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Energy policy will be about cutting costs, not emissions, says Government chief

The Government’s energy policy will focus on cutting costs to business as a Whitehall official admits it has ‘neglected industry for too long’. Peter McCusker reports.

UK energy policy has been view through the prism of the ‘trilemma’ since Ed Miliband’s 2008 Climate Change Act, but that is changing under Theresa May’s Government.

Nigel Pargiter, acting head of energy supply chains at BEIS (Department of Business, Energy and Industrial Strategy), told a North East audience that the emphasis is now on cutting energy costs to homes and businesses.

In a question and answer session at the annual NOF Energy Conference at the Sage Gateshead, he conceded the Government had ‘neglected industry for a few decades’.

Responding to a question from John Bruijnooge, site director at Teesside industrial giant Sabic, he said Whitehall ‘has had to take a long hard look in the mirror’.

“We have neglected industry for too long and we now have to have a keen focus on costs.”

He went to say the previous energy policies, which focused on balancing a trilemma of reducing energy emissions, cutting costs and delivering energy security, ‘had been the result of tensions’ between two Government departments.

He said: “Under the Coalition, energy policy was split between two different departments, the Department for Business and DECC (Department of Energy and Climate Change), and there were tensions.

SABIC's Teesside site director John Bruijnooge
SABIC’s Teesside site director John Bruijnooge

“We got stuck on the trilemma. This became a sticking point, there was not one department to think holistically and this resulted in tension.

“Our view now is that decarbonisation has a cost to domestic users and businesses and our focus now is on ‘how much can industry bear before it is too much, and decides to go elsewhere?’”

In his earlier address to the conference he said: “The key challenge for us all is how do we get costs down and away from the subsidy regime. This is the biggest challenge we face and one that can be tackled by Government and industry working together.”

The North East has experienced the pain caused by measures to cut emissions with the introduction of the Carbon Price Floor in 2012 increasing costs at the Alcan aluminium plant by £30m, leading to its subsequent closure with the loss of over 500 jobs.

Mr Pargiter’s address echoed the Government’s Industrial Strategy Green Paper which talks about 10 key pillars for the UK economy; one of which is affordable energy and clean growth.

In this document the Government says it will continue to pursue a clean energy vision and is expected to confirm its latest Emissions Reductions Plan within the next few months.

Mr Pargiter said the Industrial Strategy will see Government ‘working with the devolved administrations and across all departments of Government’.

“The Industrial strategy is for the whole of the UK not just for London or specific sectors.

“We are trying to create networks and the right framework for business to grow and thrive, to deliver an economy that works for everyone, whilst also increasing productivity.”

He said the UK is good at research and development but often not so good at commercialisation of this knowledge. He said there will be an emphasis on deregulation and supporting exporters.

He went on to say there will be money available in a sector deal for energy and this will be focused on three things; energy costs, secondly to cut subsidies to zero and the third focus will be on innovation.

In working with business he said the Government ‘will favour an open door approach’ and businesses should ‘come forward and tell us what are the issues they face, that are hampering growth’.

Electricity pylons
Electricity pylons (Photo: David Cheskin/PA Wire)

“We want them to demonstrate a compelling case as to why they should benefit, one where it would be stupid for the Government not to get involved.”

Under the Coalition the industrial strategy for offshore wind said the Government would aim for a UK capital expenditure of 70%.

The average has been less than 30% and Mr Pargiter would not be drawn on the Government’s ambitions, although BEIS has previously told Journal Energy it is aiming for 50% lifetime UK content.

This a thorny issue for many who work in the sector, and has been cited as one of the reasons Newcastle offshore fabricators OGN went out of business, cancelling a £50m North East investment after losing out to Spanish-Government backed competitors for UK bill-payer subsidised contracts.

Mr Pargiter said: “We want to make sure UK companies are best placed and can operate on a level playing field.

“We are aiming up to open up the supply chain and more work needs to be done, there will be no percentage, but we are aiming to secure higher value contracts, not just ones for sandwiches and buses.”

This emphasis on cutting energy costs comes as further evidence of the UK direction of travel on energy has emerged in the last few weeks.

British Chancellor of the Exchequer Philip Hammond holds the Budget Box outside 11 Downing Street
British Chancellor of the Exchequer Philip Hammond holds the Budget Box outside 11 Downing Street(Photo: Getty Images Europe)

In the Budget Chancellor Philip Hammond said he will do all he can to prolong the life of the North Sea oil and gas industry.

Mr Hammond said he would look to resolve the tax issues slowing down asset transfers, with the current tax treatment of decommissioning making it harder for existing owners to sell mature assets.

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