Treasury hits back on green policy record
The Treasury has responded to claims that previous energy policy decisions have produced long-term uncertainty among investors, with ministerial officials insisting the department remains committed to sustainable economic growth and meeting the UK's legally-binding carbon targets.
Providing evidence at an Environmental Audit Committee (EAC) hearing on Thursday (15 September) about the Treasury’s past performance on environmental sustainability, departmental witnesses defended the Government’s decision to scrap energy initiatives such as the zero-carbon homes initiative and the Carbon Capture and Storage Competition (CCS).
Financial Secretary Jane Ellison said she was “disappointed” by evidence from industry figures suggesting the Treasury’s relationship with business had been damaged, but insisted that past decisions were made in the interest of environmental and economic sustainability.
“It’s clear to me that the Treasury does take sustainability very seriously,” Ellison said. “We all realise that sustainable economic growth is key. Ultimately we are committed as a Government and department to meet the carbon targets and indeed have got a good record.”
‘Burden on business’
Ellison stressed that the Treasury is approaching the upcoming Autumn Statement from a “position of strength” in terms of energy policy, citing the Government’s annual support of renewables is set to double over the current parliament.
However, the Committee highlighted major criticisms from the private sector that energy investments were “pulled from under the rug” without any prior warning; with removal of the zero-carbon homes scheme and CCS competition creating a subsequent policy vacuum. This approach was taken under the narrative of “reducing the costs for businesses” when in fact businesses were in favour of environmental commitments, the Committee contended.
This view was challenged by the Energy Environment and Agriculture Deputy Director Neil Kenwood, who told the EAC that the costs involved in these schemes could have added “many billions” to consumer bills. He compared the agreed strike price of Hinkley which stands at £92.50/MWh, with the equivalent price of CCS, estimated to be in the range of £150-90/MWh.
“One of the key challenges for the Government is how many of these novel technologies can it support at any given time,” Kenwood said. “How much burden can we put on the bills of households and businesses? There is a competitiveness issue with businesses. A lot of these factors were taken into account, and this is at a time when the deployment of renewables had been exceeding expectations, so the cost of the schemes were escalating quite dramatically.”
Zero-carbon homes policy
The Treasury announced last summer it would be scrapping regulations on house building, including a planned increase in on-site energy efficiency standards, in order to streamline development. The Government’s decision was heavily criticised by industry and politicians, who stressed it would likely add to long-term housing costs through a reduction in energy efficiency.
The Enterprise and Growth Unit Director Susan Acland-Hood refuted this claim, insisting that contrary to widespread belief, the initiative would not have incentivised energy efficiency.
“The Chancellor [George Osborne] thought long and hard about zero-carbon homes, noting two important points,” Acland-Hood said. “First, the zero-carbon homes policy was likely to add £3,600 on average to the cost of building a house. And secondly that a large chunk of that was taken up by the Allowable Solutions element which didn’t actually incentivise energy efficiency, it was essentially a tax on development.”
The Committee hearing highlighted the strategic importance of the Treasury for meeting carbon budgets and decision-making around big investment decisions such as Hinkley Point. Treasury officials refused to provide a timeframe for a fourth carbon budget action plan, stating only that they expected a strategy to be in place by the end of this parliament.
The Treasury stressed it would endeavour to create long-term certainty for businesses, starting with the approval of Hinkley, which was finally given the go-ahead yesterday by UK Prime Minister Theresa May.
Environmental and sustainability leaders have told edie they hope that new green ministers develop and maintain a strong backbone against the Treasury, suggesting that for too long, DECC was viewed as a “hostage of the ministry”.