Energy White Paper - UK Government prioritises climate change objectives

The UK Department of Trade and Industry (DTI) last week published its long-awaited Energy White Paper, setting out the Government's long-term strategy on energy to the year 2020 and beyond. The White Paper underlines the growing convergence between energy and environment policies.

The White Paper is wide ranging. Measures proposed in the White Paper are intended to affect all businesses by creating an environment in which economic growth is decoupled from increased carbon emissions while ensuring ongoing security and diversity of supplies. This note deals with the climate change measures. For a summary of points of particular interest to licence holders and investors in the energy sector in the UK, please refer to our note.

Climate change at the centre

The White Paper starts by setting the objective of cutting CO2 emissions 60% by 2050, with technological change seen as likely to play a significant part in delivering emissions reductions at this level. Market solutions such as emissions trading, trading in renewable energy certificates, taxation and tax breaks, supported by increased R&D funding and capital grants, are seen as the key mechanisms in delivering the cost-effective technology that will be needed.

Supporting statements from Prime Minister, Tony Blair were timed to coincide with publication of the White Paper and demonstrate support for growth in the environment technologies and services industry. In a speech, he likened the long-term global threat of climate change to the immediate security threat posed by weapons of mass destruction. In a joint letter with his Swedish counterpart, Goran Persson, to the EU President he challenged EU leaders to commit to reductions in their CO2 emissions of the same order. The letter supports and builds upon the draft EU Environment Technologies Action Plan, designed to foster development of cost-effective environment technologies and services, by proposing that the EU should set further national targets for renewables and continue to work to support combined heat and power (CHP).

Highlights of the White Paper include the following:

• Energy efficiency - is the most cost-effective way of reducing CO2 emissions and can deliver approximately half of the emissions cuts needed to achieve the Government's targets. The White Paper contains a reminder of the Treasury consultation on specific fiscal measures to promote domestic energy efficiency and Government commitments to:
  • raise performance in the Building Regulations during 2005 (ahead of the implementation date for the EU directive on energy performance of buildings - to read an article on this Directive, please click here);
  • support and work proactively to speed delivery of a number of new EU energy efficiency and labelling laws, including the proposal for a directive on the eco-design of end use equipment;
  • setting up a working group with energy regulator, OFGEM, to explore how to create effective markets for energy services (where the service delivered is, for example, warmth rather than units of electricity);
  • maintaining existing national targets for CHP, but introducing CHP targets for the Government Estate through introducing a projects route, further enabling CHP to participate in emissions trading.
• Renewable energy - the Government acknowledges that despite having vast potential, growth in UK renewables has been inadequate so far. The White Paper sets the 'ambition', rather than a firm target, of generating 20% of electricity from renewable sources by 2020, and a commitment to strengthen renewables policy, to include:
  • an additional £60m in capital grants over the period 2002-2006;
  • reviewing progress under the Renewables Obligation in 2005/6 and then elaborating Government strategy to 2020 (which, presumably, means setting targets to 2020);
  • amending the regulatory framework to facilitate connection to the distribution network of an increasing number of small renewable and combined heat and power (CHP) generators;
  • addressing planning obstacles to renewables projects, to include revising planning guidance on renewables (to be published shortly) and working with the Ministry of Defence improve communication of their objections to wind farm proposals;
  • urging regional and local government (those that have not already done so) to develop local policy to balance national energy policy against local/regional concerns, to set targets negotiated between local and national government and to develop detailed action plans on renewable energy and energy efficiency.
• Energy markets and the environment - the Government acknowledges that current market structures and regulation impact on the environment and, whilst firmly wedded to the current system, the Government is committing to:
  • set up with the DTI, the Department of Environment Food and Rural Affairs (DEFRA) and OFGEM a joint working group to consider and report on relevant environment issues;
  • revise the statutory guidance to OFGEM on social and environmental issues in the light of the commitments and objectives in the White Paper to make the guidance more specific;
  • introduce a statutory requirement for OFGEM to undertake an environmental impact assessment of all significant new policies (bringing it into line with other market regulators).
• Nuclear - since the Government feels that current economics make nuclear power unattractive and complex nuclear waste issues remain unresolved, it proposes no new nuclear build for the next five years. Beyond that, it proposes to keep the nuclear option open and to consider whether nuclear is needed to achieve climate change objectives.
• Emissions trading and energy taxation - the Government supports the EU-wide emissions trading proposal and further harmonisation and focussing of energy taxation policy to internalise environmental costs. The White Paper also indicates that the UK's climate change levy is under review.
• Partnerships - a Sustainable Energy Policy Network of department units involved in delivering the White Paper's commitments will be set up - to include the DTI, DEFRA, the Department for Transport, the Foreign and Commonwealth Office, the Treasury, the Office of the Deputy Prime Minister, the Scottish and Welsh Offices and devolved administrations, OFGEM and the Environment Agency.
• Transport - there is little new here. The Government is sticking to the principles of its recent policy paper, Powering Future Vehicles, and deferring policy decisions on aircraft emissions until publication of its Air Transport White Paper. However, a hydrogen fuel cell technology agency, Fuel Cell UK, is to be set up and there are indications that there may be additional support for biofuels and hybrid fuel-electric vehicles.
• Waste - there is nothing new here. The Government is deferring policy decisions until it publishes its response to its Strategy Unit review, Waste Not Want Not, into delivery of the Waste Strategy 2000.

Although the White Paper has already been criticised by opposition parties for being short on specifics, the real nuts and bolts are likely to come when the Government publishes its 'implementation plan' detailing how it proposes to deliver the strategy set out in the White Paper. The Government has committed to publish the plan within the next year and then to report annually on progress that has been made towards achieving the objectives set in the White Paper, as well as on any additional steps needed to remain on track.

A summary of the White Paper is available at: http://www.dti.gov.uk/energy/whitepaper/wp_summ.pdf.

The full text is available at: http://www.dti.gov.uk/energy/whitepaper/ourenergyfuture.pdf.

For further information or advice contact Paul Sheridan at [email protected] or on +44 (0)20 7367 2186.