Back to the DTI? – The merger of DECC and BIS is a new opportunity to integrate energy and industrial policies

Department of Energy & Climate Change, Westminster (image by Nigel Cox and licensed for reuse under this Creative Commons Licence)

Department of Energy & Climate Change, Westminster (image by Nigel Cox and licensed for reuse under this Creative Commons Licence)

As part of the new Prime Minister’s extensive reshuffle late last week, it was announced that the Departments of Energy and Climate Change (DECC) and Business, Innovation and Skills (BIS) are to merge to form a new Department of Business, Energy and Industrial Strategy (BEIS). Taken at face value, this looks like a backwards step to a time when energy and climate policy were much less important. But is the creation of BEIS necessarily a bad thing?

Unlike last time the UK had a separate government department for energy, DECC has lasted less than a decade. The creation of BEIS comes eight years after DECC brought together energy and climate change policy. The UK’s previous Department of Energy was, like many others around the world, created in the wake of the oil shock of 1973/4. It lasted eighteen years – from 1974 to 1992 – and was abolished as a result of the privatisation of the UK’s energy industries in the 1980s and ’90s.

To some extent, the merger of DECC and BIS does not come as a surprise. The political profile of energy and climate change, when compared to many other issues, is not what it was in the late 2000s. This is not because they are unimportant. The evidence for climate change is as strong as ever, and there are other pressing challenges facing our energy sector. However, as Peter Pearson and I argued in our history of UK energy policy in 2012, ‘the continued salience of energy policy is far from assured … While the priority currently placed on energy policy might seem permanent, this can change rapidly’.

There have been mixed reactions to the merger. Whilst some analysts such as Richard Howard from Policy Exchange argue that it presents a good opportunity to strengthen the salience of energy and climate policy, others – particularly environmental NGOs and former DECC Secretaries of State – have expressed alarm. The first Secretary of State for DECC, Ed Miliband, called the decision ‘just plain stupid’, and Craig Bennett, Chief Executive of Friends of the Earth said it was ‘shocking news’. But there are important reasons why BEIS could develop in the way the optimists foresee.

First, it is important to bear in mind that the new Department does not mean a return to the days of the old Department of Trade and Industry (DTI). At one point in 1997, energy policy was just part of the portfolio of one junior minister in the DTI. This time, the whole of DECC will be moved into the new department. The old divisions between climate change policy and energy efficiency policy (which used to be the responsibility of Defra), and energy supply policies (which were overseen by DTI), have not been reinstated.

Second, the Climate Change Act is now well established. It legally requires the government to set a long-term target and five-yearly carbon budgets for emissions reductions. It is welcome news that, in the midst of the recent political turmoil, the government accepted the 5th carbon budget recommendation from the Committee on Climate Change (CCC).

Significant progress has been made with reducing greenhouse gas emissions since 1990. In 2015, emissions were 38% lower than the 1990 level. Renewable energy generation has accelerated, to 25% of electricity in 2015. Furthermore, energy demand has been falling, on average, for the past decade. However, as the CCC has argued in their most recent assessment, these indicators are not a reason for complacency. There is a large amount of work to do to ensure that the UK meets the third, fourth and fifth carbon budgets. Many policy gaps remain, including in the neglected area of heat and in energy efficiency policy. In addition, recent policy changes have had a large effect on investor confidence.

Third, the new department has a ministerial team who have prior knowledge of their brief, and of understanding why the shift to a low carbon energy system is important. In opposition, the new Secretary of State Greg Clark MP wrote a policy paper on the low carbon economy. Similarly, the Minister of State Nick Hurd MP was a member of the Conservative Party’s quality of life policy group. This was set up by David Cameron before he became Prime Minister to advise the then Shadow Cabinet about a range of policy areas including energy, environment and transport – in the context of a need to address climate change and social justice. Added to this, the new Chancellor of the Exchequer Philip Hammond MP was a strong advocate of international climate action during his tenure at the Foreign Office.

But what of the substance of the optimists’ case, that bringing energy, climate and industrial policies together is more of an opportunity than a threat? Successive governments since the late 2000s have sought to develop this link in a more explicit way, after many years in which industrial policy was often not discussed. When he was Secretary of State for Business, Peter Mandelson argued for a need for a renewed ‘industrial activism’ in the wake of the 2008 financial crisis. This continued under the Coalition, including detailed work to identify areas where a low carbon energy transition could reduce emissions, build on areas of industrial strength and create jobs.

As a Green Alliance pamphlet pointed out recently, the UK is number 2 in the world for service exports. Globally, around a third of clean energy projects between 2007 and 2012 had UK financial and legal advice. This illustrates an important point: the UK has had major impacts on global energy policies and market arrangements over the past 2-3 decades. This was initially manifested through the export of the ‘UK model’ of liberalised electricity markets from the 1990s onwards, a process that had mixed results. More recently, the UK was a pioneer in carbon markets, and its Climate Change Act has inspired similar legislation in several other countries.

The new BEIS department faces huge challenges of course, especially given the government’s intention to negotiate withdrawal from the EU and the social divisions that were revealed by the referendum. Two priorities are particularly important. First, there is a lot of work to do to close the gap between the high ambition set out in legislated carbon budgets and the policies in place to reduce emissions in a secure, affordable way. Second, there is an opportunity to integrate industrial strategy and energy policy more clearly – so that the UK can realise more of the economic and industrial benefits of the low carbon transition as well as meeting more traditional energy policy goals. Such benefits have started to emerge in technological areas such as offshore wind and smarter grid demonstrations – but there is a long way to go.

 

This blog was originally posted on the UKERC website.

Jim Watson

 

Professor Jim Watson is the Research Director of the UK Energy Research Centre, based at Imperial College, London. Jim is also Professor of Energy Policy at SPRU – Science Policy Research Unit.

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