At a time of sluggish economic growth, the need to modernise the UK’s power infrastructure in order to help tackle climate change is urgent. A budget that aimed to boost investment in low-carbon technologies in a cost-effective manner would be welcome.

In general, there were some positive announcements in this year’s budget. The government confirmed that it would maintain the UK’s mandatory greenhouse-gas reporting requirements which are currently in place. These regulations require listed companies to report annually on their global greenhouse-gas emissions.  It was speculated that these conditions could have been removed as part of the government’s ongoing review of business energy-efficiency policies. Following the Paris climate summit, which emphasised the importance of greater disclosure on the financial risks linked to climate change, this is a welcome announcement and one that businesses and institutional investors had been calling for.

Promises

The budget hinted at the importance of building a smart electricity system, with a commitment to supporting greater levels of interconnection to other power grids. Moreover, it aims to support innovation in technologies such as power storage and flexible electricity demand, both of which could make it easier for the UK’s power grid to cope with increasing amounts of renewable energy. Funding of £730m for auctions of offshore wind and “less established” renewable-energy technologies were promised, which should allow for the deployment of up to 4GW of new projects. This provides much-awaited clarity on the levels of funding the offshore wind industry can count on, which will help to move some projects forward. However, this amounts to a lower volume of offshore wind being developed on an annual basis in comparison to previous years. In turn this could restrict the speed at which the industry can continue to cut costs and grow the supply chain in the UK.  

Falling short

Several areas were left untouched by this budget, ranging from how the UK plans to tackle the energy efficiency of its building stock to how more mature renewable-energy technologies like onshore wind can continue to play a role in the UK’s energy mix. If the government is to address the very low levels of investor confidence in the UK’s low-carbon sector highlighted in a recent parliamentary report from the Energy and Climate Change Select Committee, it needs to make this a priority in the coming months.

The government needs to rapidly adopt the recommendations of the Committee on Climate Change on the fifth carbon budget. These set out what the UK’s minimum level of emission reductions should be up to 2032 if the UK is to meet its target of reducing emissions by at least 80% by 2050, as set out in the Climate Change Act. Carbon budgets are only part of the picture but they provide a valuable signal to investors as to the volume of low-carbon infrastructure that is likely to be needed over the next 15 years.

Tackling the challenge

Next, the government’s emissions-reduction plan, which is due to be published by the end of the year, will need to set out a comprehensive plan to  meet these climate targets and bring forward the required levels of investment in low-carbon infrastructure. This will require specific policies in a number of areas, including on how to improve the energy efficiency of the UK’s building stock, drive a greater uptake of low-carbon heat technologies and ensure that mature forms of renewable-energy technologies such as onshore wind and solar PV, which have proved politically controversial, can still be developed in the UK as part of an affordable, low-carbon energy system. A renewed effort to demonstrate the commercial viability of carbon capture and storage technology should also form part of such a plan.

The chancellor made much of the importance of the need to “act now rather than pay later” in his budget speech, highlighting the importance in politics of making tough decisions now that could yield long-term benefits. This is precisely the approach government needs to take if it is to tackle long-term challenges such as climate change cost-effectively and build a thriving low-carbon industry in the UK. Developing a comprehensive low-carbon plan for the UK must be an immediate government priority.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.