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With only a week to go until the election – and the polls pointing to only one outcome – attention is now shifting away from Labour Party promises, towards what it will actually do in government.
One area that is relatively well defined is what Labour plans to do on energy and climate policy. It has a bold mission to make the UK a clean energy superpower, enabled by several potentially significant commitments – including the promise of a publicly owned energy company and an immediate Energy Independence Bill. But the scale of the change required to decarbonise the energy system and make wider progress on net zero means a new government needs to make some big calls to set the pathway for reform, followed by a series of difficult political trade-offs to guide delivery. None of these will be easy, and delivery will take time, but an incoming government with a strong majority is as well-placed as any to make it happen.
For wider context on UK efforts to deliver home-grown clean power — and the trade-offs involved — read
In this blog, we look at the big calls that a Labour government will need to take within its first 100 days, the first year, and over the next Parliament to make its clean energy mission more than just a pipe dream.
Whilst many column inches have been penned on what Labour will do in its first 100 days, in practice, there will be a real limit to what can be done. New Ministers will need to get up to speed and understand the legacy they have inherited. The first stage will focus on setting out a stall and getting the early decisions right to send a positive signal of intent.
Big call 1: How to proceed with clean energy investment programmes already in motion.
The in-tray of new Ministers in DESNZ and HM Treasury will include signing-off a series of chunky investments that were timed out in the previous Parliament. The most immediate will be on carbon capture and storage (CCS) and hydrogen, where the first phase of projects are targeting a multi-billion pound Final Investment Decision (FID) from September – any major delay or shift in approach will impact the wider CCS programme and lead to immediate doubts on the feasibility of the current 2030 carbon capture target.
Renewables policy will also be in the spotlight. Ministers will have to decide on the final budget for Auction Round 6 of the Contracts for Difference (CfD) scheme over the summer. Without a meaningful increase in the budget on offer, the pipeline of contracted wind and solar projects will struggle to match up with what is needed to achieve Labour’s 2030 clean power target.
Additionally, the new government faces a short-term decision on the Sizewell C nuclear project. The process for raising private capital is underway, but reaching FID will require new Ministers – right up to the Prime Minister – to decide whether it represents value for money to pay a return to private investors during construction, and whether to allocate a significant proportion of the country’s total capital budget to new nuclear ahead of a full Spending Review.
The Chancellor’s first Budget in the autumn will be a crucial early indicator as to whether Labour will make a major down payment on the new government’s green infrastructure ambitions, or whether it will mark the start of a difficult journey of rowing back on commitments made to date.
Big call 2: Early actions to accelerate clean energy delivery.
Major reform will take time, but early actions to boost the pace of green energy deployment are possible. Two obvious areas for Labour to go fast and early on are tackling grid infrastructure constraints and planning reform.
The grid connection queue is now one of the biggest constraints to decarbonisation and will require immediate focus. While reforms to cut connection times and progress transmission infrastructure are already being progressed, and scheduled to take effect from 2025, a new government could push for quicker action from the regulator, system operator and wider industry. Labour will need to decide if more radical reform, to prioritise projects within the growing queue of connections, is necessary. While some European countries are looking at proposals to organise connection queues in a more strategic way, a similar intervention in the UK would be challenging to progress.
Some planning reforms could be done quickly, including the current blocks on new onshore wind projects. This change won’t require legislation and so could be implemented immediately. Labour can also begin to update the National Policy Statements that govern planning approval for larger energy projects and provide support to planning authorities to accelerate existing applications. And there are even minor, short-term planning changes that could support other sectors, like changes that will make it easier to install heat pumps.
Big call 3: Getting the ball rolling on GB Energy.
GB Energy has been one of Labour’s main election pledges. We have already written on the potential options for how GB Energy could shape up in a way that doesn’t distort the vibrant private market, or complicate the delivery of major projects. A Labour government will want to reassure the private sector about how it will work alongside business to help leverage private investment and provide genuine additionality to project delivery.
For a deeper look at what a publicly owned energy company could realistically do in practice, see Flint’s analysis:
Setting up GB Energy will take time and agreeing its strategy should not be rushed. But some early actions are feasible and necessary, such as defining a governance framework that ensures independence from Ministerial oversight while aligning with government policy. Government can also identify the senior leaders who will drive it forward, such as the Chair, even if just an interim appointment. And finally, Labour can set its early priorities, such as the delivery of the Local Power Plan.
Looking beyond the early, frantic days of a new government, there will be more scope to set out a detailed plan for how the clean energy mission will be delivered.
Big call 4: A credible 2030 power decarbonisation strategy.
Fully decarbonising the UK's power sector by 2030 is a monumental challenge. It requires a comprehensive and cross-cutting strategy – including renewable investment, grid reinforcement, connections, and flexibility – within the first year. Labour will need to clearly define this goal, including the ongoing role of gas, if it is to avoid a clear political trap come the next election.
A key element of this will be the approach to system and spatial planning. A Strategic Spatial Energy Plan (SSEP) has already been promised. This will define where and when infrastructure will be built. This plan should address the political challenges of siting large clean infrastructure and offer a coherent approach to community benefits. Commissioning the SSEP and finally establishing the National Energy System Operator would also signal strong intent early on.
The strategy will also need to set out how the UK will attract the necessary private investment. To this end, a decision on whether to implement locational pricing shouldn’t be put off for long as it remains a major area of uncertainty for those developing new projects. Clarity on potential reforms of the CfD scheme is key, given its importance in de-risking investment. But perhaps even more importantly, urgent work is required on improving system flexibility, where progress has stalled. This risks continued reliance on unabated gas for longer than many are assuming, or alternatively, reduced system resilience and security in the late 2020s.
Ultimately, a wider strategy for decarbonising the power sector will need to determine the balance between central planning and the power of the market to best make decisions on delivery. A trend towards the former should give more certainty on delivery, but risks reducing innovation and increasing the long-term costs of the transition.
Big call 5: A fiscal framework for net zero.
Labour knows that the fiscal position they will inherit is dire, but it will have to set out at its first full Spending Review how it will develop a tax and spend profile to put the country on course for net zero. On spending, the envelope for capital infrastructure is already overdrawn. Tough calls are needed on current programmes, such as for nuclear with the small modular reactor competition that is due to reach the short-listing phase later this year, or new funding for green supply chains. Funding envelopes for future CCS and hydrogen projects will also need to be agreed. This is before you consider detailed allocation of the promised £7.3bn from the National Wealth Fund or the £8.3bn for GB Energy and the £6.6bn Warm Homes Plan. Trade-offs at the first full Spending Review due in 2025 are inevitable.
Changes to tax will be just as important to get right. Labour is planning to increase the windfall tax on the oil and gas sector to fund some of these spending commitments, which could come at a cost to investment. Increasing revenue from carbon taxes would be another obvious but politically challenging move. Expansion of the UK ETS is perhaps a first step – potentially while strengthening alignment with the EU’s scheme – as well as implementing a Carbon Border Adjustment Mechanism. The next government will also have to start to grapple with the direct tax implications of decarbonisation, such as the decline of fuel duty receipts, and potential acceleration of tax relief for decommissioning in the oil and gas sector.
Big call 6: The institutional changes needed to accelerate delivery.
Institutional design may not get the election-grabbing headlines, but having a coherent, structured approach to delivering change across the system is vital – as we saw during the Covid pandemic.
The early focus will be on determining how No 10 holds departments and key bodies to account – real accountability can only come from the Prime Minister down. Options being considered include the creation of a central Board or Unit to drive the Clean Mission forward and help shepherd a more coherent approach to net zero delivery across government. These new structures will only be successful if they have a strong, and long-lasting political commitment.
Beyond the centre of government, there is a risk that the creation of GB Energy, the National Energy System Operator, and the proposed National Infrastructure and Service Transformation Authority creates an ever more complex myriad of institutions that slows delivery yet further. Government will need to map out all the existing and new entities, and then decide if each is vital to delivery or if streamlining is required.
Having set a framework for action, attention will have to turn to the hard yards of delivering it over the course of the next Parliament, and beyond. This will require staying true to the long-term goal as the short-term politics of the transition becomes ever more real.
Big call 7: Working out a politically credible plan for decarbonising homes.
In response to Rishi Sunak’s more “pragmatic” approach to net zero, Labour has stepped back from mandating consumer action, such as the replacement of gas boilers. But it will need to come up with a credible package of regulatory sticks and financial carrots to reduce the 18% of emissions that come from heating homes. An early decision on the role of hydrogen will help create certainty on the technology required, as will further detail on the role of heat networks. Clarity on where and how the £6.6 billion Warm Homes Plan for energy efficiency will be spent in a way that lowers the cost of technology and develops more robust supply chains will be important.
A clear vision for the future of the retail energy market will also be required. Government and Ofgem need to come up with a stronger set of frameworks for energy affordability, including the future of the price cap, the scope of any potential social intervention on bills, and the cumulative impact of green levies. There is scope to rebalance these policy costs away from electricity towards gas, creating incentives to decarbonise. Beyond this, a longer-term strategy needs to consider the role of competition to support the take-up of heat pumps and other low-carbon technologies.
Big call 8: Going beyond the power sector to keep Carbon Budgets on track.
Given the election, Labour has so far dodged some of the tougher questions on net zero, including how to achieve mass adoption of electric vehicles in just six years or cut emissions from heavy transport. The politics of net zero has neutered any serious conversation with the public on these issues, but the next government will need to tackle them deftly to avoid them becoming an election dividing line in 2029.
Labour will have to be clearer on the requirements across the economy to hit targets. Setting of the 7th Carbon Budget (covering 2033-2038) and progress towards existing legally binding targets will bring this to a head. Delivery is well off-track outside the power sector. While rapid decarbonising of electricity will help reduce emissions across the economy, it will not deliver these targets.
The new government will already be obligated to publish a new national climate plan early next year after the current government’s was deemed unlawful. This will require action across the economy including sectors where decarbonisation is more challenging. Ensuring these sectors remain competitive will require coordinated action right across government. It will also set the stall for whether the new government can recover the UK’s international climate leadership position, through COP29 and beyond.
Big call 9: Securing the economic benefits of the clean power mission.
Labour has rightly positioned its clean energy mission as an economic opportunity. Delivering this will help maintain public support for net zero, particularly as demands on consumers increase. A more activist green industrial strategy will help by identifying where the UK can have a competitive edge or can retain its capabilities as the economy decarbonises. This will include core energy sectors – such as the supply chain for floating wind – but also others, like sustainable aviation.
Targeted investment from the National Wealth Fund will help pump prime investment in priority supply chains. Labour has proposed a £500m/year Green Jobs Bonus, but its design will require a careful balance between political direction and control, particularly as the capital provided will need to truly crowd in private investment to have a real impact. It will also have to be considered alongside wider support to attract investment, such as planning and regulatory flexibility in key areas like ports.
Labour wants to leverage the strength of the UK’s financial services industry to mobilise private funding for net zero. But it will need to make up lost ground on new regulatory frameworks, including the delayed green taxonomy. Labour can make early progress on sustainability disclosures following the sector’s detailed work on this.
Labour will also have to grapple with those industries that are due to decline, specifically oil and gas. The reduction in domestic oil and gas supply has been underway for some time, but Labour’s plan to halt new licences will accelerate this, making Ministers more directly responsible for falling investment and job losses. Labour will need to think hard about how it offers a positive vision of what a just transition means, otherwise, it risks a significant backlash, specifically in Scotland which will be an important election battleground come the Scottish Parliamentary elections in 2026.
A new government with a strong mandate on clean energy does have a window of opportunity to drive significant change. But at every turn, whether that be system planning, or investment and spending decisions, there will be big calls to make to turn it into a reality. The moment to judge whether it has been successful will not come in the first 100 days, but that will set the tone for the bigger calls that are to come.
This blog was written by Partner Josh Buckland, Director James Diggle and Director Jeremy Adams. Josh supports clients on energy, climate and sustainability issues, he was previously an Energy Advisor to the Secretary of State for Business, Energy and Industrial Strategy. James advises on energy and climate issues, he previously led the energy and climate team at the CBI. Jeremy advises on energy and other regulatory issues, he previously worked at Ofgem.