UK must learn from the past to achieve net zero by 2050

Energy and climate policy are by their nature long-term challenges. Yet governments in the UK are elected for a maximum 5-year term, so politicians seek to show progress in dealing with such far-reaching issues. So what’s the most sensible approach – and what can we learn from history in this area?

2 faculty members at Cambridge Judge Business School – Professor of Business Economics Michael Pollitt and Professor of Technology Policy David Reiner – approach this topic from a sobering perspective: that the easy part of efforts to reduce carbon emissions (largely through swapping coal for gas, and ramping up renewables) is coming to an end, and now comes the hard part to achieve ambitious further targets.

Reflecting in an article on “Some thoughts on the past, present and future” inspired by the manifestos of the various parties in the 2024 general election in the UK, Michael and David reach far beyond issues raised in the 6-week campaign. They delve back in history, and range into the future, to dissect what the UK has got right – and wrong – in energy and climate policies in recent decades, and how these wins and losses can colour decades to come.

Why there is no time for debate over green growth

In a no-nonsense paper issued through the Energy Policy Research Group, a cross-disciplinary research centre based at Cambridge Judge, the 2 faculty members conclude that if the UK is serious about deep decarbonisation by 2050 “then we do not have the luxury of engaging in endless debates over green growth or focusing too much of the government’s attention on policies with minimal impact”.

Instead, there needs to be an intense focus on ensuring that mechanisms and incentives to attract the necessary investment are effective – not least because costs of such decarbonisation will inevitably increase amid widespread populist backlash elsewhere in Europe against costly green policies.

What worked in the past?

The UK has been greatly successful in its institutional frameworks for energy and climate policies, and has been widely copied in how it restructured and privatised the gas and electricity sectors, say Michael and David.

Among major accomplishments are setting a legally binding national target for decarbonisation by 2050 through the 2008 Climate Change Act and its 2019 revision; becoming in 2002 the first country to have a proper carbon trading market; the energy regulator Ofgem has been a gold standard for independent regulation; and the growth of renewable energy sources since 2010 has been impressive.

What had mixed results?

Mixed outcomes from UK energy policy include the build out of energy infrastructure. While offshore wind and liquefied natural gas (LNG) terminals have been built on time and on budget, some transmission line projects were delayed for more than a decade after receiving tens of thousands of objections, while onshore wind (the cheapest renewable option) has been effectively banned in England for much of the past 15 years due to similar objections.

And where did the UK go badly wrong?

“However, the UK has also had notable energy policy failures”, as described in research by Michael and David.

These include some overhyped nuclear power programmes that were delivered late and over budget, while failing to result in the export of British nuclear technology as initially hoped; smart meter rollout failed to meet original targets, while other countries achieved their rollouts more rapidly and at far lower cost; energy efficiency schemes, which had low uptake and high administrative costs; and a price support system during the 2021-2023 energy crisis was “the most expensive and poorly designed in Europe”.

What can be learned from these experiences?

“On the positive side we see at least 4 clear lessons that, hopefully, can be absorbed to help direct future policy,” says Michael.

1. When the mandate is clear, the UK is really good at designing innovative energy governing institutions, and the recent announcement of a National Energy System Operator (NESO) is a welcome development.
2. NESO will create an independent system operator and planning mechanism for electricity, gas and hydrogen, and aims to coordinate across the entire energy system to translate policy into strategy. Private ownership and market mechanisms have been very successful in promoting energy transition within a framework of carbon pricing and market-based support mechanisms for renewables.
   The Energy Policy Research Group has extensively researched emissions trading and other market mechanisms, as well as technologies for carbon removal.
3. Global leadership on energy and climate is about demonstrable success, and the UK has generated that in areas such as energy market reform, rollout of renewables and polices to boost energy security. “Other countries have watched, learned and wanted to follow”, says the research by Michael and David.
4.  The UK is capable of policy course correction and learning from its mistakes.
   “While Britain lagged in deploying renewable energy sources in the 1990s and 2000s, it has since been very successful in wind, solar and other renewables,” says Michael. “A poorly designed green certification system known as Renewable Obligation was replaced with a scheme called Contracts for Difference that provides investors in low-carbon electricity generation with stable revenue streams.”

Why there is a danger in substituting industrial policy for energy policy

Then there are what Michael and David term the clearly problematic lessons from history, led by nuclear power.

“Energy policy and industrial policy are 2 very different things, and the UK has consistently sought to combine the 2 in its approach to nuclear power – and that has been a big mistake going back 6 decades,” says David. While France adopted US pressurised water reactor technology in the 1960s – which was a far more cost-efficient choice – the UK instead pursued costly advanced gas-cooled reactor technology.

“We’ve also seen what we describe as ‘technological over-optimism’ in UK energy policy, and this has wrongly coloured the economics of new technology,” David adds. “For example, Britain over-specified the technical aspects of smart meters, sought to push smart meters for gas without an effective cost analysis, and put in place an expensive data collection infrastructure that has not leant itself to effective analysis.”

An unwillingness to engage with outside experts

And in contrast to the UK showing the way for others in some areas such as energy market reform and energy security, the UK and its civil servants at times “can show a worrying unwillingness to engage with independent expert opinion on important issues of energy policy or to learn from successful international examples”, write Michael and David.

Consider the response to the energy crisis that followed Russia’s invasion of Ukraine in late 2021. In Germany, an Expert Commission on Gas and Heat brought together 30 experts over 6 weeks, who recommended a 2-part gas tariff to support households and maintain incentives to reduce energy consumption. The Energy Price Guarantee in Britain, in contrast, instituted the biggest single energy policy intervention in UK history without external consultation on its design – and the programme resulted in increased gas demand, higher government borrowing and reduced retail competition.

Observations from the article

• While Britain has done well in some niche areas of energy equipment, such as fossil fuel engines and generators, there is little evidence that UK energy policy can be used to encourage new technology that will effectively promote exports.
• The UK should focus on global emissions in its climate policy, and resist the offshoring of emissions to countries with lower environmental standards.
• Britain needs to encourage other countries to also decarbonise, which can be “most obviously done” through close cooperation with the EU.
• Continuing decarbonisation will go hand in hand with continuing economic growth, because in general richer countries decarbonise more. “Thus, although there may well be rhetorical and political advantages, a policy of not granting new oil and gas licenses in the North Sea is economically non-sensical if it reduces UK GDP, while also not reducing global emissions. Similarly, policies which limit airport development rather than seeking to properly tax aviation fuel are bad for the environment (because they reduce UK economic growth) and bad for international relations and global economic growth (by discouraging international travel),” says the research by Michael and David.
• The potential for green growth should not be overclaimed, as there is little evidence that faster green growth will, on net, benefit the UK economy. But that doesn’t mean that decarbonisation is not a worthy goal.
• Policymakers should not confuse costs and benefits by “presenting costs as benefits”. While a given energy investment may create many jobs, these workers will likely come from other productive parts of the economy – both private (such as construction) and public (such as education and health).
  “Energy should be a high productivity sector in the economy, with as few jobs as possible dedicated to satisfying home demand, precisely because as a society we don’t value energy per se, but the final services (thermal comfort, travel and entertainment, etc.) it facilitates,” says the research by Michael and David.
• Energy prices are not dependent on ownership of production or the source of energy, as illustrated by the dramatic price increases in the UK in 2022 despite Britain being one of the least-dependent European countries on Russian gas.