The UK no longer has a department with the words ‘climate change’ in its title. Climate policy is now the responsibility of a new Department of Business, Energy and Industrial Strategy. This could be seen as a downgrading of climate action – and has been condemned by some green groups. But I think it is a step forward.
Before 2008 energy policy had been the responsibility of the Department of Trade and Industry, and climate change dealt with by the Department of Environment, Food and Rural Affairs (Defra). So different parts of the ‘energy trilemma’ – economic, social and environmental – were in different departments. The economic argument usually trumped the decarbonisation debate. The social part tended to get overlooked.
Before this month’s reshuffle there was some speculation that new prime minister May would return to this arrangement. She has not, which is a relief. Defra is not a powerful department within Whitehall. And climate change is not just an environmental issue: it affects health, the economy, foreign policy and much more.
DECC was also not a strong Whitehall department. During the 2010-15 coalition government, many Tories came to resent DECC as ‘a Lib Dem fiefdom’. After 2015 general election, there was a Tory DECC secretary, but DECC’s staff numbers were slashed, and many of the best officials left.
The new Department of Business, Energy and Industrial Strategy is likely to be stronger than DECC was. Its first secretary of state, Greg Clark, is an excellent appointment. He is clearly on the left of the Conservative party; indeed he was a Social Democrat activist while at university. He was an effective shadow DECC secretary before 2010, taking a pragmatic approach and being willing to listen and learn.
Clark’s new department is in charge of industrial strategy. Lib Dem Vince Cable spoke about industrial strategy when he was running the business department 2010-15, but his Tory successor Sajid Javid did not, wanting to leave pretty much everything to the market. An industrial strategy is necessary in order to deliver decarbonisation. If one thinks that names of departments matter (which I don’t particularly), having industrial strategy in the name of a strong department is more important than having climate change in the name of a weak one.
However, the new business department will only succeed if it is supported by those at the top of government. New Chancellor of the Exchequer Philip Hammond gave some strong speeches on climate change in his previous role as Foreign Secretary, highlighting the economic and security advantages of leading the decarbonisation effort. For example, in November last year he said:
“I do not accept that we have to choose between our future prosperity and safeguarding the future of our planet. This is not a zero sum game. As Conservatives, we choose both.”
New prime minister Theresa May has not been much involved in climate discussions: there is no great overlap with her previous portfolio of home affairs. But Carbon Brief has helpfully found two quotes. In December 2008 she said:
“I am thrilled to see that after years of Conservative pressure, we have finally passed a necessary and ambitious piece of legislation on Climate Change. Britain is the first country in the world to formally bind itself to cut greenhouse emissions and I strongly believe this will improve our national and economic security. To stay reliant on fossil fuels would mean tying ourselves to increasingly unstable supplies which could endanger our energy security and the Climate Change and Energy Bills mark an important step for both the health of our economy and the health of our nation. It is now vital that we stick to these targets”
So the new prime minister accepts the need to move away from fossil fuels. Does she think that new nuclear reactors should be part of this move? That is less clear. In July 2006 she said:
“I welcome that the Government has responded to cross-party pressure to make it easier for homes in Maidenhead [May’s constituency] and across the country to install renewable energy like solar panels or mini-wind turbines. Where the Government offers positive, constructive and reasonable policies, they will have my support. But the Government could do far more to promote green energy, rather than giving unfair subsidies to new nuclear power stations.”
Does May regard all nuclear subsidies as unfair? Conservative party policy is pro-nuclear, mainly on energy security grounds. Clark is pro-nuclear. Hammond said on his first day in office that Hinkley will go ahead.
However, last week the UK’s public spending watchdog, the National Audit Office (NAO), published a report on Nuclear Power in the UK. While noting that much new generating capacity is needed in the UK, the report states that:
“There are particular value-for-money considerations for nuclear power compared to other generating technologies. The government is offering longer-term CfDs [Contracts for Difference] for new nuclear investment than other low-carbon technologies, reflecting the longer payback periods for nuclear power stations. This adds to price certainty for consumers but increases the risk that they do not benefit as much from any long-term changes, such as technological advances that reduce the cost of other low-carbon sources. The greater complexity and risk of nuclear power projects also could lead investors to require a higher return than for other low-carbon technologies.”
This complexity and financial risk applies to all nuclear pojects. But NAO also raises particular concerns about Hinkley Point C (HPC):
“With CfDs, taxpayers are not exposed to project risks such as cost overruns during construction. However, as part of the government’s deal for HPC, HM Treasury has provisionally agreed to guarantee up to £2 billion of bonds that NNBG [the partnership between EDF and Chines estate-owned nuclear companies] will issue to finance HPC’s construction repayable by NNBG’s shareholders in 2020. If the shareholders fail to repay and the government’s guarantee is ever called, or if the developer manages to negotiate further guarantees that are called, the funds required would be drawn from government budgets. Additionally, the HPC deal includes a Funded Decommissioning Programme, whereby the Department stipulates an amount that NNBG must set aside to cover decommissioning costs. The government will be liable for any decommissioning costs above the amount NNBG sets aside.”
As well as financial concerns, some have expressed national security concerns about Chinese involvement in UK nuclear infrastructure. May’s new joint chief of staff, Nick Timothy, has written that the Chinese might use this to build weaknesses in computer systems:
“For those who believe that such an eventuality is unlikely, the Chinese National Nuclear Corporation – one of the state-owned companies involved in the plans for British nuclear plants – says on its website that it is responsible not just for ‘increasing the value of state assets and developing the society’ but the ‘building of national defence’.”
Given May’s past comments about “unfair” subsidy, Timothy’s attitude to Chinese involvement and the recent NAO report, it is now likely that the Hinkley project will be seriously questioned – as it should be in my view. The European Pressurised Reactor, the design being built in France and Finland and proposed for Hinkley, is very complicated and so very expensive. Other existing nuclear options are less complex and so would require less subsidy.
All new nuclear facilities might well require more subsidy than renewable energy facilities. However, the UK is legally obliged, under the 2008 Climate Change Act, to meet carbon budgets. May has said, as quoted above, that it is vital to stick to these targets. To his credit, David Cameron found time in his last fortnight as prime minister to accept the advice of the Committee on Climate Change that the budget for 2028-32 should be 57% below 1990 emission levels. So the appropriate question for nuclear subsidy is not whether this is higher or lower than subsidies to other technologies, but whether it is possible to meet the carbon budget without new nuclear.
As the late David MacKay argued so effectively in Sustainable Energy – without the hot air, it is much more practical to include nuclear as part of the energy portfolio, and the carbon budgets are much more likely to be met. Size matters as well as cost. Cheaper options should be supported – including onshore wind which the Conservatives have stopped subsidising. But new nuclear must be part of the mix.