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Government must manage energy crisis or risk support for net zero policies, warns report

Gas prices grew by around 500% in 2021, pushing up wholesale energy prices dramatically. Image: Getty.

Gas prices grew by around 500% in 2021, pushing up wholesale energy prices dramatically. Image: Getty.

The government must manage the immediate cost of living crisis created in part by the energy crisis or risk losing political and public support for net zero policies, a new report from the Institute for Government has warned.

It is one of seven core recommendations made by the thinktank in its new Net zero: agenda 2022 report. If the government fails to act to mitigate the surging power prices in the UK on the back of a European gas shortage, it could fuel discontent on the backbenches and undermine previous cross-party consensus on the need to act of climate change, the report states.

There is concern that the price cap could increase by 46% to around £1,865 when it is reset in April, a level that could bring the number of fuel poor households in the UK up to six million.

Research from Citizens Advice also released this week suggested that if the cap is raised by this much, a single adult would have to spend a third of their standard allowance under the basic rate of Universal Credit on energy bills.

Calls from political parties, charities and energy companies have been growing in recent weeks for the UK government to take action to mitigate the impact of the price rises. One of the most popular pathways is changes to VAT in the short-term, which has been supported by the Labour party and a number of Conservative politicians.

“The government needs to look at all possible ways of reducing the impact of April’s price cap rise,” a spokesperson for Energy UK recently told Current±.

“While a 5% cut [in VAT] would certainly help, the question is whether there needs to be additional measures given the size of the likely increase to consumer bills, which could be in the region of £700.”

Other potential pathways include a windfall tax on north sea oil and gas producers – which is also supported by the Labour party – reforming green levies, smoothing the price rise by providing loans to suppliers and increasing targeted support to the fuel poor.

An additional suggestion reportedly being considered by the Treasury currently is a cut to the Energy Company Obligation, according to The Times, but this has been met by widespread concern, due to the long-term impact it could have on holding back the energy transition leaving the UK more vulnerable to fluctuations in the wholesale gas market in the future.

The Institute for Government makes clear within its report that net zero must remain at the heart of the government’s response to the cost of living crisis.

“The big challenge the government faces is to do something that is substantial enough to protect vulnerable consumers through what will be a very difficult period, while not detracting from its aim to reach net zero,” the report states.

“Any major change will likely need to be funded through other measures, and the Treasury will be keen to avoid the risk of getting tied into future costs that are poorly targeted. Getting the response to the crisis right in the coming months will be critical to preserving political and public support for net zero policies.”

As such, alongside any action taken by the government to manage increases to consumers bills, it must set out how its actions fit into the net zero 2050 vision.

Beyond this initial recommendation, the report calls on the government to fill in the gaps left in the net zero strategy, which was released in October 2021. In particular, it lacks a comprehensive plan for agriculture and land use.

The government must publish detailed emissions trajectories that underlie its net zero strategy, added the Institute for Government, so that it is possible to scrutinise the UK’s progress. The high level targets within the net zero strategy must also be converted into detailed action plans with dates to reduce the risk of stop–start policies.

This call comes after two charities launched legal challenges this week based on the government’s net zero strategy. Both ClientEarth and Friends of the Earth pointed to the failings of the document, which they say does not provide an adequate pathway to net zero.

The third recommendation for government within the Net zero: agenda 2022 report focuses on the need to develop a way of embedding net zero across all areas of government policy. As part of this, there should be a net zero test for all public spending, and the Treasury should routinely produce a net zero assessment of the Budget.

Already, the Climate Change Committee (CCC) has called on the Treasury to produce a net zero tax strategy to ensure it sends the right signals around climate change action.

Fourth, the Institute for Government recommends the government sorts out net zero delivery and governance, as the UK moves from developing plans into action.

“As an urgent priority, the government needs to review both the delivery architecture and capacity gaps in central and local government and in business, to ensure that the right decision-making capabilities are in place to turn the government’s ambitions into change on the ground. It needs to establish effective collaborative machinery with business and local government, both of whom have critical roles to play,” the report states.

Additionally, the thinktank suggests that the COP26 team should be transformed into a standing net zero unit in the Cabinet Office.

Fifth, the report calls for the government to make good on its pledge to engage with the public, and to be honest with them. This includes highlighting the cost and the benefits of net zero, but also the behavourial changes needed to get there.

Next, the report echoes calls from the CCC in 2021 for the government to do more work on adaption. A report should be produced that looks at all departments and sectors, reviewing the responsibilities of each and ensuring the idea of adaptation has enough clout within government to be acted on.

Finally, the Institute for Government warns the government must not lose the momentum generated in the run up to the COP26 conference in Glasgow in November 2021 now the event has passed. It expresses concern over the “implausible” emissions trajectories agreed at the conference and progression since then.

“Just as the publication of the net zero strategy for domestic action gave the UK momentum going into COP26 – being able to point to an ambitious domestic plan – during 2022 the government needs to show that its commitments were not just for the COP and that it is capable of converting its plans into politically feasible action,” the report states.

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