It’s been almost a month since the UK’s newly elected, and historic, Coalition Government was formed, introducing an interesting partnership between the Liberal Democrat and Conservative parties. With over 22 bills announced in last week’s Queen’s speech, the Coalition certainly has its work cut out over the next 18 months.

Without doubt, the biggest concern of this Government is the reduction of the national deficit, which stands at a colossal 12% of GDP. However, the newly elected PM, David Cameron, and his Liberal Democrat deputy, Nick Clegg, have pledged that the urgent need to develop a low-carbon economy will remain a key issue and focus amidst deficit reduction plans. To affirm his commitment, one of Cameron’s earliest announcements included a target to reduce central government carbon emissions by 10% within next 12 months. In the same vein, the PM has also committed to push the EU to demonstrate leadership in tackling international climate change, including by supporting an increase in the EU emission reduction target to 30% by 2020.

The Energy Security and Green Economy bill announced in the Queen’s speech last week is expected to deliver some of the pledges made in the Coalition Government’s manifesto (see below). The Bill will focus on maximising energy efficiencies and renewable energy generation through a range of innovative policy measures, including ‘green loans’ for buildings and businesses, designed to increase investment in green technologies and efficiency measures across the UK. Importantly the loans are associated with the building or business and not the individual, enabling owners to transfer payments to new owners if the property/businesses are sold.

However, this Green Deal is the only part of the government’s low-carbon agenda that is currently certain to make it into the final version of the Bill after DECC announced that a host of other legislative measures “may” be included in the legislation. The Department is still finalising proposals for legislation to regulate emissions from coal-fired power stations (with uncertainty around the baseline for performance), provide a framework to govern the rollout of smart grid technologies, lay the foundations for a green investment bank, reform energy markets to enhance security of supply and competition between operators and ensure North Sea infrastructure is open to companies operating in smaller oil and gas fields. Whilst the latter option remains controversial, the Government has made suggestions that it will seek to maximise opportunities for the continued extraction of fossil fuels and opencast mining, ironically exhausting carbon intensive energy resources to build the ‘foundations’ of a renewable and low carbon economy. This has dismayed some environmentalists, who remain skeptical about how this Coalition will set itself apart from the previous Labour Government.

However, the proposals put forward will have to contend with the £6.25bn of public spending cuts also announced last week by George Osborne. Whilst the Department for Energy & Climate Change (DECC) won’t suffer as much as some other Government departments, it is set to lose £85M from its budget, with DEFRA losing as much as £162M. In what he has described as the “fastest and most collegiate spending review in recent history” Osbourne plans to recover the remaining savings in £20.2M cuts to the department’s delivery bodies and a further £26m from other efficiencies, including £6M by targeting lower impact spend in the Regional Development Agencies. In addition, £34M will be cut from business support programmes including moving forward the closure of the Low Carbon Buildings Programme (LCBP), which provides grants to households and businesses installing renewable energy technologies. A new feed in tariff incentive, launched in April 2010 is expected to replace the LCBP and provide incentives for microgeneration of renewable technologies, however with the launch of the Renewable Heat Incentive (RHI) not expected until next year, there are concerns that some parts of the market are exposed to a lack of policy clarity or incentive.

Leonnie Greene of the Renewable Energy Association said producers of biomass systems, ground source heat pumps and other renewable heat technologies now urgently needed clarity on when the proposed Renewable Heat Incentive (RHI) scheme will be introduced.

Whilst many of these cuts are likely to deliver emissions reductions, the Government is faced with the risk of stifling long term green investments, which would inevitably deliver economy wide savings in the future.

Interestingly, two of the government’s most controversial environmental policies – its proposal to enforce a floor price for carbon and reform renewable energy incentives by extending the feed-in tariff – were noticeably absent from the list of measures to be included in the final bill. Whilst the Government has demonstrated some ‘fresh thinking’ on this agenda, there is a sense that there is much thinking still to be done. Inevitably the next 12 months will be critical, and comprehensive consultation, speedy implementation, and strong political direction will determine how well Cameron guides the UK through its worst debt crisis, and critical energy reforms to better position the nation in a future low carbon economy.

The Coalition Government’s vision for decarbonising the UK

  1. The establishment of a smart grid and the roll-out of smart meters;
  2. The full establishment of feed-in tariff systems in electricity – as well as the maintenance of banded ROCs;
  3. We will instruct Ofgem to establish a security guarantee of energy supplies.
  4. Measures to promote a huge increase in energy from waste through anaerobic digestion;
  5. The creation of a green investment bank to support low carbon projects to transform the economy. As part of the creation of a green investment bank, the Government intends to create green financial products to provide individuals with opportunities to invest in the infrastructure needed to support the new green economy.
  6. The provision of home energy improvement paid for by the savings from lower energy bills;
  7. Retention of energy performance certificates while scrapping HIPs;
  8. Measures to encourage marine energy;
  9. The establishment of an emissions performance standard that will prevent coal-fired power stations being built unless they are equipped with sufficient CCS to meet the emissions performance standard;
  10. The establishment of a high-speed rail network;
  11. The cancellation of the third runway at Heathrow and the refusal of additional runways at Gatwick and Stansted;
  12. The replacement of the air passenger duty with a per-flight duty;
  13. The provision of a floor price for carbon, as well as efforts to persuade the EU to move towards full auctioning of ETS permits;
  14. Measures to make the import or possession of illegal timber a criminal offence;
  15. Measures to promote green spaces and wildlife corridors in order to halt the loss of habitats and restore biodiversity;
  16. Mandating a national recharging network for electric and plug-in hybrid vehicles;
  17. Continuation of the present government’s proposals for public sector investment in CCS technology for four coal-fired power stations; and a specific commitment to reduce central government carbon emissions by 10% within 12 months.
  18. Intention to seek an increase in the target for energy from renewable sources, subject to the advice of the climate change committee.

Ministerial Arrangements in the new Coalition Government

Chris Huhne MP has been appointed Secretary of State for Energy and Climate Change in the new coalition government.

Charles Hendry MP and Gregory Barker MP have been appointed as Ministers of State for Energy and Climate Change.

Lord Marland has been appointed as Parliamentary Under Secretary of State for Energy and Climate Change.

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