Thursday, 8 September 2022 will always be associated in the UK with the death of Queen Elizabeth II, but the day on which ‘history stopped’ also marked the announcement by Prime Minister, Liz Truss, of a new energy price guarantee for the next two years that will limit energy bill rises for all households. This will help everyone in England, Scotland, and Wales with equivalent assistance for Northern Ireland. The ambition of this substantial support scheme, which might cost around £150bn, will try to prevent widespread hardship across UK households and businesses given on-going energy volatility.
As Prince of Wales, King Charles III tried to position climate change at the centre of national and international political and business agendas. Whilst it remains unclear whether the new King will speak out on such issues, it is important to consider the climate change aspects of the new energy price guarantee initiative. There are two issues to consider.
The UK, along with many other countries, faces an immediate problem linked to dramatic increases in energy costs. This energy volatility is a direct result of Russia’s weaponisation of energy combined with countries allowing themselves to become overdependent on Russia as a supplier of gas and oil."John R. Bryson - Professor of Enterprise and Economic Geography, Birmingham Business School
First, the UK, along with many other countries, faces an immediate problem linked to dramatic increases in energy costs. This energy volatility is a direct result of Russia’s weaponisation of energy combined with countries allowing themselves to become overdependent on Russia as a supplier of gas and oil. It is important to consider timing and energy policy.
The new energy price guarantee is an immediate response to a current crisis related to cost escalations in gas and oil. It is important that households and businesses are protected from the impacts of rapid escalations in energy costs. Nevertheless, it must be remembered that the new energy price guarantee is trying to develop a short-term solution to a supply-side failure in the supply of petrochemicals. This is also a short-term supply-side shock of unknown duration.
Climate change is a longer-term shock that will have much more detrimental impacts than the current short-term energy crisis. Some people argue that the current energy shock will result in a 2022/3 winter catastrophe across the UK; it is, however, better defined as an energy crisis, or a time of intense difficulty or danger, requiring difficult decisions to be made. This short-term shock must not be confused with the climate disaster that all living on this planet are experiencing. The key point is that all policies must focus on strategies intended to limit the impacts of climate change and this includes policies designed to ameliorate the impacts of the current energy shock.
Second, the UK government’s new energy policy that has emerged in response to the current energy shock includes a focus on enhancing the domestic supply of oil and gas by launching a new licensing round designed to increase production from the North Sea. The ban on fracking will also be lifted in England. This new strategy also includes a ‘review’ to ensure the UK meets its Net Zero 2050 target in an economically efficient way given the altered economic circumstances.
Russia’s weaponisation of energy has highlighted the need for all countries to develop strategies to enhance energy security, but this must be based on initiatives intended to decarbonise energy supply as rapidly as possible. This must include a focus on reducing energy consumption by enhancing insulation and shifting towards energy efficient lifestyles. For too long, societies have taken energy for granted and assumed that inexpensive energy was available. We need an immediate policy debate on energy efficient lifestyles.
The UK must enhance energy security without focussing on petrochemicals. The key is to focus on an energy supply-side strategy based on enhancing renewables and less-carbon-intensive and more sustainable energy sources. This carbon-light energy solution must include investments and innovations in energy storage including storage of energy generated from solar, wind and hydro.
An ideological divide has developed between the Conservative and Labour parties. The current Conservative approach is based around a low-tax economy combined with increased borrowing to develop an immediate solution to the energy crisis. The key challenge here is ensuring that the UK can respond to additional and unexpected shocks that might require additional borrowing. For the Labour party the emphasis is on additional taxation and windfall taxes on energy companies. The problem here is that windfall taxes will reduce the attractiveness of the UK economy and could push jobs and value creating activities overseas.
The best solution is to develop approaches to corporate taxation that attract and retain investment across the UK, whilst encouraging companies to invest in innovations and infrastructure that will contribute to decarbonised economic growth whilst enhancing national economic security.
It is time for a new approach to the governance of the UK economy to emerge that breaks with the status quo. All UK political parties must focus on encouraging new forms of decarbonised growth that would enhance exports whilst limiting the country's over-dependence on strategic imports. All this must be placed within a set of strategies that would replace energy-intensive and carbon-intensive lifestyles with energy- and carbon-light lifestyles.
John R. Bryson, Professor of Enterprise and Economic Geography, Birmingham Business School