DECC is out of cash says report from Policy Exchange Framework

A new report by the Policy Exchange Framework says the Government has no more cash to decarbonise Britain.

The Policy Exchange’s ‘The Customer is Always Right‘, research, released July 16, 2015, argues the Department for Energy and Climate Change (DECC) has run out of money.

The 61 page document tells a sobering story. It finds the Government is mismanaging attempts to deliver low carbon electricity.

The story originally broke with a Policy Exchange blog in May. Then, it said that the Levy Control Framework (LCF), which controls spending on renewable energy subsidy schemes, may have already been spent to 2020.

Confirmation of the overspend came on July 8. Spending caps governed by the LCF were breached in each of the past three years. The report suggests the spending cap to 2020 will also be breached in the absence of changes to policies.

The news sparked scathing broadsheet coverage, reactions and denials. The latest reports claim anonymous Cabinet sources are close to revamping low carbon subsidies within weeks.

But, the green lobby is fighting back, claiming LCF only makes up three per cent of the average energy bill, and the overspend can be controlled by redirecting policy.

The future for a low carbon UK

On July 20, 2015, no official DECC response was yet available. But it is likely some frantic calculations are taking place within Whitehall.

DECC scrapped new public subsidies for onshore wind farms on June 18, 2015. At that time, Ministers presumably had access to the LCF overspend data, but failed to state its findings drove the cuts.

To safeguard UK low carbon energy development, The Policy Exchange has laid out recommendations. They include:

• Retain the system of carbon budgets but avoid setting additional distorting technology or sector specific targets.
• Scrap the 2020 Renewable Energy Target and resist calls for a 2030 power sector decarbonisation target.
• Revamp the Green Deal to maximise energy efficiency and reduce bills.
• Focus decarbonisation efforts on mature, low cost generation technologies which have the potential to be zero subsidy by 2020 or shortly thereafter.
• Curtail the most expensive subsidies, setting a cap on the maximum subsidy available under any mechanism.

Any such measures could see the light of day in the Government’s new Energy Bill. Alternatively, changes could come as a result of Autumn consultations on green energy taxation.

Amber Rudd, Energy Secretary, said in her Summer Budget reaction that DECC priorities include: “Keeping bills as low as possible for hardworking families and businesses and powering the economy while decarbonising in the most cost-effective way.”

She also said: “Decarbonisation has to be affordable and sensitive to the impact it has on people’s pockets and wider economic circumstances.”

Overall, the evidence hints DECC has known about the LCF shortfall for a while. Policy to deal with this may have been delayed by the 2015 election, and the new team’s attempts to grapple with DECC finances.

Either way, Pandora’s Box is now categorically open. DECC must act sensibly, and consult to ensure the right conditions for nascent businesses and installers building a low carbon UK.