Have the Downing Street parties put Net Zero in jeopardy?

The No10 party scandal has prompted talk of a Conservative leadership contest being more likely than not, which could see Rishi Sunak or Liz Truss become Prime Minister. 

In a universe where the Foreign Secretary becomes the more important politician, Net Zero could run into trouble. “I’m probably one of the more ideological among my colleagues, in that that’s what motivates me,” Truss told POLITICO. Her people told The Times she sees the likes of Zac Goldsmith as part of an “axis of evil” over his support for green policies. “Lawson and Reagan are her political guiding stars,” says an ally, adding that Truss is heavily influenced by American Republicanism. Some even believe, “She will pitch herself as a sort of British Tea Party candidate.” In this way she is happy to dog-whistle those members who are sceptical about the government’s commitment to net zero.”

It is not yet clear if Sunak would be more likely to stick with Johnson's climate plan. The Chancellor will naturally have a keen interest in what the Conservative Party's selectorate will want to see from him when, in the coming fortnight, he responds to the spike in gas prices caused by Putin, which has been driving energy bills to rocket. His decision may offer clues of where he plans to position on this agenda.

Sunak is expected to offer some form of relief to households that can compete with Labour’s offer of £600 off fuel bills paid for by a windfall tax on excessive gas industry profits. He is understood to be taking soundings from backbenchers about whether they would favour cutting green levies, or taking an alternative approach that might include expanding the Warm Homes Discount out of tax, cutting VAT, or lending to energy retailers so that they can spread the costs out over future years, for example. The French government has chosen to cap the rise in energy bills, and absorb the rest of the cost, which would be another (very expensive) option.

It will be interesting to see whether Sunak feels that on balance Conservative MPs and activists are keen that he double down on Net Zero to insulate households from the spike in gas prices, or whether they want him to "cut the green crap" (again) instead. 

In recent years, few Conservative backbenchers have dissented over the Prime Minister's Net Zero agenda and some have become vocally supportive. Many more are now members of the Conservative Environment Network than the Net Zero Scrutiny Group. Green Alliance’s Shaun Spiers has argued, “A few eccentrics aside, the Conservative party is committed to climate action. Business-friendly Tories are pushing for more ambition, while MPs across the country are demanding and celebrating green investment in their constituencies. Net zero and nature are increasingly at the heart of the party.”

In this moment of weakness for Johnson, will these MPs signal to Sunak that this support was driven more by loyalty to Johnson than anything else, or will they respond to the electorate's mounting concern about climate change and their own increased recognition that it has become a priority for their voters? (IPSOS recently found climate concern ranking as a tier 1 priority and is at the highest level on record.)

In the event Sunak does opt to cynically cut green measures, what actually could he cut anyway? What sort of short-term saving might it produce for households, and what would it mean for the country's Net Zero strategy in the meantime?

In reality, the contractual nature of the renewable energy schemes currently paid for from levies on bills means they will need to be honoured regardless. In any case, details emerged this week of how some of those schemes are currently paying back to the taxpayer because of how cheap green energy has become, as well as benefiting households through avoided gas costs. 

Another option could be that Sunak axes the Energy Company Obligation (ECO) - a social levy that costs each household around £29 per year and funds measures for fuel poor households, with just under half of the revenues going into insulation that in turn cuts fuel bills for those who benefit. In the last major political crisis over energy bills George Osborne did choose to slash this scheme substantially. It's something his then energy adviser now says was a huge mistake, which Sunak should not replicate. Fuel poverty and climate organisations are rightly lobbying to stop him from taking this option. (Incidentally, Osborne’s changes to building standards have also cost many households dearly through energy bills about £200 higher than they would otherwise have been.)

Sunak could now shift all green energy costs and social levies into tax instead, which would save households around £160 off their bills. That’s what 25 leading poverty and environment charities, as well as five major energy companies and many Conservative MPs have advocated. This is also something Number10 reportedly favoured doing last year to address the imbalance with levies on gas bills and make reaching Net Zero easier. Sunak apparently blocked it at the time due to how much it would cost to the Exchequer, which Policy Exchange calculated would be about £5-8 billion a year. But another key argument against the idea was set out clearly by James Kirkup:

"This sounds fine in principle, but in reality would mean that long-term energy efficiency and decarbonisation would have to fight for funds alongside every other call on the Treasury’s general funds. It's all but inevitable that politicians taking a short-term view would allocate fewer resources to lagging lofts. And that would only exacerbate our underlying problem of gas dependence."

Sunak could reduce or abolish the ‘Carbon Price Floor’, a carbon tax on coal and gas power that gets passed through to bill-payers via the energy wholesale price and is worth about £36 to each household according to Policy Exchange. Given it raises about a billion a year for the Chancellor, is seen as fundamental to the investment case for big low-carbon energy projects like Hinkley Point C, and is preventing a bump in coal-burning, it's not a decision he can take lightly. However, the tax currently makes clean electric driving and heating more expensive, and with coal almost off the system entirely within a couple of years anyway, it may be that the optics of cutting this would be substantially more damaging than the reality. After all, with carbon prices in the Emissions Trading Scheme (ETS) already healthy enough to keep the shift to green energy moving forward, it might mean Sunak calculates he can create a tabloid headline to play to the critics in his party whilst not actually harming the climate transition all that much. 

But its an irony that the saving Sunak could achieve this way is so teeny relative to the problem he is looking to address that cutting the carbon tax and ECO entirely would, together, only save households about the same amount the government's block on onshore wind farms is currently costing them. (Tim Lord at the Tony Blair Institute calculated that the Tories' challenge to onshore wind developments is costing every household about £60.)

Finally, Sunak could also declare he would prevent more bioenergy subsidies to energy firm Drax that are costing households hundreds of millions a year. Pulling the plug on the £31 billion over decades being sought by this single company through a policy costing each household about £16 a year might win support from backbenchers like Rob Halfon MP who have questioned the idea, whilst also carrying support from green groups who believe it is a counterproductive con anyway.

Ultimately, for a majority of Conservative MPs whose overriding priority in making their leadership choice will be about who can win a general election in the face of a Labour poll lead, will they really want a candidate who is at odds with a big majority of voters in every demographic who roundly support climate action? Dave Timms of Friends of the Earth was right to say that the grounds for optimism lies with this public sentiment because as he put it to The Guardian, “Deep concern about the climate crisis now reaches every part of British society.” 

For campaigners, the hard graft of finding creative ways to remind MPs what their voters want, and to demonstrate practical and affordable climate solutions, may end up being more effective than attempting to sue Ministers into compliance with climate targets that a new Prime Minister could choose to abandon or weaken. This likely offers our greatest chance of ensuring that suitcases of booze and DJs in the basement at Number Ten don't end up resulting in Britain going backwards on climate change within just weeks of COP26.

Correction: The charity coalition that I referred to above has clarified that they called for renewables support schemes (FiTs, CfDs, RO) to be moved into tax, but not social levies (ECO, WHD). This would avoid the risk that Kirkup highlighted.