SHORT NOTE

Newdirections inUKenergypolicyPeter Cameron

CEPMLP, University of Dundee, Dundee, UK

Abstract

Purpose The purpose of this short note is to briefly present the salient features of the new energypolicy directions outlined in the recently published White Paper on energy policy by the UKGovernment. It also aims to present some critical thoughts on the new policy directions.

Design/methodology/approach The note is based on the authors review of the White Paper andhis critical analysis.

Findings The note indicates why the issuance of this White Paper is of wider interest. The authorfinds the paper sketching a highly ambitious view, envisaging a leadership role to the country in theclimate change issue and continuing with the deep-rooted belief in the markets with a minimalistgovernment intervention in the sector. He also questions whether private investment in energyinfrastructure would be forthcoming to ensure supply security and mitigate the climate changeproblems identified in the White Paper as the two important long-term issues facing the country.

Originality/value The value of this note lies in its succinct synthesis of the White Paper and thequick reaction to the new policy directions provided by the author based on his experience andunderstanding.

Keywords Energy management, Government policy, Investors, United Kingdom

Paper type General review

At the end of May 2007 the UK Government published a discussion document orWhite Paper on energy policy called Meeting the Energy Challenge (DTI, 2007).It attempts to identify and address the key challenges facing UK energy policy in thetransition from the North Sea era to one of significant import dependence.

On the face of it, there might be nothing remarkable about the issue of a newenergy policy paper by a European Government. However, the UK has four specialfeatures from an energy point of view that make the paper of more than localsignificance. Firstly, it has been the pioneer of a view of the relationship between thestate and markets that is usually associated with the term liberalisation wheremarket forces are given considerable scope and government is required to adopt a lessinterventionist role, with clear roles allocated to mediating bodies such as energyregulatory agencies. It achieved considerable popularity internationally from the 1990sbut is increasingly contested, and often rejected by countries highly dependent onpetroleum exports. This limited view of the role of government in energy markets isdeeply embedded in UK policy. Secondly, the UK has assumed a leadership role in thedrive for measures to combat the effects of climate change. The achievement of itstargets will require significant changes in its domestic energy economy and potentiallylarge costs, despite the fact that the UK is not a major source of carbon emissions.Thirdly, after years of energy self-sufficiency the UK is becoming a net importer offossil fuels, and in that respect is coming to resemble the energy profile of a largenumber of countries, especially European ones, that need to design their energypolicies around this fact of net dependence. Finally, the UK Government has made it

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clear in a number of statements that it considers a revival of its domestic nuclear powerindustry as essential if this condition of dependence is to be balanced with somedomestic strategic decision-making. Nuclear power remains unpopular and isperceived as relatively expensive, but in an earlier review (in 2006) of the energy sectorthe government concluded that it was essential for long-term energy security.

The energy profile of the UK can be summarised as follows. Currently, oil and gasprovides 75 per cent of total energy requirements, but the UK is set to become a net oilimporter by 2010 and gas imports are set to grow sharply. Coal is still a majorcontributor to the generation of power. However, the closure of coal and nuclear plantsby 2015 and 2023, respectively, will create a generation gap and a long-term futurefor coal is not possible unless a solution is found to its heavy carbon emissions.Moreover, the growth in renewable energy use appears likely to slow down withoutfurther support.

In this context, the 2007 White Paper argues that there are not one but two long-termenergy challenges facing the UK: firstly, how to tackle climate change by reducingcarbon dioxide emissions both within the UK and abroad and secondly, how to ensuresecure, clean and affordable energy as the UK becomes increasingly dependent onimported fuel. This double focus is in contrast with the view in the previous White Paperof 2003 which placed its emphasis almost exclusively on the former (and relatedproblems), and downplayed the long-term security implications of import dependence.That earlier foray into energy policy-making also not coincidentally ignored theissue of nuclear power in future UK energy generation, focussing instead only onclean-up issues arising from the legacy of past nuclear power plants.

The strategic drivers behind this new view are fourfold: firstly, the growingevidence of impacts from climate change and the need for cooperation in cutting CO2emissions; secondly, the steady rise in fossil fuel prices and a slower liberalisation ofenergy markets among its European neighbours; thirdly, a greater awareness of therisks of concentration of the remaining oil and gas reserves in the Middle East andNorth Africa, Russia and Central Asia, and finally, a need within the UK itself forgreater investment by companies in energy infrastructure.

The main solutions offered are a new emphasis on clean coal, the encouragement ofprivate investment in nuclear power, the continued promotion of investment in oil andgas sector and an extension of the renewables support mechanism (the RO). However,against these possible solutions are the following: clean coal technologies require analteration of international legal frameworks; nuclear power remains unpopular andthere are significant planning issues involved with new build reactors (with aconstitutional dimension since devolution was introduced in 1997). There is also the factthat the UK cannot halt a growing inter-dependence in energy with the rest of Europe.

The framework offered by the White Paper is lengthy the report runs to morethan 350 pages and very detailed. A key feature is that private investment isrequired to make things happen. The role of government is to provide a frameworkfor such investment. For example, in the nuclear sector it is the task of government tomake significant changes to the planning laws to allow siting of new structures to becarried out with much greater speed. The current legal regime allows public inquiriesto hold up the construction of plants for many years. Indeed, these problems arecommon to large infrastructure projects in both energy and non-energy sectors(and not only in the UK). This reflects the continuing influence of a view of government

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as essentially a limited one in energy markets following two decades of liberalisation,now deeply rooted in the UK.

But will that private investment happen? In no less than 13 areas consultation istaking place about government initiatives and planning laws are to be revised, anunstable context for private investment. For the nuclear sector, the governmentsconsultation process has been successfully challenged in the courts by Greenpeace.More fundamentally, the liberalisation process over the past 20 years has owed a greatdeal to the extensive public sector investments in infrastructure made in thepre-liberalisation period. The long period of asset-sweating has come to an end andnew investment in ageing networks is essential. Will the private sector be keen toinvest not only on the scale required but also in spare or redundant capacity in theinterests of national security?

It is an ambitious view that is sketched out in the White Paper, with a leadershiprole envisaged for the UK in tackling climate change, and high expectations of what themarket can deliver in terms of future investment. It will trigger debate and asignificant number of legislative proposals. It raises questions about the compatibilityof ambitious climate change targets with a policy of keeping the cost of energy ataffordable levels, and whether markets can generate the scale of investment requiredto provide long-term energy security.

Reference

DTI (2007), Meeting the Energy Challenge, Cm 7124, Department of Trade and Industry, London,available at: www.dti.gov.uk/files/file39387.pdf (accessed June 10).

Corresponding authorPeter Cameron can be contacted at: peterdcameron@btinternet.com

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