Economic Policies for Affordable, Secure ad Clean Energy: Insights From The UK

and | 1 October 2024
Fiscal, Policy Briefs | Tags: Energy, Fossil Fuel Subsidies, Renewables, United Kingdom

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The United Kingdom has made substantial progress in transforming its energy system. Territorial consumption of primary energy has declined by one-fifth over the past five decades, while real GDP has almost tripled.[1] This reflects a significant improvement in energy efficiency, together with a shift in the economic structure toward low-carbon activities. The power sector has closed its last coal-fired plant later in late September 2024. The role of fossil fuels in the electricity system is being rapidly replaced by renewable sources such as wind, solar, and biomass. In surface transportation, vehicles have become more fuel-efficient, and car drivers are gradually adopting cleaner electric vehicles. Additionally, the use of the railway system is slowly recovering from its lowest levels post-lockdown. The residential sector is also transitioning to cleaner energy, with improvements in heating efficiency and a rise in the deployment of heat pumps.

However, numerous challenges still stand. Fossil fuels still play a key role – natural gas in electricity generation and home heating, petroleum products in the transport sector – which exposes consumers to the volatility of international commodity markets during periods of geopolitical tensions, as experienced in 2022 when Russia invaded Ukraine. The transport sector relies on imported fuels, such as diesel purchased from Russia until recently. High prices during – and after – the surge of inflation in 2022 have exacerbated the existing problem of energy poverty, with well over two million consumers now burdened with heavy energy debts.

Transitioning to a more affordable, secure and clean energy system is a key priority for the UK government. Elected in July 2024, the new government led by Prime Minister Keir Starmer has adopted ambitious energy targets, which were announced in the 2024 King’s Speech. The government aims at making the country a “clean energy superpower” with:

  • A fully decarbonised electricity sector by 2030;
  • Large investments in wind energy power and the transmission grid;
  • Lower energy bills for consumers;
  • A modernised and well-functioning British railway;
  • And faster adoption of electric vehicles and installation of public charging points.

To reach these ambitious goals, adopting the right framework will be key:

  • Price signals are decisive in choices made by producers and consumers; realigning tax rates to incentivise cleaner choices will be important for the transition.
  • Highly cost-effective policies will be needed, in light of the fiscal constraints that the new UK government is operating under.
  • Targeted support for low-income households and consumers suffering from energy poverty will be essential to ensure an equitable transformation across income groups and jurisdictions.
  • Information campaigns reaching out to diverse stakeholders will be crucial to hasten adoption of new technologies and unlock the energy transformation.

[1] Department for Energy Security and Net Zero, Digest of Energy Statistics: DUKES chapter 1 – statistics on overall energy production and consumption. Table 1.1.4

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