White paper outlines UK ETS plans

The government has announced that the UK will press ahead with the establishment of its own emissions trading scheme (ETS) next month as the long-awaited Energy White Paper is finally published today (14 December).

The policy blueprint, which has been more than two years in the gestation, will also consider moves by the government to potentially bankroll new nuclear power plants and outline plans to make it easier for customers to switch to cheaper energy tariffs.

The Department for Business, Energy & Industrial Strategy (BEIS) has said the new UK ETS will replace the current EU version at the end of the Transition Period from New Year’s Day.

The government said the UK’s ETS, the design of which was consulted on earlier this year, would have more demanding greenhouse gas reduction targets than those contained in its EU counterpart, while allowing UK businesses to continue to trade emissions. According to the government, it will be world’s first “net zero carbon cap and trade market”. The Treasury has also consulted this year on ideas for introducing a UK carbon tax.

On new nuclear, the government has said it will consider the “potential role” of government finance during construction, given the scale of the financing such projects require.

It says BEIS will also continue to explore a range of financing options for new nuclear with developers including the Regulated Asset Base (RAB) funding model, which provides developers with revenues while projects are being built, thus reducing borrowing costs.

Alongside the white paper, the government has confirmed today that it is entering negotiations with EDF on its Sizewell C nuclear plant in Suffolk with a view to enabling investment in the project by the end of the current Parliament.

The white paper also outlies moves to make it easier for customers to switch to cheaper energy tariffs.

This will include a pilot for automatically switching consumers to tackle the so called “loyalty penalties” that result in long-term customers paying higher bills than those who have signed up more recently.

The government has said it will launch a series of consultations in spring 2021 on a new framework to introduce opt-in switching, reforms to the current roll-over tariff arrangements, and kickstart a “strategic dialogue” between government, consumers and industry on “affordability and fairness” in energy.

In addition, the white paper confirms all newly-installed heating systems will be expected to be low-carbon or appliances that can be converted to a clean fuel supply by the mid-2030s. This represents a slightly slower timescale than that set out in the Climate Change Committee (CCC)’s sixth carbon budget, published last week, which recommended gas boilers should be banned by 2033.

And generation will be “overwhelmingly” decarbonised during the 2030s, which again suggests a slightly lower level of ambition than the CCC’s goal to drive emitting gas fired power stations off the generation system by 2035.

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Nick Molho, executive director at the Aldersgate, said the government must focus next year on aligning its new UK ETS with the net-zero goal and creating the right conditions for decarbonisation of the power sector by 2035.

He said: “The commitment to a UK ETS and the ambition to fully decarbonise the power sector are both welcome, but it is clear from the sixth carbon budget that we need a zero-carbon power sector by 2035, together with significant investments in grid reinforcements, storage and flexibility services. All of these areas need to become policy priorities in the early 2020s, alongside the development of a carbon price trajectory aligned with the net zero target and a strategic approach to marine planning to support the rapid and environmentally sensitive deployment of offshore wind.”

Tom Greatrex, chief executive of the Nuclear Industry Association, welcomed the government’s announcement on Sizewell, adding: “The government’s decision to enter advanced negotiations with EDF on Sizewell C is very good news for our environment and our economy. Sizewell is a vital next step towards the net zero power mix we need for the future. As well as at least 60 years of constantly available clean electricity, this project will provide thousands of highly skilled, well paid and long-term jobs across the supply chain, at a time when they are badly needed.”

However, Dr Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit, expressed concerns about the government’s nuclear financing proposals.

He said: “While it is likely that some new nuclear will be needed to reach net zero, putting billpayers on the hook for delays and cost overruns is a very risky move. There is little evidence to suggest Sizewell will not be blighted by the same issues that have struck other European nuclear projects, which under the expected funding models would see Brits footing the bill for Sizewell many years before it starts generating power.

“The government has been advised to hold fire on new nuclear power stations beyond Sizewell, as the cost of renewables and of the technologies needed to ‘firm’ their output continues to plummet. It is now clear that offshore wind will form the backbone of our power system, with nuclear playing a supporting role. The key is to get the balance right, and to do so in a way that keeps energy bills as low as possible.”

Emma Pinchbeck, chief executive, Energy UK: “Today’s white paper reveals the scale and opportunity of the energy transition, with aims in it to at least double the amount of clean electricity produced today, start making our homes warmer and greener, and help the switch to electric vehicles.

“The energy industry will do our bit to innovate, supporting our customers so that they benefit from the net zero transition and investing in the green infrastructure we need – but clear policies from government help us do that. This is what the white paper – and other publications over the next year – should provide.”

Jonathan Brearley, chief executive, Ofgem: “We welcome the government’s Energy White Paper which sets out an ambitious programme to build a fairer, greener energy system. Ofgem will continue to work closely with the government, industry and wider stakeholders to help Britain make the transition to net zero at the lowest cost to consumers.”

Peter Emery, chief executive, Electricity North West: “Alok Sharma has said that now is the time to shift from ambition to action on climate change and we couldn’t agree more.

“As this white paper points out, our use of electricity is set to double over the next 30 years as we transition to greener technologies like electric vehicles and heating.

“Work needs to be underway right now if we are to do that while still keeping bills affordable for consumers and that’s why we have already invested millions of pounds in increasing the capacity of the network here in the north west. Spades are already in the ground on some of our major projects that will continue to upgrade the electrical infrastructure in a way that will support the transition to net zero.”

Marzia Zafar, head of policy & strategy at Kaluza: “This Energy White Paper has the power to be as instrumental as California’s Energy Action Plan approved in 2003 which gave the industry a clear set of directions to rebuild a cheaper and greener market after the energy crisis. This enabled California to become the champion of solar, driving down renewable energy prices globally, and resulting in solar becoming the cheapest form of new energy today.

“The net-zero target requires technology solutions to generate green energy as well as engage customers for it to be used effectively. We have been depending on this paper to detail how the value of technology will be unlocked from turbine to electric car and back to the grid, but many questions still remain. In 2030, with 10 million electric vehicles on the road, customers need to have the financial incentives to shift their energy load to times where the system and the supply is green.

“Missing the technology opportunity in the homes of consumers could cost our networks billions of pounds in infrastructure reinforcement and prevent consumers from saving money on their energy bills, reducing their carbon emissions and actually engaging with their energy use.

“Let’s not get lost in only solving challenges around the supply of electricity. We need a roadmap that also gives customers the ability to engage and drive the transition forward.”