Brexit: Our energy & climate change predictions

Well, who'd have thought British participation in Europe would end this way?

Poor leadership in defence, canny play by a couple of tricky right-wingers, a late surge into the box by a big blonde marauder - and suddenly, against all odds, it's in the back of the net.

They think it's all over? It is now.

But that's enough about England's exit from Euro 2016 last night. Painful as it may be, Iceland's victory was at least familiar to those of us who've followed England's football fortunes for years.

Brexit? Well, that's much less familiar. And quite the least familiar thing about it is that the victors seemingly want nothing of the spoils. With their campaign promises disavowed - no £350 million per week for the NHS and no prospect of ending immigration - Boris Johnson’s post-referendum article read less like a valedictory than a paean to continued EU close relations, with free trade, free right of abode and free movement for all.

All of which makes it really hard to discern what the aftermath looks like in any specific area of policy. Including energy and climate change.

Wound-healing but windy

The signals so far suggest that we're unlikely to see a government come in that is ideological on the issue.

With the Conservative Party seemingly intent on healing itself first of all and then finding a pragmatic route through the minefield it's created, an overtly climate-sceptic and clean energy-hating administration seems a remote possibility. However, energy and climate policies seem likely to resemble chaff at the mercy of the winds – potentially stirred only marginally, but at risk of being blown hither and thither if the political gales turn nasty.

Those winds include:

• the absence of a unified Brexiteers’ vision – which suggests a battle of interpretations ahead based on implications for trade, immigration and the economy
• the continuing reality that the UK has a national debt of £1.7 trillion and rising, which isn’t going to disappear by itself
• the likelihood of a sequence of economic bad news, assuming those experts that Michael Gove so dislikes actually do know what they're talking about
• the sheer amount of detailed Brexit negotiations, scrutiny and reforms that need to be undertaken, involving ministers, civil servants, select committees, Peers and the devolved administrations – enough to gum up the works on all kinds of policymaking not directly connected to the divorce process
• the need to maintain good relations with countries in Europe and elsewhere which are not happy about Brexit
• how those media proprietors, editors and columnists who campaigned so hard for Brexit react when they see immigration isn’t stopping and the UK isn’t getting a total divorce from the single market (meaning we’re still subject to EU treaties and regulations, without representation); in short, if and when the words Boris, Brexit, and betrayal first appear together in a headline.

So, with due apologies for another foreign phrase, here’s a quick tour d’horizon through six key issues, and - with further apologies to Paul the World Cup octopus - our predictions for the likely conclusions.

1. Energy prices

In the short term, Brexit will create upward pressure on bills. The UK imports about 45% of its energy, mainly as fossil fuels – coal, oil and gas. The pound’s downward dip will make those fuels more expensive. It won’t be a sudden impact, as companies regularly make deals months and years ahead of time. But it’s there all the same.

The Brexit camp pledged to cut VAT from energy bills. Boris went further, proving he was "on the side of the UK’s 37 million drivers” by hinting heavily at a reduction in tax on petrol and diesel.

Cutting VAT and other taxes would be one way of alleviating rising costs. But the new Chancellor will have at least one and three quarter eyes on the £1.7 trillion elephant in the room.

Likely outcome: Bills rise slowly with wholesale prices. Cuts in VAT on fuel? “Yore ‘avin a larf, Gov(e)”

2.What course on carbon?

Whoever ends up running it, the Department of Energy and Climate Change has a lot of business in its in-tray – some unfinished, some un-started. They include:

• the decision on the level of the Fifth Carbon Budget, due by the end of this week
• the consultation on phasing out coal-fired generation
• this year’s promised auction round of Contracts for Difference to support offshore wind farms
• the Carbon Plan setting out the direction of policy up to 2030
• the approach to ratifying last year’s UN Paris Agreement on climate change
• the extent to which the UK will remain linked to the European gas and electricity grids

The point of all this activity is to put the UK on a solid, strategically coherent course to solving the “trilemma” – keeping the lights on and reducing carbon emissions while keeping costs down.

This is already quite a workload; but who’s going to do it, as the serially slashed civil service focusses on Brexit? The financial straitjacket is tightening, creating pressure to cut back on everything with a short-term cost. But without strategy and investment, the risk to security of supply goes up. While a full-frontal assault on the Climate Change Act looks unlikely given the general support of Conservative back-benchers and Peers, the Act isn’t going to implement itself.

Holding the course on trilemma-beating policies is the pragmatic option, and the one that would put least stress on the civil service. But will business-as-usual survive a new austerity? Will pragmatism be politically feasible if the realities of Brexit disappoint its most feral (and generally climate-sceptic) supporters in Westminster and the media?

Likely outcome: Generally, business as usual - but a Carbon Plan that spends little in the short term, citing austerity

3.Many pounds make light work

UK energy infrastructure is creaking. Grid upgrades are progressing, but behind the rate needed to connect all available generation. Our biggest (and ageing) gas storage facility, Rough, is going out of action for unplanned repairs. Coal and nuclear power stations are 40+ years old and tend to break down unexpectedly.

Renewable energy generation was being installed at Europe-beating rates, until the government pulled the plug. It wants gas-fired power stations to be built, but that won’t happen without more subsidies. It wants new nuclear power stations to be built, but that won’t happen without still higher subsidies. Recent policy changes have “spooked” investors, raising the risks they perceive and thus the returns they demand.

Now, the landscape is even less certain. There is no clarity (or prospect of it) in terms of support for generation beyond 2020, and many key questions well before then. Brexit implies between two and four years of macro-uncertainty as Britain negotiates its exit from the EU, renewables-rich Scotland negotiates its future with the UK, financial indicators oscillate more wildly than ever, and hard-pressed civil servants fail to find time to resolve policy questions.

If you’re an energy investor or an energy company with a range of countries you can go to, would you want to put any money at all into Britain? And yet if investment doesn’t materialise, the energy system gets older and older and the risks of serious energy disruption, and hence emergency spending, rise.

Likely outcome: Continued low investor confidence. Generation-related power cuts staved off, but at a cost

4.And what of Hinkley?

What indeed? The project has made little sense from either an economic or energy security point of view for a while. Now that George Osborne, its most ardent champion, is almost certain to move on, will any other senior figures want to tie themselves to such an expensive millstone?

Energy Minister Andrea Leadsom, widely tipped for promotion in a Brexiteer-led Cabinet, has been a champion thus far. But her most likely new department is Treasury, given her background in the City; once there, the politics of national debt may well induce a change of tune. That’s if Francois Hollande, already flogging off the family silver to fund Hinkley and in serious dudgeon over Brexit, doesn’t pull out first.

Likely outcome: Hexit at the hands of France, to the relief of Treasury

5.Sorting out the ‘Euro green crap’

Energy and climate change ties between the UK and the EU include:

• targets, such as the 2020 target of producing 15% of all energy from renewable sources
• measures such as the EU Emission Trading Scheme, in which many large UK businesses participate
• hardware, notably the increasingly integrated gas and electricity networks