Six policy priorities for the UK’s new Department for Energy Security and Net-Zero

In a move he promised in his Conservative Party leadership campaign last year, Prime Minister Rishi Sunak moved on Tuesday (7 February) to create four new government departments, splitting the Department of Business, Energy and Industrial Strategy (BEIS) up.

The ‘Business’ part of BEIS will partially fall to a new merged department for Business and Trade, and partly into a new Department for Science, Innovation and Technology. This latter department is also where much of BEIS’s ‘Industrial Strategy’ work will be moved to.

The ‘Energy’ part of BEIS will be overseen by a new dedicated Department for Energy Security and Net-Zero – being dubbed DESNZ unofficially by many political commentators. This brings the set-up of Whitehall’s responsibility for climate and energy closer to how it was pre-Theresa-May. May disbanded the Department for Energy and Climate Change (DECC) in an attempt to business more of a say in low-carbon transition planning and to encourage the private sector to play its part. Critics of the BEIS layout argued at the time that having a separate place at the Cabinet Office for climate and energy would give the issues more resource and a higher profile.

Whatever your view on these two structures of responsibility, it is clear that DESNZ will need to take responsibility – and get to work quickly. The 2020s are a crucially important time to lay the foundation for the deep decarbonisation needed to achieve the Paris Agreement, and are also the decade of delivery for the UN’s Sustainable Development Goals (SDGs).

The Government stated initially that DESNZ has been tasked with “securing our long-term energy supply, bringing down bills and halving inflation”. There was initially little mention of net-zero at all. But the Government has subsequently published a list of ‘priority outcomes’ for the Department, with a clear focus on decarbonisation as well as energy security and cost.

Here, edie draws upon this list to outline six items that should be on the DESNZ’s to-do list for 2023.  

1) Making the Net-Zero Strategy Lawful

July 2022 saw the High Court ruling that the UK Government’s Net-Zero Strategy, published in late 2021 in the run-up to COP26 in Glasgow, is unlawful. The Court sided with Friends of the Earth and ClientEarth as they argued that the Strategy does not contain the level of funding or detail needed to be aligned with net-zero by 2050, nor with the UK’s interim carbon budgets.

The Court gave the UK Government nine months to amend the Strategy, which will bring us to March 2023.

Promisingly, DESNZ has stated that one of its priority outcomes is ensuring that the UK is on track to meet its legally binding net-zero commitments. It does state that its plans for doing so involve “significantly speeding up the delivery of network infrastructure and domestic energy production”.

While these are important challenges to tackle, the Climate Change Committee’s (CCC) most recent progress report to Parliament documented a litany of other policy gaps preventing the UK from achieving net-zero as well. The CCC rapped Ministers for “scant progress” in almost all sectors.

2) Harnessing the social and economic benefits of the low-carbon energy transition

Last month, Chris Skidmore MP published the results of his Net-Zero Review, which was commissioned by Liz Truss to map out a “pro-growth, pro-business” pathway to delivering the UK’s climate targets that also contribute to levelling up.

Skidmore’s overarching conclusion was that the Government’s existing approach is not joined-up enough nor ambitious enough to realise the full scale of the social and economic benefits on offer domestically from the transition, nor to ensure the UK’s competitiveness on a global stage. He and his team drew on the input of more than 1,800 individuals and groups to deliver more than 120 recommendations for policy interventions.

Several of these interventions, the Review recommends, should be made in 2023. These include the creation of a net-zero technology roadmap and the completion of a thorough review and reform of the tax system.

This gives the new Department precious little time to leap into action. The new Department has stated that a priority outcome is “seizing the economic benefits of net-zero”, including the jobs and growth created in emerging industries. This implies a keenness to respond to Skidmore’s recommendations.

Whether the recommendations will be taken seriously is another matter, given the Government’s history of commissioning environment-related reviews and then picking and choosing which parts to adopt. The vast majority of Henry Dimbleby’s recommendations were cut from the National Food Strategy, for example, and the Dasgupta Review on biodiversity has only been applied to certain nationally significant projects.

Nonetheless, this time around, the Government is under significant pressure to ensure that it capitalizes on the socio-economic benefits of net-zero, with increased recognition of the ways in which the low-carbon transition can create well-paid jobs in all regions and shield the nation from future fossil fuel price spikes. Organisations pushing the Government for delivery include the Confederation of British Industry, which has set out a joint report on how the UK’s net-zero economy was worth £71bn last year. The report notes that future growth is possible and would overlap significantly with levelling up, but is by no means guaranteed.

3) Passing the Energy (Security) Bill

Following on from the British Energy Security Strategy last April, which significantly increased targets for deploying offshore wind, blue and green hydrogen and nuclear, then-BEIS-Secretary Kwasi Kwarteng introduced a new Energy Security Bill designed to enact many of the changes necessary to deliver the Strategy.

Following the resignations of Boris Johnson and Liz Truss as Prime Minister, the Bill was hauled in for review and an updated version – simply called the Energy Bill – was set out in December 2022. DESNZ has stated that one of its priorities will be ensuring smooth passage of the Bill, which is currently passing through the House of Lords.

In its new form, the Bill still includes measures to create business models for hydrogen and carbon capture. It also sets in motion measures to assess end-uses for hydrogen in the UK, with the Government facing the thorny issue of whether it should be used for home heating or reserved for harder-to-abate activities.

The Bill will also create a new market mechanism to scale heat pump manufacturing and deployment; improve heat network zoning; and set in motion plans to further develop regulation for the nascent fusion energy sector. It also ties in significantly with the Review of Energy Market Arrangements (REMA).

4) Pressing ahead with plans to fix energy market infrastructure

The Government is continuing in 2023 he long process of implementing its REMA, badged as the biggest shake-up to energy market design in a generation. Initial REMA consultations opened last summer and the progress of the review has doubtless been slowed by two changes in Prime Minister since its launch.

Under the REMA, the Government is proposing measures to de-couple global wholesale gas prices from wholesale electricity prices for electricity generated in the UK. This link, it has been argued, is becoming less and less sensible as Britain brings more renewable electricity generation capacity online and seeks to close the impending nuclear gap. Recent Carbon Tracker analysis concluded that the link added £7.2bn to energy costs during 2021-22.

Other key changes proposed under the REMA include:

• Evolving the Contracts for Difference (CfD) auction scheme for low-carbon generators
• Introducing locational pricing
• Having separate markets for ‘firm’ and ‘variable’ power

The REMA was originally spearheaded by BEIS, which claims it is still analysing responses to the latest round of consultations. Continuing the review will now likely fall to DESNZ. At the same time as reviewing market arrangements, the Government is also reviewing its approach to energy retail. The cracks in the current system have been clear to see in recent weeks, with regulator Ofgem ordering retailers to pause the forced installation of prepayment metres for families that have fallen behind on their bills.

5) Laying the foundations to meet new energy efficiency targets

At the Autumn Statement late last year, Chancellor Jeremy Hunt set new energy efficiency targets following months of pressure for his Party to deliver its Manifesto pledge of £9.2bn of funding for energy efficiency this Parliament.

Hunt set out a new ambition for buildings and industry to reduce annual energy consumption by 15% by 2035. He touted savings on bills in excess of £28bn per year. He also confirmed £6bn of additional energy efficiency spending but delayed its allocation until 2025 at the earliest.

The general consensus from Britain’s green economy is that more could have been done, considering the litany of failed energy efficiency policy packages such as the Green Homes Grant and Green Deal – and considering that better energy efficiency in the near term shields homes and businesses from high energy bills. The CCC’s 2022 progress report to Parliament named improving building energy efficiency as one of the slowest parts of the UK’s low-carbon transition.

But, moving forward with the new 2035 targets now in place, the new Department has stated that delivering them is a priority outcome. The Budget next month will confirm whether any funding has been fast-tracked.

6) Improving cross-departmental collaboration

Many prominent green economy figures and groups which sent their reactions to the formation of DESNZ to edie highlighted how, as much as it could be a good thing to give net-zero its own seat at the Cabinet table, the extent of the Department’s influence and success will ultimately lie in its ability to work well with other Departments more than its name. Poor cross-departmental collaboration has been raised by the CCC and in the Skidmore Review previously, as well as by the Public Accounts Committee (PAC).

“Whilst the decarbonisation of our energy supplies is essential to getting to net-zero emissions, reaching net-zero is an economy-wide transition,” explained the Aldersgate Group’s executive director Nick Molho.

“It is important that the creation of the DESNZ does not obscure the fact that achieving net zero will require business model and infrastructure changes across the whole economy – this must be reflected in how responsibilities are split across government departments and how they interact with one another.”

REA chief executive Dr Nina Skorpuska added: “Decision-making in the sector has already been woefully delayed over the last few years, and a joined-up approach across these new departments is essential.”

Molho, Skorupska and others noted that Skidmore’s review recommended the creation of a new delivery body for net-zero – an arm’s length body, somewhat like a watchdog, tasked with ensuring that different departments with some responsibility for net-zero work collaboratively. This will include not only DESNZ but the Departments for Transport; the Environment, Food and Rural Affairs; Levelling Up, Housing and Communities, and more, including HM Treasury, also.

The Government is expected to respond to Skidmore’s review this spring, so watch this space.

Related news: What are the green credentials of Grant Shapps, the new Secretary for DESNZ?