25 July 2016

  |  CBI Updates Team

News

Having decided to leave the EU, the UK must continue to push ahead with much needed low-carbon investment at home

Following a seismic referendum in which the UK voted to leave the European Union, what is needed now is continuity and stability in the domestic energy and climate change policy framework. The new Department for Business, Energy and Industrial Strategy presents an opportunity to deliver on this, but will face some early tests.

Having decided to leave the EU, the UK must continue to push ahead with much needed low-carbon investment at home

Just one month ago, the British people spoke in a seismic referendum which will shape the UK for generations to come. Since then, domestic politics has moved at breakneck speed, delivering the resignation of one Prime Minister, the swift appointment of another, a new Cabinet and new government departments.  

As a result, we are now facing a different future and we will all need to take some time to fully assess the implications. But we must remember that businesses – particularly those operating in energy and climate change – are used to dealing with change and so we should be confident that we can adapt and exploit this future as an opportunity. 

What we need now is strong government and a clear plan

The number one priority for the new Prime Minister will of course be renegotiating the UK’s relationship with Europe, and there will be many important considerations for energy and climate change policy as part of that. In the immediate term, it is important that the UK continues to play its role in shaping key dossiers, such as the reform of the EU Emissions Trading System, while negotiations are ongoing. And as discussions progress, there will be broader questions to be answered, for example about the UK’s future participation in the Internal Energy Market, as well as the impact of key pieces of EU climate and environmental legislation.

But while negotiations with Europe will undoubtedly take centre stage in the months and years to come, equally important will be the need to demonstrate that the UK remains open for business with a stable and long-term domestic energy and climate policy framework. In what turned out to be her final speech as Energy and Climate Change Secretary, Amber Rudd was clear that we would continue with business as usual, which was welcome news – and we will now look to new Secretary of State for Business, Energy and Industrial Strategy, Greg Clark, to pick up the baton and deliver on that promise. 

Some have expressed concern that the loss of the Department of Energy and Climate Change will mean more uncertainty for investors, and could mark a de-prioritisation of climate policy in the UK. This is a risk, but as a ‘glass half full’ person, I would also point to the potential opportunities of this shift. Yes, climate change will no longer be on the departmental plaque, but – if managed sensibly – there is now a chance to really embed the low-carbon transition into the UK’s broader industrial strategy. It is of course early days, but I think we need to judge the new department by its actions rather than its name. 

We need early actions from the new Secretary of State 

What we need from this new department is progress on investment. We still need to attract huge sums of private investment to keep the lights on and diversify our power mix, and we must maintain momentum on progress made so far. This is not about government hands outs, rather timely policy decisions. In particular, clarity is needed on the timing of the next Contracts for Difference allocation round, as well as confirmation of the post-2020 Levy Control Framework. Getting on with this, along with the delivery of the next Capacity Market auction, will go some way to building confidence. 

Ensuring the cost of energy is manageable for both households and businesses must also be a priority, and improvements in the UK’s energy efficiency must be a key part of the solution, along with the necessary support for energy-intensive industries. 

Finally, we want to see all of this brought together as part of a long-term (industrial) strategy to meet our carbon targets while growing our economy. Business welcomed the confirmation last month of the Fifth Carbon Budget which sets a clear direction of travel towards a low-carbon economy – what we now need to see is an ambitious and credible plan to deliver it, which works for all businesses. As part of this, greater attention will need to be given to decarbonising the transport and heat sectors. 

There can be no doubt that the last month has changed the course of the river for the UK. Now, more than ever, government and industry need to find a new way of working together which can support businesses to invest in a low-carbon future and support a more prosperous society.  
 

If you would like any more information about the CBI's work on Energy and Climate Change, please contact Barney (barnaby.wharton@cbi.org.uk)