President Biden’s Inflation Reduction Act has triggered a wave of new green investment in the US. The EU is responding, and now UK ministers must decide how we can keep up.
We may be unable to provide the scale of subsidies and tax cuts on offer in the US, but we do have other strengths.
With some simple streamlining of regulation and policy, we can accelerate delivery of the secure, clean and affordable energy supplies needed to spur new business investment.
Best of all, it’s entirely within our means.
The problem is not that the UK is short of energy. In fact, the opposite is true — at least in terms of our energy potential. But we have lacked the speed required to unlock it.
The UK is one of the best locations in the world for offshore wind. Combined with our mature oil and gas sector, the North Sea already provides around 40% of the UK’s total energy requirements.
The UK’s targets of achieving both energy independence and net zero are a welcome statement of intent, but we can move faster to tap into the full potential of these resources.
Plans to simplify planning processes and speed up grid connections will help. But true energy security lies in an abundant and diverse supply of resources. It cannot be delivered by picking winners.
The UK will require supplies of fossil fuels, particularly gas, up to 2050 and beyond. So, it is vital that, alongside efforts to secure investment in renewables, we make the most of our domestic gas supplies.
This year’s oil and gas licensing round is an important step in speeding up infrastructure delivery — and by confirming plans for the rest of the decade, the Government can help developers secure investment in net-zero aligned projects ahead of our competitors.
Speeding up plans to electrify North Sea production would also accelerate decarbonisation. To aid these plans, the UK Infrastructure Bank should be given strategic direction to support investment and de-risk projects.
Reviews of current regulations are also needed to reform outdated rules that tie developers’ hands. This could help bring forward new integrated energy hubs, making best use of new and existing offshore energy infrastructure.
Carbon capture and storage (CCS) is crucial to meeting our net-zero goals. But despite clear ambition from the Government on CCS, we are moving too slowly.
Even with our prime geological and industrial advantages, we risk falling further behind our European competitors. The Government should consider a more flexible process that could bring in competition between emitter projects and storage providers for the support already on offer.
We could boost our domestic CCS sector further still by opening our abundant carbon stores to international emitters. This would create economic opportunities for the UK, while helping tackle global emissions. Simplifying regulation to facilitate cross-border movement of CO2 would help achieve these aims.
The energy crisis that dominated 2022 resulted in major upheaval to the tax environment for both oil and gas producers and power generators. As a result, investment in energy supply is falling.
The Government should work with industry to monitor the impact of new tax policy on critical energy infrastructure investment. A formal assessment each year of the levies’ impact should consider how the tax environment is interacting with progress towards the Government’s energy policy goals, such as reducing necessity for energy imports.
Long-term certainty on other levies, such as corporation tax and business rates, will also create a more competitive environment for investment. As would the introduction of a floor price, based on realised prices. If wholesale oil and gas prices fall below it, a pause in the Energy Profits L evy would be triggered.
The UK’s political cycle is shorter than companies’ investment cycle, which creates inherent problems when taking long-term decisions. Where the US Inflation Reduction Act succeeds is in setting out a 10-year framework to provide investors with certainty.
The UK needs a cross-party, long-term approach that addresses energy security, sustainability and affordability as national priorities and should create a delivery unit that would fast-track projects that help meet these aims.
By moving quickly to progress these ideas in the coming months, ministers will make a real difference to both the UK’s industrial competitiveness and its economic future.
Sam Laidlaw is executive chairman of Neptune Energy and the former CEO of Centrica
