9 February 2023

A new energy department is very welcome – but we need a whole lot more to secure Britain’s future supply


Whatever the political pros and cons, Rishi Sunak’s decision to break up the Department of Business, Energy and Industrial Strategy (BEIS) is good for all sorts of policy reasons. 

The business element, which was overshadowed by energy in the old department, is a much better fit with international trade, not least because the new department of Business and Trade (BaT) should give investors much greater clarity over who to talk to in government.  

A dedicated Science, Innovation and Technology (SIT) ministry makes sense from an industrial strategy perspective, as R&D is one of the few areas where Britain still has a genuine comparative advantage versus other developed economies. Complacency is putting that at risk, as Dame Kate Bingham has pointed out, so SIT is undoubtedly timely. 

And a dedicated Energy Security and Net Zero (ESNZ) department is a no-brainer, given the mess that has been UK energy policy for the last 25 years. The ‘security’ bit of that designation is particularly welcome, given the shock to energy markets caused by Putin’s invasion of Ukraine, as well as the geoeconomics of minerals (such as lithium and cobalt) critical to the energy transition.

But while tinkering with the internal machinery of government might be necessary, when it comes to energy policy, it certainly won’t be sufficient. Successive governments have dug the UK into a very deep and very expensive hole, and digging ourselves out is not going to be easy. Nor can a departmental reorganisation substitute for a properly thought-through response to Joe Biden’s Inflation Reduction Act, which is sucking investment in green energy technology across the Atlantic to complement America’s already booming oil and gas sector.  

Stratospheric energy bills are partly the result of Putin’s war in Ukraine. But as I was warning back in September 2021, when gas prices were already rising, the problem has much deeper roots than Russian irredentism. We are feeling the consequences of chronic underinvestment in new energy projects.

Underinvestment was partly the result of commodity price cycles, with oil and gas companies deferring investment in the North Sea and globally during the 2015-19 oil price downturn. But policy choices have made things far worse here in the UK than could have been the case.

The litany of mistakes is too long and painful to recite in full here, though highlights must surely include: Nick Clegg’s denigration of new nuclear projects; the punishment beatings inflicted on the North Sea oil and gas industry from George Osborne onwards; submission to the Kremlin-funded anti-fracking lobby; rushing ahead on intermittent renewables while decommissioning baseload power generation with no realistic strategy for bridging the gap; a pathological aversion to acknowledging costs and trade-offs; and of course the perennial problems around planning and permitting, including for onshore wind and solar.

Cumulatively, we have created a policy environment far less conducive to energy investment than need be, and in which official green aspirations are outpacing both the technology and infrastructure needed to achieve them. The result: a rough energy transition instead of a relatively smooth one. 

We therefore need a serious rethink of how we rebalance the energy policy ‘trilemma’ and coordinate the trade-offs between affordability, security and decarbonisation. This should be the top priority for the new Energy Secretary, Grant Shapps.

In particular, we should take a careful look at decarbonisation. Britain has made massive progress on this front, cutting greenhouse gas emissions by around 43% since 1990 – more than any other G20 country (of whom only five have actually succeeded in cutting emissions on 1990 levels). But this superlative achievement comes with a price. 

As I’ve noted before, though waved through in a fit of absent-mindedness in 2019, Net Zero 2050 represented the single most expensive policy commitment made by a British government since the decision to fight a global total war against the Axis powers. Yet it’s not just the direct fiscal costs that should concern us. 

High energy prices weigh on growth, as energy is an input across the economy. And costly energy is especially problematic for energy-intensive, high-valued-added manufacturing – not just advanced engineering and steelmaking, but also in many of the green industries of the future, such as electric battery gigafactories. Other strategic growth industries are also hammered by high energy prices – semiconductor fabs that were going to be build in Europe are now look likely to be built in the US, for example. But this is just the recent, more acute manifestation of what has become a chronic problem in Britain.

As industrial policy and robotics expert Rian Whitton notes in the most recent edition of his superb newsletter:

‘This long-lasting conservative government has indeed done more than any large country to decarbonise. The trade-off was weak growth, stagnant industry, and a less self-sufficient energy grid. The UK is also acknowledged to have a sufficient strategy for further reducing emissions than any other member of the G7. This is not translating into better economic performance, a windfall of “green” jobs [or] new export opportunities…’.

Indeed, bad energy policy has been one of the five main causes of low productivity growth, and hence stagnating real wages,since the financial crisis (alongside mass immigration, ultra-loose monetary policy, overly restrictive housing/planning regulations and a poorly designed tax system).

Ironically, we have gone so far and so fast on decarbonisation compared to everyone else that we are actually undermining any faint prospect of a ‘green industrial revolution’ here in Britain, not to mention the implicit mission statements – to drive investment and growth – of both SIT and BaT. ESNZ really is the most critical of the three new ministries created from BEIS.  

The creation of ESNZ should therefore be seen as an opportunity to pivot towards a policy of energy abundance, a Barack Obama style ‘all of the above’ approach to securing plentiful energy supplies, lowering input costs and levelling the playing field for industry. There are policy levers we can pull towards this end, such as carbon border adjustment mechanisms (CBAMs), full expensing on energy infrastructure and streamlining the planning process for modular nuclear plants, onshore wind and shale gas, not to mention broader policies to make the UK a more attractive destination for investment, such as those outlined by the Centre for Policy Studies in ‘Why Choose Britain?’.  

Ultimately, the UK can’t exert direct control over Vladimir Putin. But we can control our own energy policy and we can resist both the insidious narratives promulgated by the immoral degrowthers on the one hand, and the wishful thinking of the ‘green industrial revolution’ advocates and grandstanding green neocons on the other. Unless Shapps embraces energy abundance, he risks becoming less the Secretary of State for Energy Security and Net Zero, and more the minister for grinding energy poverty and low economic growth in blackout Britain.

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Karl Williams is Senior Researcher at the Centre for Policy Studies.