Wednesday, May 18, 2011

Huhne's victory is a real cause for celebration

I woke up this morning realising the full significance of the announcement made by Chris Huhne yesterday in the House of Commons.

In the future, the decision he gave could well be looked back upon as the single most decisive moment which set this country on course to become the leading low carbon nation in the world, providing the impetus for a drastic and fundamental transformation of the United Kingdom's infrastructure, economic renaissance and recovery. Translation: millions of jobs.

The decision to implement in full (although we still don't know about the inclusion of shipping and air travel, and although it is dependent on European progress as a whole) the recommendations of the Committee for Climate Change for the years 2023 to 2027 sounds arcane and far off.

But the chorus of approval from many quarters with which the decision was met betrays its importance. Given the noises that beforehand were coming out of The Treasury and Department for Business, Innovation and Skills (BIS), I would not have put money on Huhne and Cameron adopting the CCC's advice without significant changes.

The decision is so important because it provides the long term certainty for which the sector has been clamouring.

Now, investors know that they can put money into developing the smart grid, into offshore wind farms, turbine and PV factories, marine power, carbon capture and storage, building and renovating zero carbon structures, and even nuclear power - without fear that the policy landscape will shift and other sources of energy will become more attractive.

Previously unthought-of innovations like this amazing tidal energy installation in the Thames will become commonplace.

But will it happen to a sufficient extent and fast enough?

This single act alone does not make the Cameron-Clegg Coalition “the greenest government ever". After all, most of the activity that will flow from the new targets, once they are enshrined in law, will only happen after this Government's term of office is over.

The Coalition has done - and is doing - many other things to weaken investor confidence in renewable energy.

Its Green Investment Bank will start up with insufficient capitalisation and no initial borrowing capacity, due to Treasury over-caution. As Green MP Caroline Lucas has pointed out, rather than unlocking the £450bn in finance for renewable energy and the low carbon infrastructure needed in the next 15 years, the bank's impact will, initially at least, be limited to its original £3bn funding.

It has left open the door for the purchasing of carbon credits to allow us to meet our national greenhouse gas emission-reduction targets.

It has signalled that it will review the carbon budgets in 2014, which means that the commitments could be backtracked upon.

It is likely to ignore the CCC's advice that it should increase the targets for 2013-2023 in line with the level of actual emissions.

It has damaged the confidence of the U.K.'s solar PV industry by its U-turn on feed in tariffs for installations over 50 kW.

Its Localism Bill is providing no confidence that renewable energy developments will not be blocked on flimsy grounds by NIMBYs.

DECC's Energy Bill and the proposals for Electricity Market Reform have also come under severe criticism.

And, the renewable energy industry is concerned about the Treasury's attempts to control DECC's spending through its Levy cap on the Department.

This is "part of the Treasury's efforts to reclassify renewable obligation certificates and feed-in tariffs as public spending that it can then control," according to one unnamed source.

The cap currently covers the Renewables Obligation, Feed-In Tariffs and Warm Home Discount, which the independent Office of National Statistics has classified as "taxation and spending" and must therefore be overseen by the Treasury. The Renewable Heat Incentive comes out of general taxation and is subject to other constraints.

The planned electricity market reforms could also be covered by this agreement. This all gives the Treasury significant control over DECC policies.

The document, while ostensibly saying that DECC retains the right to change policies, decrees that Treasury approval is needed where policies "could create pressures leading to a breach" of the cap; could "increase long-term cost pressures beyond those previously envisaged"; and could set a "potentially expensive precedent".

The Treasury must also approve any policy changes that are "novel or contentious".

DECC itself says that "where a policy is forecast to overspend against the envelope, DECC will have to develop plans to bring spend back within the cap".

Given all of this, it is almost a miracle that Chris Huhne managed to get what he wanted regarding the fourth carbon budget. That he did is probably because there are no spending commitments in this government term attached to it.

If he had failed, it would have exposed him as a very weak minister indeed.

He now needs to redouble his efforts to reclaim control over his own department's policies in order to keep his authority.

Still, as Jeremy Leggett, CEO of Solar Century observed yesterday, the UK has now embarked on a radical and trail-blazing trajectory, the full consequences of which it probably has little idea. We know where we're going - 80% with emission cuts by 2050, 50% by 2030 - but we don't know how we're going to get there.

It's going to be a rocky, exciting, and highly rewarding ride.

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