Energy and the climate: What next for Liz Truss?

Liz Truss, the new British Prime Minister, has faced a truly unprecedented first fortnight. The challenges will likely only grow as the colder nights draw in. Russia’s weaponisation of the European gas market has forced energy policy into focus; it is a vital component of our strategic response to Russia’s aggression against Ukraine. While His Majesty’s (HM) Government must prioritise energy and defending our national interests and security, it must not lose sight of other long-term threats, such as climate change and biodiversity loss.

In a previous Britain’s World article, the author covered the main issues facing the prime minister relating to energy and the environment. The former remains the most present and stark. Before the September counterattack from Ukraine forced the Russian Army onto the back foot, the Kremlin appeared committed to a strategy of attrition warfare while cutting off the gas supply to Europe to sap the will of countries there to support Kiev. Now, depending on whether Ukraine can keep the initiative, the cut off of gas supplies to Europe could be Vladimir Putin’s, the Russian President, last bet.

In the United Kingdom (UK), hours before the news of the passing of Her Late Majesty Queen Elizabeth II was announced, Truss announced a new £150 billion package to freeze energy bills for two years. It is understandable why HM Government opted for market-wide support over targeted. 

Support for cleaner heating alternatives should remain government policy. Heat pumps are three to four times more efficient and cheaper to run than gas boilers.

First, it is extremely tough to set up a targeted scheme that would guarantee support to enough British citizens before winter. Even before the period of mourning, there was little time to build a mechanism to respond to such a large challenge in a targeted manner. 

Second, given the dramatic rise in the cost of gas, universal support is more politically popular. This is more important than simple election considerations. Don’t Pay UK, a campaign against paying energy bills, might be partly fuelled by misinformation – such as the charge that energy retail businesses are making £130 billion in profits. 

But the rises in the Ofgem price cap that were projected by Cornwall Insight would have certainly caused widespread anguish as businesses collapsed and people went cold and hungry. We have already witnessed a surge in far-left and far-right activity on the continent in response to gas prices. Ultimately, this collapse in public faith in the government and consequent disruption could be how Putin succeeds in Ukraine.

However, this policy does not come without potentially severe consequences of its own, namely blackouts. A price cap set so far below the genuine wholesale cost of energy takes away the incentive for reduction in energy consumption. It’s true that poorer households are being forced to lower their consumption, but wealthier households are now not. Without greater energy efficiency from the nation as a whole, the power grid, which still relies heavily on gas, will be under severe pressure.

Although demand destruction and efficiency measures on the continent are bringing gas prices down for now, HM Government should take demand reduction seriously ahead of the heating season. It could, for example, mandate that energy retailers advise their customers how to make their boilers run efficiently, as EON and Octopus already do. This could save 8% on gas bills without sacrificing warmth for the average home with a combi boiler. Other measures like reducing water temperatures and draught excluders could save another 4%. If every home did this, the country would save a serious amount of gas.

Britain also has approximately 19 million inefficient homes which waste energy through heat loss. The difference between just an Energy Performance Certificate (EPC) D home and an EPC C home could be £420 this winter. Expanding the successful Energy Company Obligation to £1 billion per year until 2030 to insulate fuel poor homes could save gas and lower the final bill for the Treasury as it pays our energy bills. This should be followed up by targeted policies for wealthier households, such as new tax incentives – like an energy saving stamp duty or a tax-free employee benefits scheme.

Meanwhile, the energy transition must remain a priority, especially as Truss has set an ambition to become a net energy exporter by 2040. The UK is highly reliant on gas for both heat (85% of homes) and power (over 40% of production). This is a hangover from the glory days of the North Sea, which we cannot return to no matter how many exploration licences HM government provides.

Support for cleaner heating alternatives should remain government policy. Heat pumps are three to four times more efficient and cheaper to run than gas boilers. Even if one were to power them entirely from electricity from gas power plants, we would still consume less gas than if we maintained our dependence on boilers. Around 40% of the homes in England are already sufficiently insulated for them. Kwasi Kwarteng, the new Chancellor of the Exchequer, should boost the Boiler Upgrade Scheme to £1 billion at the fiscal event this Friday.

Supply-wise, diversification of our energy supplies through bringing more domestic supply online will relieve our dependence on the European gas market for heat and power. However, there have been reports that the Energy Security Bill, currently making its way through the House of Lords, may be paused or replaced with a new ‘Growth Bill’. 

While it is right that Jacob Rees-Mogg, the new Secretary of State for Business, Energy and Industrial Strategy, prioritises economic growth, supporting businesses through the oncoming winter, and de-linking the price of power from the price of gas to ensure consumers feel the benefit of much cheaper renewables, he must be wary not to disrupt the energy transition. Much of the legislation within the bill consists of the necessary ‘plumbing’ of an energy system which is bound to change substantially as we move away from fossil fuels. 

It includes, for instance, the clarification of batteries as a distinct subset of generation and extends the competitive process for offshore transmission networks to enable competition to identify onshore network solutions. These measures and others should be kept, as well as a new energy transition mandate for Ofgem to allow for anticipatory investment in the grid, which will lead to a more cost-effective transition to a low-cost, high security energy system.

The Energy Security Bill also creates new financing mechanisms for carbon capture and storage (CCS) and clean hydrogen. Both of these industries will be incredibly lucrative for the UK and can extend the lifetime of the North Sea sector. Given the priority is to cut energy bills, HM Government should make sure the frameworks are in place to allow for the scale up of these industries, which will be worth tens of billions of pounds. Any initial financial support could be funded through general taxation or emissions trading scheme revenues, rather than bill levies.

Aside from cheaper energy and greater security being the most obvious benefits of the energy transition in the current geopolitical context, it is worth remembering the sustainability aspect. Some commentators have seized the chance provided by Putin’s aggression to declare that the need to tackle climate change, for example, has evaporated. This is reckless and wrong. Defending our national interests and security must always be the priority, but this must include climate change and biodiversity loss.

The new prime minister would be well advised that the clean energy transition, alongside wider environmental policy, must remain a strategic priority for Britain. It is the safest and most affordable bet for reducing our reliance on international energy markets, which are doing severe damage to our economy and citizens’ livelihoods and will continue to become increasingly under the control of resource-rich autocracies.

Environmental diplomacy requires global cooperation in a time of increased geopolitical competition, but that does not mean it is not worth doing from a strategic point of view. Mitigating climate change essentially requires moving to less polluting and more efficient forms of energy, which would also deliver on the pressing need to reduce our reliance on international gas markets. However, remaining at the front of the pack in dealing with the greatest shared threat the world has ever faced, bar nuclear war, is also good for Britain on the world stage.

One argument goes that moving to renewables simply makes us more reliant on the People’s Republic of China (PRC), so we should not transition. But as has been previously argued and acknowledged, the PRC does not have a natural dominance of the world’s raw materials necessary for a 21st century economy and energy system. Yes, it has a stranglehold over the mid-stream of the supply chain, which it has been allowed to build up over decades. But it is within our interests regardless of Net Zero to diversify these supply chains through our diplomatic and trading relationships with allies, partners, and resource-rich states.

It is further within our interests to develop ties with strategically important countries across the world like Indonesia, Nigeria, and Chile. As well as mutually beneficial trading relationships, the UK should offer what these countries will certainly need in an era of climate change: adaptation and nature funding. Properly managed mangrove forests and peatlands, for example, can act as carbon sinks and protect towns and cities from flash flooding, while the nature they host provides all sorts of other services that benefit mankind. 

It is very welcome that Truss committed to leading a delegation to the ‘biodiversity COP’ at Montreal. She should also push for a distinct leaders summit beforehand. Many strategically important developing countries will need investment and help to develop state resilience to cope with a changing climate, which the UK, as a leader in this space, should facilitate the provision of. Alongside clean free trade in materials, products, and services, adaptation funding must be maintained and further embedded as part of our strategic toolkit.

In sum, the new prime minister would be well advised that the clean energy transition, alongside wider environmental policy, must remain a strategic priority for Britain. It is the safest and most affordable bet for reducing our reliance on international energy markets, which are doing severe damage to our economy and citizens’ livelihoods and will continue to become increasingly under the control of resource-rich autocracies. But it is also the only realistic way to mitigate global emissions, which the UK must play its role in and can profit politically and economically from doing so.

Jack Richardson is James Blyth Early Career Associate Fellow at the Council on Geostrategy. He is also Climate Programmes Manager at the Conservative Environment Network.