What does the pause in the Energy Security Bill mean for the industry?

With reports emerging last week that the newly-installed Truss Government was planning on pressing the pause button on the Energy Security Bill, much of the industry was taken aback. Almost a decade after the last Energy Bill was passed, and with the added focus on energy matters prompted by the recent spike in wholesale gas prices, the general consensus was that now was the time to legislate. Instead, the new Business and Energy Secretary, Jacob Rees-Mogg, has all but confirmed that the Bill will not be taken forward in its current form.

Is the energy industry right to be worried in this case?

Firstly, it is worth reflecting that, much as the Bill would have been needed both to future-proof the UK’s energy system from possible shocks and to ensure a smooth transition towards Net Zero, it was not a response to the current crisis. The Government’s plan to tackle soaring energy bills for both households and now businesses – only announced yesterday due to the national period of mourning – rightly takes precedent in the packed legislative calendar of this new administration. In addition, it would be counterintuitive to legislate to extend the Default Tariff Price Cap having effectively suspended it for two years as Liz Truss did at the start of the month.

Secondly, one of the medium-term levers the Government is exploring is decoupling the electricity price from the gas price in the ‘as available’ market – a move which would reduce price volatility for consumers. But this proposal is not part of the current Energy Bill as presented to Parliament, it forms part of the Department for Business, Energy and Industrial Strategy (BEIS)’s Review of Electricity Market Arrangements – commonly known as REMA. While the REMA consultation has a few more weeks yet to run (deadline is 10 October), a decision on decoupling could be taken in a relatively short space of time, and with Parliament only returning from Party Conference recess on 11 October there is ample time to put these arrangements in place shortly after MPs come back to Westminster.

However, these should not be reasons to junk the Bill in its entirety. Reports suggest that the Government will carve out some elements of the Bill and give them to other Departments, such as the Treasury or the Department for Levelling Up. This should worry industry. With the lack of a standalone Energy Department, breaking up the current Bill and handing parts of it over to other ministries risks pushing down the priority order some necessary changes, such as the creation of a Future Systems Operator, or the establishment of funding models for hydrogen production. If anything, the Bill could have acted as a catalyst to make the UK a world leader in some of the technologies of the future, such as carbon capture and storage, and hydrogen fuel cells. Instead, it looks like the UK will lose a possible competitive advantage over the rest of the world and this will be another missed opportunity for the country.

Additionally, even though Truss recommitted to the Net Zero target during her leadership campaign, her moves since should hardly fill the industry with confidence that this is at the top of her agenda. Rees-Mogg has voiced climate-sceptic opinions in the past, and Truss herself has now launched a review into how the UK can reach the target in an “efficient and sustainable” manner. Today’s announcement that the Government has lifted the moratorium on fracking imposed by the Johnson Government will do little to allay the fears of environmentalists – even if the chances of widespread shale gas exploration in the UK remain slim due to the opposition of local communities in the Midlands and the North West.

On the plus side, this review will be led by Chris Skidmore, who has long campaigned on environmental matters and urged the Conservative leadership candidates in the summer to recommit to the Net Zero target. Industry should engage with the process and make any concerns clear from the off.

Business leaders are rightly concerned about the drift which is beginning to happen with this new government. The UK Business Group Alliance for Net Zero has already written to the Prime Minister calling on her to build economic resilience through the delivery of the Net Zero target and by restoring nature but the pressure will need to be kept on in order to communicate the strength of feeling among the business community for decarbonisation and sustainability matters.

From a purely political perspective, junking the Bill offers an opportunity for Labour. By pausing this legislation, the Opposition can accuse the Government of repeating the mistakes of the past, and not taking a decisive step to improve the UK’s energy security – a line that the Labour leader, Keir Starmer, has already been using, especially with regards to nuclear power. Expect more of this line of attack when the party faithful gather in Liverpool from this weekend for Annual Conference.

Energy will remain high on the Government’s agenda, even though the flagship Energy Security Bill has now been paused. Industry needs to be ready to deal with the new landscape even if it makes for tougher work than the previous administration.

If you wish to discuss any of the issues mentioned in this article, please contact Dan in H/Advisors Cicero’s Energy practice on daniel.julian@h-advisors.global

There are now less than three months to go until the next United Nations COP27 summit. Taking place in Sharm El-Sheikh, Egypt, and following the landmark COP26 summit in Glasgow, the focus is expected to be squarely on implementation, to turn individual country pledges into tangible action.

With this in mind, H/Advisors Cicero’s sustainability team have prepared a COP27 briefing, highlighting the goals of the Egyptian Presidency, the full programme for the summit, the key national and international individuals who will shape the agenda, and how corporates can engage.

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The unprecedented burden on the NHS in the past two years has made us all aware of the precarity of our healthcare system. A recent parliamentary debate about a National Strategy for Self-Care signals a potential shift in the direction of health policy in the UK post-COVID-19 – something which both sides of the house see as needed. With nationwide delays in access to treatments and severe staff shortages, new, patient-led models of healthcare are now being taken more seriously. 74 years ago, the NHS was created with the vision of providing “cradle to grave” medical care – but what that support involves might look and feel completely different in a few years’ time. 

The latest debate explored some key questions around how a greater emphasis on self-care in health policy would affect the healthcare system and patients across the country. Promoting self-care involves allowing patients to take on a more active role in managing their own health, and providing the information and tools to prevent problems occurring, take care of self-treatable issues and manage the symptoms of chronic conditions. Eventually, patients becoming less reliant on GP services should alleviate the pressure on the NHS and make healthcare provision more sustainable.  

While this may sound like a win-win situation for both patients and the health system, the true winner of a transition to a self-care-based health policy would be the pharma and life sciences sector. In other markets that have adopted a similar model, the industry has been quick to step into the role previously filled by health professionals. With patients seeking to manage their health issues independently, over-the-counter drug sales have skyrocketed, and the demand for better self-management tools has led to flourishing innovation in the medical device and digital health space.  

But can these self-care solutions really replace traditional healthcare services in the UK? While MPs in favour of the proposed reform emphasised that “self-care is not no care,” the criticism levelled by more sceptical voices is that it will be a deflection of responsibility by the Government for taking care of the wellbeing of the population. This is particularly pertinent in a country that tends to pride itself on the quality and accessibility of its public healthcare system, with the Prime Minister referring to the NHS as the UK’s “greatest national asset.” 

What the parliamentary debate on self-care has shown is that policymakers understand that a balance must be struck between taking advantage of the opportunities offered by digital health technology, empowering patients to self-manage their health issues, while also maintaining a well-functioning, well-resourced public health service that is available to those who need it, whenever they need it. The Minister for Health emphasised that while self-care is an integral element of the Department’s objectives for the future of the NHS, it is not a one-size-fits-all solution for the many challenges currently facing the healthcare system in the UK. 

Indeed, the dialogue on self-care segues into other key facets of health policy. Closely relevant are the issues of health literacy and health inequality. Any self-care strategy can only be successful if the population has access to high-quality, accurate medical information, as well as the knowledge and confidence to act on that information. This requires doubling down on nationwide health education efforts. As for health inequality, there is much to do for the Government in terms of removing the structural barriers that prevent marginalised groups from accessing quality healthcare. As the findings in Cicero/amo’s latest update of the Rebuilding Britain Index (RBI) show, health inequalities must be understood – and addressed – within the broader context of socio-economic disparities that are prevalent across the population. 

With the Government’s Health Inequality White Paper due to be published soon, we can expect further policy proposals and parliamentary discussions about pathways for sustainable and equitable healthcare provision in the UK. Clearly, there is a need to move away from the status quo and adapt the healthcare system to the evolving needs of our society. The question remains whether reforms and innovation will put at risk the spirit and ethos of the NHS. 

With the dust having settled on the UK Government’s Energy Security Strategy and the first substantial piece of legislation affecting the energy sector since the Energy Act 2013 being put forward in this week’s Queen’s Speech, now is an opportune moment to review a fuller gamut of UK energy policy.

It is first important to note that without the backdrop of the war in Ukraine, it is unlikely that the Energy Security Strategy would have been published this year. The Government had intended that the raft of Net Zero policies post-COP 26 would provide the coherent roadmap and long-term vision to deliver Net Zero by 2050.

However, as ever – “events, dear boy, events”. 

The original aims of the Strategy were laudable: to confront rocketing energy bills and transition away from Russian fossil fuels after the invasion of Ukraine. Though significantly at this stage in the electoral cycle, judged against these metrics, the strategy is unlikely to deliver in the short term.

The winners: nuclear, offshore wind, and hydrogen

  • The Government is betting big on nuclear – with an ambition to deliver up to 24GW of capacity by 2050. This proved a major point of contention between No 10 and the Treasury, who were resistant to the costs associated with producing new sites. A recent Intergovernmental Panel on Climate Change’s (IPCC) report seems to support this conclusion, only citing nuclear once, as an example of a technology with high upfront costs.
  • The real centrepiece of the Strategy is increased ambition for the scaling up of offshore wind capacity and reforms to the planning system to cut approval times for new projects. The sector has become a national success story in the UK and is proof of the concept that with the right level of Government support, renewable technologies can experience rapid periods of growth.
  • The Strategy cements hydrogen as the Government’s long-term technology of choice to decarbonise industry and transport, as it set out an ambition to double hydrogen production capacity by 2030. The Government has delayed the decision on whether hydrogen is safe to use for heating homes until 2026.

The losers: onshore wind and fracking

  • The Business Secretary, Kwasi Kwarteng, failed to push through radical reform of the planning system to allow more onshore wind in the face of backbench opposition, one of the quickest and cheapest short-term salvos to high energy bills. The fact that one of the only options that could plausibly be effective in the short term died a death in the face of nimbyism is symptomatic of the inherent tensions between traditional Tory orthodoxy and the sort of fundamental change required to deliver Net Zero.
  • Notably, the Strategy does not mention fracking, the panacea offered by a small number of right-wing Tory backbenchers as well as Nigel Farage, and though the Government has asked scientific advisers to reassess the safety of fracking, few in Whitehall see any real future for fracking in the UK.

The glaring omission: a demand-side strategy 

The Strategy is silent on one fundamental issue – reducing energy demand. The first step for any energy security plan should be to reduce demand, by retrofitting homes or using energy more efficiently, but these measures are said to have been vetoed by the Treasury.

A national retrofit strategy may not be as glamorous as wind turbines or hydrogen, but it would be an essential piece of the energy security puzzle that has again been overlooked.

The Government urgently needs to strike a balance between increasing supply and reducing demand – it is vital that we swiftly see policy turn into action or there will be no change.

A missed opportunity

In the near term, the Strategy does little to assuage the concerns of the electorate about soaring energy prices. In the longer term, it sets ambitious targets for green technologies, yet fails to provide a coherent plan for delivery.  

The result is a strategy that fundamentally does not address what it was created for in the first place: to confront rocketing energy bills and transition away from Russian fossil fuels.

Recent polling from the centre-right think tank Onward reveals that despite the ongoing cost of living crunch, voters still overwhelmingly support the Government’s Net Zero policies, finding that two-thirds of voters (67%) think the Government is not being bold enough in tackling climate change.

This should empower the Government to go faster and further, and the pursuit of both goals need not be mutually exclusive. The rapid roll-out of renewable infrastructure is our best course of action to future-proof the UK against external shocks to the energy market. There may be political benefits for the Tories as well as economic ones for voters if they act on this.

Today, the European Commission published its first ‘Circular Economy Package’. Part of the European Green Deal, it will streamline sustainability across all physical goods, boost circular business models, and increase Europe’s resource independence.

This package will affect all manufacturers based in Europe as well as anyone importing products to Europe and covers construction products, consumer electronics, household appliances, and textiles, to name a few.

With this in mind, the Cicero/amo team have produced an overview of the new rules which may help in assessing their potential impact on your business. The proposals will need to be amended and agreed on by the European Parliament and the Council before they can enter into force, offering concerned stakeholders an opportunity to potentially influence the final legislation.

Please enter your details below to access Cicero/amo’s overview:

Last week, the European Commission published a draft Directive on Corporate Sustainability Due Diligence introducing minimum due diligence obligations in the EU-27. It follows French and German supply chain legislation and is based on international standards and conventions obliging, companies to embed sustainability and human rights standards in their own operations and to establish due diligence throughout their value chains.

The proposal covers actual and potential adverse impacts on human rights and the environment stemming from international conventions set out in an Annex. This includes for instance the International Labour Organization conventions, the Paris Agreement, and violations of prohibitions to unlawfully evict or to cause pollution of soil or drinking water. It covers companies’ own activities, those of their subsidiaries, and most significantly, companies involved in their value chain operations with whom they have an “established business relationship”.

Which companies will be in scope?

The proposal applies to both EU and non-EU companies. For those established in the EU, the thresholds are:

  • Group 1: With over 500 employees and a worldwide net turnover of over €150 million in the last financial year; or
  • Group 2: With over 250 employees and a worldwide net turnover of over €40 million in the last financial year if over 50% of this turnover was generated in a specific sector (manufacturing and wholesale of textiles, leather and footwear; agriculture, forestry and fisheries, including raw materials, live animals, beverages; and mineral resources including fossil fuels, quarry products, construction materials, fuels and chemicals).

For those companies established outside the EU, the thresholds are:

  • Group 1: Generated a net turnover of over €150 million in the EU in the last financial year; or
  • Group 2: Generated over €40 million net turnover in the EU in the last financial year, 50% or more of which in one of the abovementioned sectors.

When will companies have to comply?

As it stands, the new rules would apply to Group 1 companies after two years once the law is in force and to Group 2 companies operating in the specific sectors after four years. These dates may still be adjusted as the draft law is amended.

What are the obligations?

The obligations are numerous, incurring significant compliance costs for most businesses. Selected key points include:

  • Including due diligence into all company policies: Companies will need to integrate due diligence across the board and regularly publish and update a due diligence policy that meets the Directive’s specific criteria;
  • Identifying potential and actual adverse impacts: This can be done through Environmental, Social and Governance (ESG) audits, independent reports, stakeholder consultations, and more. It is left to each Member State to provide further guidance. Financial services companies will face special obligations in that they will have to carry out an impact assessment before providing a credit, loan or other financial service.
  • Preventing or mitigating potential and actual adverse impacts: This will require companies to take actions including developing prevention action plans, seeking contractual assurances from their business partners, investing into management of production processes, etc. They will also have to verify whether their business partners adhere to their contractual obligations and suspend or end the business relationship where this is not the case.
  • Establishing a complaints procedure: Companies will be required to establish a complaints procedure for those who may reasonably be affected by the company’s activities, including individuals, trade unions, and civil society organisations.
  • Reporting: Companies must monitor the effectiveness of their due diligence policy, publishing an annual statement in line with the Corporate Sustainability Reporting Directive.
  • Civil liability: Member States are required to establish civil liability for failure to prevent or end adverse impacts which have led to damage.

The Directive also imposes a duty of care on company directors. The setup and implementation of any due diligence strategy will be the responsibility of the company director, with this individual being tasked with ensuring it remains embedded in corporate strategies. When taking decisions on behalf of the company, all directors will be required to take human rights, environmental, and climate considerations into account when assessing consequences. Any variable remuneration should also take the contribution of the business model and strategy towards achieving the Paris climate targets into account.  

Supervision and sanctions

The proposal is a Directive, which means that each EU-27 Member State will have some flexibility when adapting the text into their own law. Supervision will be in the hands of national authorities, who are also tasked with imposing sanctions. Pecuniary sanctions should be based on turnover, though no more guidance is given. For comparison, German national law currently allows for a 2% annual global turnover fine for severe non-compliance. This set up is already raising concerns over a patchwork of 27 different sets of rules and a race-to-the bottom for sanctions.

Next, the proposed text will be discussed and amended by the European institutions.

For questions on the above or the EU’s approach to ESG, please get in touch. Our experienced sustainability team will be happy to help. 

Get in touch

Dan Julian

Senior Account Manager