Liberal Democrats in coalition: climate and energy The coalition’s climate and energy policy: from consensus to conflict Neil Carter Chris Huhne at the UN ‘A flagrant reversal of a totemic commitment Cameron’s embrace of the green agenda in oppo- climate conference, … When I raise it with Osborne he just says: sition and the Liberal Democrats’ longstanding Cancun, 2010 “I don’t believe in this agenda. Of course we environmentalism. Keen to make a mark in this had to say all this stuff in Opposition.”’1 (Nick policy area, the Liberal Democrats demanded Clegg) the Department for Energy and Climate Change (DECC) with one of their leading lights, Chris ‘For me, the green agenda is important. For Huhne, as Secretary of State (replaced by Ed Nick it’s existential.’2 (David Cameron) Davey in February 2012). If promises made in Opposition could be believed, even the Treas- t had all started so well. Conservative ury appeared onside, for George Osborne had and Liberal Democrat negotiators encoun- declared: ‘If I become Chancellor, the Treasury tered few difficulties agreeing an ambitious will become a green ally, not a foe’.5 Yet the appar- I 3 agenda for climate change and energy policy. ent harmony was short-lived. By late 2013, Nick The coalition agreement promised to ‘imple- Clegg, the Liberal Democrat leader, reflected ment a full programme of measures to fulfil that: ‘Energy and environmental policy has in our joint ambitions for a low-carbon and eco- many ways now become the biggest source of dis- friendly economy’.4 It outlined a litany of climate agreement in the coalition. I have spent more time change mitigation measures that reflected David arguing about the details of this with Cameron 46 Journal of Liberal History 92 Autumn 2016 Liberal Democrats in coalition: climate and energy and Osborne than any other issue’.6 Thus, despite ‘burdening the UK economy’ and ‘undermining Cameron promising to lead ‘the greenest govern- the UK’s competitiveness’.10 Several other cabi- ment ever’, it is his despairing plea to his aides to net ministers also wanted weaker targets. Cam- ‘get rid of all the green crap’ that is equally well eron eventually intervened to secure approval of remembered. This article assesses the coalition’s the budget, although Osborne insisted on a 2014 record on climate policy, focusing primarily on review to assess whether it was negatively affect- the energy sector. ing the UK’s industrial competitiveness. In the The path-breaking Climate Change Act 2008 event, the 2014 review left the carbon budget (CCA) set challenging greenhouse gas (GHG) untouched, although in the interim its looming emissions reduction targets of 34 per cent by 2020 presence cast a negative light on the coalition’s cli- and 80 per cent by 2050 compared to 1990 levels, mate commitment. backed by five-yearly carbon budgets. Progress The proposal for a Green Investment Bank towards these targets during the coalition govern- (GIB) to support investment in low-carbon infra- ment was mixed. On the positive side, UK emis- structure encountered similar inter-departmen- sion levels in 2015 were below the annual average tal tensions: when Cable and Osborne initially permitted in the second and third carbon budg- queried the availability of funds for it, Clegg, ets; emissions must fall by 2–3 per cent annually, Huhne and Oliver Letwin formed a common and since 2012 they have fallen at 4.5 per cent per front against Treasury foot-dragging. Neverthe- annum.7 However, the reductions were almost less the Chancellor promised an initial investment entirely in the power sector where renewables of £3 billion from the Treasury to leverage pri- have steadily replaced coal; elsewhere emission vate-sector capital to fund projects, although the levels have flat-lined. Without reductions in the GIB wouldn’t be allowed to raise its own capital industry, buildings, agriculture and transport sec- until at least 2015. The GIB’s priority areas were tors in particular, the UK will not meet its targets offshore wind, waste and bioenergy, and non- beyond 2020. However, rather than evaluate the domestic energy efficiency, and by mid-2015 the coalition on an outcome that is not unequivocally bank had invested in fifty-two green infrastruc- Yet the appar- linked directly to its actions, it is more helpful to ture projects and seven funds in over 240 locations examine the policy measures it implemented (or around the UK, directly committing £2.1 billion ent harmony was did not). in transactions worth £8.1 billion – and it had Climate policy had been fundamentally trans- made a small profit.11 short-lived. By formed under the Labour government since 2006, The Labour government had launched a huge notably through the CCA and the ambitious tar- £30 billion programme of financial support for late 2013, Nick get, set by the EU Renewable Energy Directive, renewable electricity and heat up to 2020 and to source 15 per cent of all energy from renewa- introduced a feed-in tariff (FiT) in April 2010 to Clegg, the Liberal bles by 2020.8 Labour instigated a hugely inter- incentivise small-scale renewable energy produc- ventionist programme with a raft of policies and tion. The coalition continued this policy, which Democrat leader, major investment in renewables and low-carbon leveraged massive private-sector investment, reflected that: infrastructure; the coalition agreement repre- leading to the share of electricity generated from sented a continuation of this strategy. renewable sources increasing from 7 per cent in ‘Energy and envi- However, implementing the coalition pro- 2009 to 26 per cent in 2015, of which 53 per cent gramme proved more contentious than its archi- was from wind, 33 per cent from biomass and the ronmental policy tects had anticipated. Climate policies provoked rest from solar photovoltaic and hydroelectric- conflicts between DECC and the economic min- ity.12 Meanwhile, the coalition designed a major has in many ways istries – the Treasury and the Department for reform of the financial support system for renew- Business, Skills and Innovation (BIS) – which able energy development. The Energy Act 2013 now become the were prioritising austerity budgeting and anxious outlined the phasing out of the expensive renewa- about anything that might damage UK economic bles obligation (RO) by 2017, replacing it with biggest source competitiveness.9 There were disagreements the Contract for Difference (CfD) mechanism, a of disagreement between the coalition partners, as a significant long-term contract enabling low-carbon electric- tranche of Conservative MPs became increasingly ity generators to recoup their investment costs in the coalition. I resistant to progressive climate policy measures. in renewables (and nuclear) via fixed prices for Tensions also arose, inevitably, between the three electricity generation. CfD is intended to pro- have spent more core energy policy objectives: affordable con- vide certainty and revenue stability to genera- sumer prices, security of supply, and GHG emis- tors while protecting consumers from paying time arguing sions reductions. higher support costs when electricity prices are One early conflict concerned the government’s high. The first twenty-seven CfDs were awarded about the details decision whether to accept the independent Cli- in February 2015, worth £315 million to deliver mate Change Committee’s (CCC) recommenda- 2.1GW of renewable energy leading up to 2020, of this with Cam- tion for a fourth carbon budget (for 2023–2027). with significantly lower prices paid for renewable eron and Osborne Cabinet splits were revealed in a leaked letter schemes than DECC had expected.13 The carbon from Vince Cable (Liberal Democrat BIS Secre- price floor was introduced to provide additional than any other tary) to Clegg and Osborne expressing concern certainty for investors in low-carbon technolo- that the proposed carbon reduction targets risked gies by establishing a minimum price for carbon, issue’. Journal of Liberal History 92 Autumn 2016 47 Liberal Democrats in coalition: climate and energy although it was widely criticised as costly and at a potentially huge cost to the taxpayer.17 Yet ineffective.14 the coalition still left office without finalising the Indeed, there was considerable uncertainty deal. in the renewables sector by the end of the coali- An alternative solution to the electricity gap tion. The threat posed by the Chancellor’s levy was shale, which had revolutionised the US control mechanism, which capped the overall energy sector by reducing prices and slashing subsidy payable to renewables, had been deferred emissions. Shale gas is a fossil fuel with lower in November 2012 when Ed Davey persuaded emissions than coal so it would provide a short- the Treasury to lift the cap to £7.6 billion by term reduction in GHG emissions, although a 2020, thereby encouraging both short-term and successful shale industry would certainly draw medium-term investment. But when the whole- investment funds away from renewable energy. A sale price of energy fell during 2014 the poten- temporary moratorium on drilling was imposed tial threat posed by the levy resurfaced. There after exploratory drilling near Blackpool caused were also some chaotic policy shifts, particularly minor earth tremors. Huhne was unconvinced affecting the solar industry, which did little for by its potential, arguing that shale gas would not the industry’s long-term security. Large-scale take off any time soon and dismissed claims that it solar installations grew so fast – quicker than any- would reduce energy prices in Europe.18 Despite one had anticipated – that they outstripped the provoking significant popular opposition, Cam- allocated budget, prompting the government eron and Osborne were both strong advocates and to remove their eligibility for RO support from after Huhne resigned they worked with Davey to 2015; while microgeneration on domestic and make it happen.