Madano Election Hub - Sunak gambles with net-zero

The Prime Minister, Rishi Sunak, has kickstarted a busy week, particularly given recess, for UK energy policy. His aim is to sell a new-found political clarity that his Government will be more openly pro-consumer, and less firmly wedded to strict net-zero targets, prioritising his core policy priorities like halving inflation and returning the UK to growth.

Sunak’s Announcements

Using a visit to Scotland today, Sunak has combined the announcement of progress for Scotland’s Project Acorn and Humberside’s Viking clusters with hundreds of new oil and gas licenses, alongside a series of procedural carbon and industry policy changes.

More announcements – focused squarely on pragmatic energy security and consumer interests – are expected this week.

CCUS

• The Government has concluded the Track 2 Expression of Interest process for Carbon Capture, Usage and Storage (CCUS) Transport and Storage (T&S) cluster projects, by selecting two successful applicants – the Acorn Project (in Scotland), and Viking (in Humberside).
• By 2030, Government will now work with both applicants to develop and deliver functioning clusters capable of capturing and storing a minimum of 10 megatonnes per annum (Mtpa) underneath the North Sea. Further negotiation will be needed on consents, subsidies and value for money.
• Combined with Track 1 (consisting of projects in Teesside and the North West), their development forms part of an overall £20bn in committed expenditure for the UK’s nascent CCUS sector, toward a 20-30Mtpa target.
• As part of the update, Government has re-affirmed that it will publish a broader, long-term CCUS Strategy by the end of the year.

Oil and gas

• HM Treasury has launched a new consultation today on the Oil and Gas Fiscal Regime, responses due 11 September, with the aim of establishing a long-term position with the industry that supports energy security through new production (including its resilience), while also incentivising oil and gas companies to invest in new green technologies, and creating tax revenues to support public finances.
• The North Sea Transition Authority, which manages the licensing of the North Sea’s oil and gas sector, has opened the 33^rd licensing round, which will pave the way for hundreds of new production sites. In licensing engagement documents published today, the Government is pursuing a new approach designed to open untapped reserves and sites that were previously closed off.
• The Government has published today an update to its ‘National Preventive Action Plan: Gas’, which sets out how the UK can safeguard its security of gas supply and resilience. Assessing the UK’s current position and industry landscape, this document has reinforced a policy-based requirement for greater security of domestic production.

The Politics

While Sunak has long been considered lukewarm on environmental issues, and as Chancellor sceptical of the need to invest large sums of public money into nascent technologies and infrastructure to generate growth, he has now moved to build a clear ‘line in the sand’ against Starmer and the Labour opposition. Environmental groups and companies have raised their alarm.

Visiting Scotland, Sunak has portrayed Labour as ideologically unable to take pragmatic decisions that benefit voters, because of its commitment to an anti-fossil fuel stance driven by campaign groups. Sunak’s own message is that this will make investment in new technologies, like CCUS, easier because it will be driven by private sector demand.

A focus on heavy industries aims to put Labour under pressure in key regions it must win, alongside a broader-market, well-publicised interview in which the PM has said he will put motorists first, critiquing the prioritisation of low-traffic environmental policy as infringing on personal freedoms and growth.

What’s the PM thinking?

What’s driving the PM is the hope of motivating his Conservative voters, many of whom are telling pollsters they are currently apathetic or unsure how they’ll vote, while minimising party discontent on the right of his party. This includes the likes of former leader Sir Iain Duncan Smith, who are urging him to capitalise and go further on the clarity of the anti-Ultra Low Emission Zone campaign in the recent Uxbridge by-election.

It’s also a bid to force the agenda for Starmer’s Labour through the summer and into the autumn. Sunak draws on perceived division between Rachel Reeves’ Shadow Treasury team, focused on reversing views that Labour is anti-business and anti-consumer, and Ed Miliband’s Shadow Net Zero team, which looks to the support of climate campaigners. It suits Sunak well if Starmer spends his summer being continually asked to clarify his position on whether those new oil and gas projects would continue if Labour came well to power.

However, this is not a zero-cost political move for the PM. Moderate Conservative MPs, like Chris Skidmore, have criticised Sunak’s decision to award new oil and gas licenses, and he has written to the speaker of the House to call an emergency debate as soon as Parliament returns after recess.

If the PM’s change in approach fails to move the polls or alienates moderate voters and climate conscious parts of UK Plc, those voices will get louder, and MPs in marginal constituencies will begin to get nervous.

What next?

Further announcements are expected this week, as Sunak’s Government aims to further sell its renewed focus on pragmatic energy security, inflation reduction and economic growth.

For renewables, such as wind and solar, his Government is likely to focus on speed and security. This will include expected (and in some cases, overdue) regulatory reform measures to speed up planning approvals, improve grid connection times and infrastructure, and reduce the costs of doing business. The Government is also known to be exploring targeted measures via the Investment Zones and freeports to ‘on-shore’ supply chains where possible. Sunak is also likely to re-emphasise the large investment made into the nuclear sector, announced shortly before recess. All relatively politically cheap, but consistent with a new focus on low-cost energy security.

The Energy Bill may now become a serious flashpoint for Sunak soon after the Commons returns in September, with several amendments on anti-fossil fuel licensing (including some tabled by Conservative MPs), subsidies for Sustainable Aviation Fuels, and anti-onshore renewables due to be voted on. While likely to win those votes, divisions with the Conservatives may quickly become apparent.