2 days ago
Ed Miliband is laying a trap for Nigel Farage
If Reform UK wins the next election, scrapping net zero is first on their list of policies. Party leader Nigel Farage believes the move could save tens of billions over the next parliament, freeing up funds for tax breaks and benefits boosts.
Labour's Ed Miliband, on the other hand, appears to be building his platform on preventing this coming to pass.
If Labour can block Reform by triumphing at the ballot box, that's all well and good. If it can't, then there are other tools.
As the New Statesman has noted, Miliband's newfound enthusiasm for community wind projects may partly be an attempt to 'future-proof' net zero, pushing things through today that will be tricky to unwind tomorrow.
Underhand, possibly, but potentially effective. And it's an approach we could well see expand to other elements of the policy in the near future.
Reform's targeted savings from the transition to net zero are already under fire. While the party believes it's possible to save £225bn over the next parliament, the Institute for Government (whose report the figures are partly based on) has argued that some of this sum constitutes private sector spending.
Just as important, however, is the question of how much of it will be easily cut.
Depending on which analysis you follow, spending over the rest of this parliament could average somewhere between £13bn and £19bn per year, with the latest Climate Change Committee Carbon Budget suggesting that anywhere between £6bn and £23bn of public funding could be needed in 2035.
Over the period to 2050, one Office for Budget Responsibility report (now a little old) estimated the net cost at £344bn to the public sector, with the downside risk at £553bn.
These are large sums. The upper end – £22bn or so each year – would be enough to fund the reversal of the winter fuel payments cuts (£1.65bn per year), raise the personal allowance by £1,250 (£11.1bn), scrap the two-child benefit cap (£3.4bn) and add another 0.2pc of GDP onto the defence budget – covering almost half the gap between Labour's distant 3pc ambition and the mooted Nato 3.5pc target.
It's also the case that these sums could be underestimated.
The Climate Change Committee's analysis shows net zero coming in at a net annual cost of 0.2pc of GDP per year over the next quarter century, or roughly £4bn per year, with the costs front-loaded and net savings towards 2050.
But underlying these figures are some very optimistic assumed cost curves for the future price of electricity capacity, including a forecast for offshore wind unit costs to fall by 39pc over the next 25 years.
Now, this might happen. But it's worth noting that the UK's 2023 auction round for renewable energy projects resulted in no bids at all for offshore wind. These auctions award 'contracts for difference', which pay producers a set rate per unit of electricity produced. If the market rate is below that price, the producer receives a subsidy. If it's above it, then they pay the difference back.
Barring a period between 2021 and 2023 when gas prices spiked over tensions and then outright war in Ukraine, these payments have tended to be large and positive: producers receive above-market-rate prices. Despite this, offshore wind was a no-go.
In the subsequent auction round, the Government raised the maximum price on offer by 66pc, with the eventual contracts awarded coming in at 58pc above the previous record low. Even this wasn't quite enough.
Ørsted's Hornsea 4 project won its funding in that round in September 2024. By March this year, it had been discontinued on the grounds of 'adverse developments relating to continued increase of supply chain costs, higher interest rates and an increase in the risk to construct and operate Hornsea 4 on the planned timeline'.
Poof! 2.4 gigawatts (GW) of planned capacity vanished into the ether, just as the plan is to boost it from 15GW to 88GW by 2040.
It's a neat illustration of one of net zero's risks. If other technologies also stall out on cost reductions, if delays to projects push the mooted benefits further back into the future, if higher interest rates raise the cost of capital, or if the costs of projects slip in typical fashion, then the costs of the transition could rise further still.
And that uncertainty makes scrapping net zero even more appealing for Reform.
A policy which they believe will cut energy bills – contracts for difference, the renewables obligation feed-in tariffs and the guarantee of origin system have added £280 to annual household costs between them, before we get to balancing payments and transmission costs – is also a way to work towards balancing the books and reducing fiscal risks. It's a win-win.
If, that is, they can pull it off. The concern will be that Labour is trying to tie their hands, setting up contracts and legal commitments well in advance of the next election that will make it extremely hard for a future government to change course.
There are early signs the party is moving in this direction, with the next auction round for renewable subsidies taking the approach of inviting bids first towards a targeted capacity, then setting a cash budget after reviewing them.
Combined with Miliband's rush to complete decarbonisation of the grid by 2030, and increasing pressure on the private sector to follow along with schemes incentivising electrification of home heating and transport, and the intention could well be to tie Reform's hands.
However, Richard Tice, deputy leader of Reform UK and the party's energy spokesman, isn't worried.
'Miliband is absolutely trying to lock us into his net zero plans,' he told me on Wednesday. 'And they're trying to tie up as many contracts as possible now to bind our hands when we win office – you can see that with the switch in renewable energy policy from cash budgets to capacity targets'.
But just as Labour can play games with contracts and commitments, so too can Reform.
'We'll claw the public's money back by charging a windfall tax equal to the subsidy awarded, and bar producers from charging that tax back to the consumer,' Tice said.
'Wind farms that need promises of huge public subsidies to finish construction won't be economically viable. And battery storage systems will be outright banned on health and safety grounds; they are dangerous and toxic.'
The result is a battle of pre-commitments. Miliband appears to be urging the private sector to pile in on net zero plans, waving the prospect of taxpayer funds at potential partners, and finding ways to make legally binding agreements that will be hard to unpick.
Reform, however, isn't planning to unpick them, but to instead follow Miliband's example in the North Sea: restrict operating conditions, tax profits, and drive the value of projects to zero.
The effect is to introduce considerable political risk into net zero projects, but potentially also to tempt Labour into finding ways to hand out funds upfront.
All eyes on this space: whether Reform's pledges can succeed in scaring off the renewables sector could determine its ability to win the next election.
