Critical gap in Government’s energy policy means we will miss net zero targets without urgent action – Lords Committee

In a report published today, the House of Lords Industry and Regulators Committee concludes that there is insufficient policy detail to incentivise the £50 billion a year of investment that will be required every year to transform our energy system. The Committee says that the targets have not been matched by the policies and the clarity over financial incentives necessary to unlock the substantial private investment needed to fund new energy technologies for both industrial and domestic use.

Providing greater clarity requires political decisions over the range of options available and their consequences for consumers, taxpayers and security of supply, decisions which cut across government and cannot be left to independent regulators. The Committee calls for the urgent establishment of a Transformation Taskforce within government, reporting to the Prime Minister and housed within the Cabinet Office. This taskforce would work across Government departments, including the Treasury, to set out a clear roadmap for the development and implementation of energy policies, and act as a coordinator and monitor of progress.

The report also demands that the Government act urgently to explain how the transition to net zero will be funded. It calls on the Government to consider the full range of funding options for energy investment, including reviewing its opposition to the use of government borrowing. Expecting the costs of net zero to be met exclusively by energy users through their bills is regressive and would place a severe burden on many consumers, particularly given the present surge in energy prices which is putting intense pressure on those least able to pay.

Other recommendations in the report include:

• The Committee concludes that the use of government borrowing is fairer from an intergenerational perspective than requiring all costs to be met by upfront charges, as future taxpayers benefit more from the move to a carbon-free energy system than current billpayers.
  
  
• Ensuring security of energy supply alongside responding to climate change must remain a key priority for the Government. It should now set out clearly the future role for nuclear and gas as backups to more weather-dependent intermittent energy sources. The will include facilitating greater exploitation of our own national gas resources.
  
  
• The responsibilities and role of Ofgem should be reviewed to ensure it is not creating barriers to a net zero energy system. Ofgem should also move away from a focus on switching, as well as introducing a more robust supervisory framework to ensure companies entering the market are viable with new capital requirement and a ‘fit and proper person test’. This will help avoid a repetition of the collapse of multiple energy suppliers as we have seen in recent months.

Commenting Lord Hollick, Chair of the Committee, said:

“The Government has set ambitious targets for net zero including a carbon-free power system by 2035; however there is no point planning a carbon-free energy future if you haven’t got a clue how you will get there or how it will be paid for.

“We now need urgent action from the Government to answer outstanding questions on issues such as how they will incentivise households to replace gas boilers with heat pumps - and what plans there are for the 6 million homes where heat pumps may be unsuitable - what funding mechanisms will be established to encourage investment in small modular nuclear reactors and how the upgrade of our infrastructure to allow the use of hydrogen for heating will be funded. These are basic questions that need to be answered before we will get the investment we need to get to net zero.

“The amounts that can realistically be raised via surcharges on energy bills is not enough. Bills are regressive as the poor pay more of their income on energy costs; it is also unfair to the current generation as we are asking current billpayers to cover the huge costs of something that is designed to mainly benefit future generations. The Government should look again at using greater public borrowing to fund what are huge and long-term infrastructure costs. That would give investors confidence to invest in new technologies and ensure the public aren’t hit immediately with higher bills at a time that many are already struggling with fuel poverty.

“While money is a key challenge it isn’t the only one. We need better co-ordination across Government and a real drive and focus to deliver net zero. This requires tackling highly sensitive, political decisions that affect all consumers and taxpayers.. That is why we are calling for a new Energy Transformation Taskforce within government that will report directly to the Prime Minster and take the lead in setting and co-ordinating net zero strategy and policy across government.”