UK energy policy has displayed bipolar characteristics for at
least the last ten years; however, we do require our politicians to
wrestle with this particularly complex and very pressing
issue. Energy policy must respond to global themes and
impacts all of our lives and the UK economy.
We charge our politicians and regulators to make very difficult
decisions about our energy future. We must be supportive of
those we mandate to make such difficult decisions, and must accept
that they may not always get it right first time round and are
prone to criticism and legal challenge from all angles.
Recent climate change challenges
Recent months have highlighted a number of key instruments that have been promoted by either the Coalition Government or the former government which now seem to be at risk of failure and/or unable to deliver either security of supply or the required behavioural changes to enable us to meet the immense climate change challenges we face. This article highlights some of the recent developments.
Some key elements of Climate Change Act 2008
Feed-in tarriffs - Being reviewed and
challenged
Renewable heat incentive - Being
reviewed
CRC Energy Efficiency Scheme - Being
reviewed, might even be abolished
Mandatory greenhouse gas
reporting - Not being pursued
Committee on Climate Change -
Remains
Feed-in tariffs
The Supreme Court has finally determined that the Secretary of
State is not able to appeal against the judicial review case which
was lost by him regarding changes to the feed-in tariff
arrangement1. The court has confirmed that attempts
by the Secretary of State to change the feed-in tariff rates
without specific statutory authority are unlawful. This case
presented interesting issues regarding the retrospective nature of
legislation, particularly in the context of taxation. The
court has reached a correct decision: Government is not able to
circumvent the clear will of Parliament as enshrined in statute and
statutory instrument.
More generally in relation to feed-in tariffs, it is interesting
that a champion policy to deploy specified low carbon technologies
is now being criticised by the Government for being too successful
in delivering solar photovoltaic projects: it is rare that
Government changes its own policy decisions on the basis that a
policy proves to be too popular!
Renewable heat incentive
The feed-in tariff pays a subsidised rate to generators of
certain low carbon electricity in conjunction with the renewal heat
incentive which applies to the generation of low carbon
heat.
The cost of the feed-in tariff is borne by us all as consumers
through a hidden tariff added to our utility bills. However,
the cost of the renewable heat incentive is paid through taxation
revenues. Accordingly, it is no surprise that the renewable
heat incentive is now also being reviewed.
The CRC Energy Efficiency Scheme
The CRC Energy Efficiency Scheme (the Scheme) was a
creation of the last Labour government to waterfall down the
principles of carbon trading set out in the EU Emissions Trading
Scheme (EU-ETS) to businesses and major public
sector organisations not otherwise participating in EU-ETS. One of
the key weaknesses of the Scheme was that it was only ever focused
on the UK.
As has been regularly commented since October 2010, the Scheme
which was engineered to incentivise low energy use within
organisations and efficient use of that energy, has become a
taxation cash grab by removing the recycling payments due to those
who delivered significant reductions in energy use. In so
doing, the Government has destroyed goodwill and placed a
significant unnecessary and unbudgeted cost burden on
businesses.
It is somewhat ironic that since that October 2010, the Government
has been seeking to reform the Scheme on the basis of cost benefit
analysis and unnecessary bureaucracy. All of the complications
of the Scheme are the creation of the Government itself.
These points were repeatedly made to the Government as the Scheme
was developing but were not taken on board.
A further review of the Scheme is currently underway. If
significant cost reductions cannot be delivered (which must be
anticipated) the Government has indicated that it will replace the
Scheme with the general carbon tax. The simplicity of the
carbon tax is to be encouraged as this could be collected through
simple existing schemes and structures such as the client change
levy.
Mandatory greenhouse gas reporting
The Climate Change Act 2008 is a very important piece of
legislation. The major achievement of this legislation was to
establish the Committee on Climate Change and to charge that body
with holding the Government to account in relation to carbon
performance year on year.
The Climate Change Act 2008 also contains an important provision
requiring the Secretary of State to either create regulations for
greenhouse gas reporting for corporates by 1 April 2012 or to
report to parliament explaining why no such regulations have been
made.
Over the spring and summer of 2011, the Department for Environment,
Food and Rural Affairs (DEFRA) carried out a
significant consultation process on mandatory greenhouse gas (GHG)
reporting. This process received an unprecedented 2,018
submissions and as part of the consultation significant meetings
were held between stakeholders. Through this consultation
Wedlake Bell LLP represented the views of the Quoted Companies
Alliance as well as itself.
It is bitterly disappointing that the report issued by the
Secretary of State at the end of March explaining why no mandatory
GHG reporting regime will be put in place contains only eight
paragraphs. After receiving 2,018 submissions and pursuing
constructive engagement with many corporates and other stakeholders
the Government has only deemed it appropriate to deliver a one page
response.
The response itself states that the ministers require additional
time to further analyse the situation and represents an abdication
of responsibility – "no decision to make regulations
has been reached". It fails to set any time frame as to
when a decision will be made.
Businesses have a reasonable expectation that the Government will
behave in a certain and decisive manner. Whilst it is
understandable that through the current economic downturn it was
unlikely that the Government were to seek an additional burden to
be placed on businesses, an indication of evolving views and
supporting analysis would have been useful.
Nuclear power
The Government's options in relation to our low carbon
energy future seem to be narrowing. There was a high expectation
that a lot of future base load generation would be delivered by new
nuclear generating stations.
However, in a further blow to the Government's current policy,
the horizon joint venture of E.on and RWE has recently decided to
pull out of new build nuclear. It remains unclear as to where
this leaves our security of supply and puts further pressure on the
need for instruments that will deliver effective new build
distributed energy (such as renewable). EDF and Centrica have
restated their intentions of investing in new build nuclear. The
outlook is uncertain and one of increasing worry to
commentators.
A glimmer of hope?
One area where low carbon policy seems to be going in the
right direction is in relation to energy performance certificates
(EPCs) and display energy certificates.
Amendments to the EPC Regulations have widened the scope of EPCs,
and also ensure that prospective purchasers and tenants obtain
information about the building's energy performance without
delay.
From 6 April 2012 an EPC is required for both residential and
commercial properties whether for sale or for rent (unless caught
by any exclusions in the Regulations). Sellers and agents must
ensure the EPC is commissioned before the property is marketed and
must use all reasonable efforts to ensure the EPC is actually
obtained within seven days of the property being put on the market
(and in any event within a further 21 days). The updated
Regulations confirm you cannot delay providing the full EPC until
just before exchange, it must be provided up front. It used
to be possible to include the asset rating of the property only
with the particulars, but now the entire first page of the EPC must
be included (electronic particulars are also in this). Fines can be
imposed for failure to comply with the Regulations.
Provided the new rules are effectively enforced, parties buying or
renting properties should be able to make a more informed decision
with regards to the property's energy efficiency.
Where next?
Perhaps some of the confusion is created by the multiple number
of stakeholders at Government level.
The Department for Energy and Climate Change was created to bring
together all relevant experts within the civil service working on
climate change and energy mandates. However, GHG reporting
work is being delivered by DEFRA and responsibility for EPCs
remains with the Department for Communities and Local
Government. Added to that, it is the Department for Business
Innovation & Skills which must take responsibility for the
narrative reporting framework and analysis of the economic effect
of climate change initiatives.
The UK deserves a clear and consistent climate change policy to be
delivered by the Government. Responding to anthropogenic
climate change is an area we must all be engaged in, but we do
deserve more consistent and coherent policies and political
structures to spur us to action.
Footnotes
1. The Secretary of State for Energy and Climate Change v Friends of the Earth and Others UKSC 2012/0052.
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