28 May 2024

Westminster view

Not much sign yet of Net Zero getting as much attention as it deserves as a wedge issue at this coming election. However, a gap between the two main parties is becoming increasingly obvious. It was telling that Sunak went after Starmer at the first election debate for planning to force people to buy heat pumps and EVs ‘earlier than necessary’. That caveat was required as it was his own Government who brought in mandatory targets.

The entry of Nigel Farage into the race has got us questioning which parties are indeed the two largest parties, at least in terms of proportion of the public vote. All our pre-conceived ideas about British politics may shortly have to be thrown out the window!

Here’s hoping that a proper debate about Net Zero can take place amidst all the other drama of a general election campaign.

Best wishes,

Harry

Harry Wilkinson is head of policy at Net Zero Watch. As always, please don’t reply to this email address, which is not monitored.

The headlines

Labour energy policies already impacting North Sea business
Sky News, Friday 7th June

Industrials and manufacturers ask next UK Government for net-zero support

edie, Thursday 6th June

The rich will soon pay a heavy price for net zero

The Telegraph, Thursday 6th June

Oil and gas investment surges in blow for net zero

The Telegraph, Thursday 6th June

The net zero headache that faces Prime Minister Starmer

The Scotsman, Thursday 6th June

Sunak and Starmer clash over energy bills and net zero

Energy Live News, Wednesday 5th June

British businesses warn Labour leader Keir Starmer against plan to increase windfall tax

Daily Mail, Tuesday 4th June

BHP-Anglo Debacle Shines Spotlight on Copper Scarcity

OilPrice.com, Sunday 2nd June

The detail

Labour energy policies already impacting North Sea business

Sky News, Friday 7th June

If the polls are correct, Labour will be in government in less than a month from now, yet the party's policies are already having an impact on business.

Three oil and gas companies - Jersey Oil and Gas, Serica Energy and Neo Energy - said on Wednesday they had decided to delay by a year the planned start of oil production at Buchan, an oilfield in the North Sea 120 miles to the north-east of Aberdeen, which they jointly own.

The trio explicitly linked the decision to the earlier than expected timing of the election.

Jersey Oil and Gas, speaking on behalf of itself and its joint venture partners, told shareholders: "While activities continue in order for the Buchan project to be ready for field development plan approval by the end of this year, the exact timing for achieving this key milestone and enabling project sanction is naturally linked to securing fiscal clarity from the next government and ensuring that the project remains financially attractive."

Labour's flagship energy policy

That was a reference to Labour's energy policies.

Sir Keir Starmer, the Labour leader, confirmed last week that Labour intends to spend £23.7bn over the life of the next parliament on a 'green prosperity plan' at the centre of which is the creation of a state-owned vehicle, Great British Energy, that will invest in renewables.

It will be chiefly funded by raising the existing windfall taxes first imposed on North Sea oil and gas producers by Rishi Sunak, as chancellor, in 2022.

Sir Keir, who spoke last week of a "proper windfall tax", proposes to raise the total level of tax from the current 75% to 78%.

Ed Miliband, the shadow secretary of state for energy security and net zero and the architect of Labour's energy plans, also proposes to strip away tax reliefs Mr Sunak put in place, alongside the windfall tax, which allowed producers to offset their investments in new production against their tax bills.

Full Story

Industrials and manufacturers ask next UK Government for net-zero support

edie, Thursday 6th June

A coalition of British businesses from energy-intensive sectors are urging the next Prime Minister to better support them through the ongoing energy price crisis and net-zero transition.

The Energy Intensive Users Group (EIUG) represents businesses in sectors such as steel, glass, chemicals and ceramics.

It has this week set out its general election manifesto, calling for the next Government to clarify the support its members will have on the path to net-zero by 2050 and to enhance the ‘British Industry Supercharger’ package.

Launched in April, the Supercharger is designed to help energy-intensive businesses weather the energy price crisis. The Government claims it could result in savings of up to £410m during 2025.

The Supercharger exempts businesses from contributing to certain costs linked to renewable energy policies, including the Contracts for Difference and the Renewables Obligation.

Participating firms also access a 60% reduction in network charges, a fee paid by businesses as a prerequisite for their electricity supply.

The EIUG would like to see this reduction increased to 90%. It argues that, at present, British firms are still paying higher electricity prices than in many other European nations. This is leading to multinationals choosing to invest in new sites and expansion elsewhere.

“Various Governments have taken measures to reduce higher prices, but a unlevel playing field still remains,” said EIUG chair Gareth Stace.

The EIUG is also urging policymakers, in rebalancing gas and electricity prices by potentially adding more levies or charges to gas, to exempt gas used by its members. Without such an exemption, it is warning, they could be undermined by imports from Asia and North America.

Net-Zero Investment Plan

The EIUG’s manifesto explains how the Group wants to be an enabler of, not a barrier to, the UK’s net-zero transition.

But it outlines how businesses are presently confused on their pathways to decarbonisation due to a lack of strategic decisions on technologies and gaps in investment plans for key low-carbon technologies.

Full Story

The rich will soon pay a heavy price for net zero

The Telegraph, Thursday 6th June

Will net zero upend our lifestyles? Will we fly less, turn down our thermostats, become vegans? 

The British public are already feeling the effects – from the push to buy EVs and install heat pumps, to Ulez, low-traffic neighbourhoods and the endless restrictions on plastics. 

Although the UK became the first country to halve emissions over the last 50 years, many insist we must go further, faster to tackle the “climate breakdown”. 

Consider a new Institute for Public Policy Research (IPPR) report on transport emissions. The think tank has created 12 profiles that describe the ways people travel now and the “opportunities” for different groups as we hurtle towards net zero. These include “flying less”, “more public transport” and a “shift to an electric vehicle”. 

Those in the “car reliant” group, who overwhelmingly have children and are 10 times more likely to use a personal vehicle than travel by public transport or walk/cycle, are encouraged to use social leasing schemes and car clubs if they cannot afford an EV.

In other words, decades of rising car ownership, with all the freedom and independence it has brought, could come to an abrupt end.

Rishi Sunak may have insisted that net zero won’t be “forced” on us, but the legally binding Carbon Budget proposed by the Climate Change Committee estimates that around 10pc of our emissions saving by 2035 will come from “changes that reduce demand for carbon-intensive activity. Particularly... an accelerated shift in diets away from meat and dairy products...[and] slower growth in flights and reductions in travel demand”.

Full Story

Oil and gas investment surges in blow for net zero

The Telegraph, Thursday 6th June

More than $500bn (£391.13bn) was invested into oil and gas last year, according to a report from the International Energy Agency (IEA), in a blow to environmental activists’ calls for no new fossil fuel development.

Investment in oil and gas production rose 9pc last year to $530bn and is expected to surge by another 7pc this year to around $570bn.

The increase was driven by producers in the Middle East and Asia, the IEA said.

Similarly, investments in coal production rose by 6pc last year, mostly driven by demand in China, India and southeast Asia, according to the World Energy Investment 2024 report.

The figures come just a day after UN Secretary General António Guterres called coal, oil and gas corporations the “godfathers of climate chaos” and called for a ban on advertising for fossil fuels.

UN Secretary General António Guterres called oil and gas companies 'godfathers of climate chaos' on Wednesday 

The IEA report warned that fossil fuel industries were releasing a near-record 120 million tonnes of methane into the air each year as a by-product – even though cutting these emissions would be among the easiest and cheapest of climate measures.

Full Story

The net zero headache that faces Prime Minister Starmer

The Scotsman, Thursday 6th June

Haven’t we all promised things we couldn’t deliver? Maybe over Christmas dinner you swore to get in shape for a summer beach holiday. Perhaps the age by which you vowed to have published your first novel has long passed.

Prime Minister-in-waiting Sir Keir Starmer has pledged to decarbonise Britain’s electricity grid by 2030 - five years earlier than the present government and just beyond the horizon of the next parliamentary term.

The debate over fossil fuels and the future of the energy market loomed large in the second week of the general election campaign, after the first was dominated in Scotland by the row over former health secretary Michael Matheson and his iPad data roaming bill.

Scottish Labour leader Anas Sarwar, Labour Party leader Sir Keir Starmer and shadow secretary of state for energy security and net zero Ed Miliband in Greenock on the General Election campaign trail. Photo: Stefan Rousseau/PA Wire

Labour’s Green Prosperity Plan would see the creation of a state-owned clean power company, Great British Energy, headquartered in Scotland and funded by a windfall tax on oil and gas companies.

The party remains opposed to new North Sea oil and gas licences - an issue on which John Swinney has vacillated since the SNP’s power sharing deal with the Scottish Greens blew up and he became First Minister.

Instead, Starmer wants to ramp up wind and solar capacity, which he claims will help reduce household energy bills by £300 a year and create 650,000 jobs.

Labour’s original £28 billion a year green energy plans may have been significantly watered down, but these remain highly ambitious targets.

However Scotland’s net zero secretary Mairi McAllan might caution against being so ambitious as to be unrealistic.

She had to announce to MSPs in April that the Scottish Government’s target of cutting emissions by 75 per cent by 2030 was out of reach. She later revealed that, in her opinion, the goal “was always beyond what was possible”.

Starmer and his government stand a very strong chance of being similarly embarrassed as 2030 approaches.

Labour’s claim over how cheap renewables are compared to fossil fuels is subject to debate. The party originally said its plans would save households around £1,400 a year - a figure it now puts at £300.

Gas prices have fallen since 2022 while the cost of delivering renewables has risen so much that no developers bid in the UK’s offshore wind auction last year. This meant the government was forced to increase the maximum price new wind farms can be paid for each megawatt hour they eventually produce under its subsidy scheme.

Bill payers may well ask why, if wind power really is so cheap, it has to be so heavily subsidised.

Then there is the £60 billion the National Grid says it will cost to fast-track the transition to a net-zero power grid.

And there is the intractable problem of intermittency. Wind farms and solar panels cannot generate power when the wind is not blowing or the sun is not shining. We need back-up when wind and solar are low but it is not clear what would replace gas in this role.

Full Story

Sunak and Starmer clash over energy bills and net zero

Energy Live News, Wednesday 5th June

Viewers across the UK watched Prime Minister Rishi Sunak and Labour leader Sir Keir Starmer debate on ITV last night.

Focusing on policies regarding net zero and energy security, Mr Sunak defended his decision to adjust these policies, emphasising that targets would still be met, household costs would be reduced and energy security maintained.

Sir Keir Starmer highlighted the opportunities in the renewable energy sector, pointing out that it could result in lower energy bills, greater energy security and job creation.

Mr Starmer reiterated the launch of a publicly owned energy company and pledged to achieve clean power by 2030, despite scaling back initial investment plans.

Discussing climate change, Rishi Sunak stressed the importance of global cooperation and reiterated the UK’s commitment to net zero.

He justified his policy decisions as essential for the country’s energy security. Sir Keir Starmer countered, focusing on the advantages of transitioning to renewable energy.

Mr Starmer argued this shift would reduce energy costs, provide job opportunities and ensure the UK’s energy security.

The debate also covered the topic of rising energy bills.

Sir Keir noted that energy costs are expected to increase in the autumn, with analysts predicting an October rise in the energy price cap to £1,762 annually for an average household.

Despite this forecast, the current price cap is at its lowest since the start of the Russian invasion of Ukraine in February 2022.

Full Story

British businesses warn Labour leader Keir Starmer against plan to increase windfall tax

Daily Mail, Tuesday 4th June

The Confederation of British Industry has warned against Labour's plan to increase the windfall tax on North Sea oil and gas firms.

The interest group, which represents 190,000 businesses, claims such a move could hurt investor confidence in Britain.

It said in a 'business manifesto' that the next government must commit in its first post-election Budget to 'no further sector-specific taxes - windfall or otherwise'.

Mohammad Jamei, the CBI's director of economic policy, said it wanted to revitalise 'brand Britain' as an investment destination.

'We believe that this would do the opposite of that,' he said.

The government imposed levy has already killed off investment and jobs - according to the industry

The government imposed a 35 per cent levy on UK oil and gas producer profits in 2022 after a jump in energy prices, which means they face an overall tax bill of 75 per cent - a policy that the industry is already killing off investment and jobs.

Labour wants to increase that to 78 per cent.

Mr Jamei said: 'Any sector-specific taxes will have an impact on investor sentiment which is already in a place where it's quite challenging.'

Windfall taxes can have a broader impact on investor sentiment regarding Britain, not only for the sector involved, he said.

'For example in financial services, they believe 'If it impacts this sector over here what's to stop the government then bringing in other sector-specific taxes for us'.

The CBI is also calling on the next government to monitor corporation tax compared with other countries to ensure the rate is internationally competitive

'That's the real concern that we have, that's the real risk.'

The CBI is also calling on the next government to monitor corporation tax compared with other countries to ensure the rate - and tax breaks offered to offset it - is internationally competitive.

Last year it was increased from 19 per cent to 25 per cent though the government has also brought in measures to reduce the tax bill for companies making certain investments.

'We are consistently being told that the chopping and changing of the tax system can have a big impact on investment decisions made,' Mr Jamei said.

Full Story

BHP-Anglo Debacle Shines Spotlight on Copper Scarcity

OilPrice.com, Sunday 2nd June

• Copper prices are soaring amid concerns about resource scarcity and expectations of a supply deficit.

• New copper asset development is hindered by long lead times and declining grades, and investments in new production capacity have been weak.

• Miners are hesitant to invest heavily in new mines due to peak demand concerns and stringent regulations.

This week saw BHP’s last attempt to acquire fellow miner Anglo American fail. The negotiations had lasted six weeks, the offer prices were hiked twice, and yet the deal broke down. Because BHP only wanted Anglo’s copper operations. The deal, although failed, put copper in the spotlight—on the scene of resource scarcity.

Earlier this month, copper prices reached a record high, while BHP tried to convince Anglo executives and shareholders to agree to spin off the company’s platinum and iron ore business and sell itself as a copper producer. The price per tonne in New York topped $11,000 earlier this month.

The FT attributed the price surge to an influx of speculative traders flooding the copper space at a time when many thought copper was about to start going down. Yet there was—and still is—the expectation that sooner or later the copper market would swing into a deficit, because demand is set to outpace supply amid transition efforts in Europe and North America. Now it turns out it’s not just the transition that will drive stronger copper demand.

Goldman Sachs this week forecast that demand for copper is about to take off on the back of the transition but also because of artificial intelligence development and defense spending. According to the bank, copper prices could hit $12,000 per ton thanks to these sources of demand—because new supply is not exactly forthcoming, as evidenced by BHP’s desperate attempts to secure assets through the Anglo acquisition.

The deal “shows the only way for miners to grow their revenue with copper is through acquisition since no new major copper assets are available. Even if they did exist, it may take up to 20 years to permit and build,” Peter Bryant, the chairman of consultancy Clareo and resource industry expert, told Oilprice.com.

Not only this, Bryant said, but even brownfield expansion will not help secure sufficient new supply of copper because of declining grades, increasing depths of available resources, increasing distances from processing facilities and the respective increasing use of energy, water, and work. Things are not looking good for copper supply.

Investments in new copper production capacity have been weak, too, for about a decade now. The fact, as noted by Goldman Sachs in its latest forecast, was a result of poor returns on investment over the previous decade. Now, the outlook for demand looks great and yet copper miners are still not throwing billions at new mines. This might be because peak demand is too close around the corner.

BHP’s chief executive said recently that boosting copper supply to a degree that would ensure meeting demand by 2030 would require $250 billion in investment. But according to Clareo’s Bryant, “peak demand, starting roughly in 2035, does not last for the life of a major asset so there’s no incentive to build new supply that will only be needed for a fraction of the life of an asset. In short, demand has to flatten.” 

No wonder, then, that miners have only spent $50 billion out of the $250 billion estimated to be needed to boost supply to meet demand. And no wonder no one is bothering with investing in new mines amid increasingly stringent regulations when they could simply acquire a fellow miner—or not, as in the case of BHP.

On top of all this, the copper market is currently in a surplus, according to the International Copper Study Group. The ICSG recently reported that the global copper market was balanced in 2023, at around 26.5 million tons of refined copper, but this year, it would swing into a surplus of 162,000 tons, shrinking to 94,000 tons in 2025. This is not exactly conducive to more supply investment.

Full Story

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