks are, what specific policies you want to see and why. 

If you are concerned about the impact of Brexit or the pace of the UK's decarbonisation efforts then it is vital to make your voice heard. Let the government know, let the media know, let your local MP and local news know, let the public know.

Yes, there are risks to this approach, but there are also risks to keeping quiet and hoping everything will work out OK.

A battle is underway. It might not break into the open that often, but a group of neocon ideologues are working to tear down every last bit of environmental and energy policy.

There is an entirely plausible scenario over the next few years whereby the hard right of British politics seizes power and tears down progressive and popular policies designed to bolster the UK's long term competitiveness and build a modern, healthy, sustainable and open economy. Their vision is to replace the current framework with a neoliberal pollutocracy.

The odds of this outcome remain slim, but just look at the US, it could happen.

Businesses committed to the long term transformation of the economy need to step up.

 

Finally, whenever the political waters are choppy it is vital to keep sight of the horizon.

We are in the midst of an unprecedented period of political instability, but it will not impact the big macro trends that are shaping the global energy industry and the world's response to climate change.

Last week a major new report from Bloomberg New Energy Finance gave a snapshot of the future: wind and solar will provide nearly half of global power capacity by 2040, as solar costs fall 66 per cent and onshore wind costs fall 47 per cent.

The report came in the same week as investment firm NextEnergy snapped up several planned UK solar farms that it reckons could soon be built without subsidy.

Smart grids, energy storage and fuel cell technologies are evolving at a rapid rate of knots. There are now two million electric cars worldwide, while the number of countries with ambitious climate legislation is increasing by the month.

Public support for clean energy and low carbon technologies is overwhelming and a battalion of companies are responding to this demand by switching to 100 per cent renewable power or signing up to deep science-based emissions reductions targets.

None of these trends will be derailed by Donald Trump or Brexit. They are too entrenched, too popular, and too well defended by sound economics and basic principles of risk management.

In fact, a period of volatility offers a once in a generation opportunity to turbo charge these trends.

The US futurist Alex Steffen has a wonderfully optimistic take that suggests Trump and his fellow travellers are discrediting their world view so absolutely that when the pendulum swings back the other way we must be ready with a truly ambitious programme that is finally commensurate to the scale of the climate challenge.

As he points out, when it comes to tackling climate change "winning slowly is basically the same thing as losing outright". Time is running out. We need big, disruptive, sweeping change.

We need an economy that is truly sustainable, zero carbon, circular and healthy. The good news is we know it can be done.

Global efforts to build a net zero economy within our lifetimes will only accelerate. You can all prosper by embracing and driving this transformation.

And that is the one prediction that is easy to make.

Thank you. 

James Murray was speaking at the Inenco Summer Utilities Forum 2017