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REMA on the brain

REMA on the brain

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— The clock is ticking for clean energy investment as the government continues its Review of Electricity Market Arrangements (REMA).

— We were supposed to get a biomass strategy over the weekend but ministers have missed their own deadline.

— Zac Goldsmith, one of the leading Tory ministers backing climate and nature policies, resigned on Friday. We dissect the fallout.

Happy Monday, Happy July — and a warm welcome back to POLITICO Pro Morning Energy and Climate UK. Here’s your first update of the week.

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DON’T FEAR THE REMA: Heard of the REMA? If you work in energy policy, no doubt you have. And while the Review of Electricity Market Arrangements hasn’t yet hit the mainstream news cycle, it matters — a lot.

In a nutshell: The government has been reviewing the future of the energy market since last July, including how energy is priced. As long as the issue is under review, potential investors in U.K. offshore wind and other forms of renewables won’t know what pricing regime will be used, and therefore won’t know what kind of returns to expect.

Cash and clarity: This is a problem. Uncertain investors are less likely to put down hard cash, at a time when investment is needed to back renewables and hit net zero targets.

Recap: REMA was launched last year at the height of the energy crisis. Then Business Secretary Kwasi Kwarteng (remember him?) said the goal was to “design an electricity system which passes the savings of renewable electricity generation onto consumer bills,” while supporting decarbonization and ensuring security of energy supply. There has been a public consultation on a whole suite of possible reforms — and everyone is still waiting to see what the government decides to do next.

Nodal or not: One part of the sweeping package makes energy producers and investors especially nervous: nodal pricing. This would involve basing the U.K. electricity market on local pricing rather than the current national approach. The approach is already used in some U.S. markets, including California, and in New Zealand.

Do experts like the idea? Many energy economists consider it a good way to run a grid efficiently while getting value-for-money for electricity users. National Grid ESO backed the approach in its response to the REMA consultation.

But but but… Other industry voices say that nodal pricing could hit the income of some renewables generators — particularly offshore wind.

Industry warning: Some major generators are worried. In its consultation submission, SSE said this was “the most significant and controversial debate” within REMA. They said that ongoing discussions about such a fundamental reform were “impacting our own investment decisions” and called on the government to rule out nodal pricing.

So when are we going to know? When MECUK spoke to Grant Shapps last month, he said to expect something on REMA this year. Last week, DESNZ officials said they expect to undertake further consultation in the autumn.

Delay dismay: Some in the energy sector might be wondering — justifiably — whether this has been put on the ‘too difficult’ pile and will be left for the next government to sort out.

Tick tock: Adam Bell, a former government energy official and head of policy at the Stonehaven consultancy, said that the lack of clarity about nodal pricing was weighing on potential investment in the U.K. — at a time when investors are already thinking about switching to the U.S. to benefit from subsidies under Joe Biden’s Inflation Reduction Act.

Wind worries: “It’s a sword of Damocles hanging over wind investment in the U.K.,” Bell said. “Hundreds of millions of pounds worth of investment in clean tech, specifically generation, are at stake.”

SKIDMORE TRAVELS: Net zero czar Chris Skidmore kicks off two days of meetings in Brussels today. He’s meeting MPs and MEPs to discuss furniture energy partnerships and an IRA response. Quiet day then. 

DRAX DEBATE: There’s a question in the Lords on the Drax biomass power station at 2.30 p.m.

… and in committees: MPs debate the draft Electricity and Gas (Energy Company Obligation) Order 2030 in committee at 4.30 p.m.

**A message from SSE: Want to build a Britain where clean homegrown energy drives economic growth, supports homes and businesses and leads the world in tackling climate change? SSE has a plan to help the Government unleash a decade of delivery and secure our energy future. Find out how.**

CLEANING UP SHIPPING: The environment committee of the U.N.’s International Maritime Organisation (IMO) meet in London today to discuss steeper climate targets for shipping — a sector responsible for almost 3 percent of worldwide greenhouse gas emissions, about as much as France and Germany combined.

Who pays? An even trickier debate hangs over next week’s negotiations: Whether to impose a carbon tax on polluting vessels, and if revenue from that levy should then compensate vulnerable countries for loss and damage caused by climate change. Two dozen countries backed the idea of a shipping tax at last week’s Paris climate finance summit.

Course correction: But the main topic of the week-long talks is emissions targets. Five years ago, the IMO introduced a target to at least halve shipping emissions by 2050; now it looks certain to adopt a zero-emission target for 2050 (although the precise wording, as well as proposed interim targets, are tbc). Read more from our Brussels colleagues here.

SUN BLOCK: The White House has suggested it is open to studying how sunlight might be blocked from hitting the Earth’s surface as a way to limit climate change. The Biden administration said on Friday that research into solar radiation modification technology would enable “better-informed decisions” about its risks and benefits.

Bothered boffins: Some scientists warn this could alter the chemical makeup of the atmosphere and lead to abrupt warming. The Biden administration stressed it hadn’t committed to a research programme. Full story from our U.S. colleagues here.

ROSEBANK LATEST: Climate campaigners are threatening the government with legal action over any potential decision to allow exploration in the North Sea’s Rosebank oilfield. Writing to ministers and regulators, campaign group Uplift argued that it would be unlawful to approve drilling because the decision would be incompatible with the U.K.’s climate targets.

ONSHORE WIND UPDATE: The Observer reported Sunday that the government’s consultation on ending the de facto ban on onshore wind will likely result in only “minimal relaxation” of planning rules because ministers are nervous about angering voters who don’t fancy the idea of the turbines in their backyard.

Keeping it local: A government spokesperson was indeed keen to talk up the need for projects to secure local backing, telling MECUK: “Decisions on onshore wind should be made by local representatives who know their areas best, which is why onshore wind planning policy was changed to ensure projects are located in suitable areas identified in local authority development plans, with community support required for each proposal.”

HAPPY JULY: It’s July — which means the government has missed its own deadline for publishing its biomass strategy. Energy Efficiency and Green Finance Minister Lord Callanan had said the strategy would be published in the second quarter of 2023. But here we are at the start of Q3 and strategy is there none.

STRATEGY UNSEEN: The government is considering how biomass — the process of burning wood as well as energy crops and waste to produce energy — can be used to help hit net zero targets. It set out its Biomass Policy Statement in November 2021 but has delayed publishing the full strategy. 

To be (green) or not to be (green): The government says it classifies bioenergy as a renewable, low-carbon energy source which, when combined with carbon capture and storage technologies (CCUS), is “key to delivering net zero.”

Show your workings: Campaigners disagree. Groups including WWF and Greenpeace have penned a letter to Energy Secretary Grant Shapps demanding that the government bans subsidies for biomass burners. Claims that the fuel is carbon neutral are “based on flawed calculations,” they say, because it can take decades for forests to absorb carbon and in the meantime existing carbon capture projects are not effective enough.

Quote: Heather Hillaker, a senior attorney at the U.S.-based Southern Environmental Law Center (a signatory to the Shapps letter) said the “science is clear — burning forest biomass for energy emits more CO2 per unit of energy generated than coal.”

PUBLISH PLEASE: The independent Climate Change Committee has urged the government to publish its biomass strategy “as soon as possible.” It argues that “large-scale unabated biomass power plants” should be converted to bioenergy with CCUS as soon as is “feasible” and should not be given contracts beyond 2027.

DESNZ SAYS: The department said it is “committed” to maintaining a strict biomass sustainability criteria to ensure bioenergy “genuinely contributes to the U.K.’s decarbonization efforts and is in line with the U.K’.s climate and environmental goals.”

Still waiting: But no word on when the strategy would be released. A spokesperson said: “Our ambition is to remain at the forefront of biomass sustainability, strengthening our already strict criteria where required. The Biomass Strategy will present further detail on this area.”

GOLDSMITH RESIGNATION FALLOUT: Zac Goldsmith’s resignation as a minister on Friday cost the Tories a leading voice on climate and nature policies. It could be a defining moment for this government’s green record.

Recap: Goldsmith, an ally of ex-prime minister Boris Johnson, was already embroiled in a separate row with No 10. But in his resignation letter, Goldsmith attacked the government’s recent green record — and Prime Minister Rishi Sunak’s attitude to environmentalism in particular.

Zac smack: “The problem is not that the government is hostile to the environment, it is that you, our prime minister, are simply uninterested. That signal, or lack of it, has trickled down through Whitehall and caused a kind of paralysis,” Goldsmith wrote.

Tory greens respond: Goldsmith isn’t alone in his concerns. Sam Hall, director of Tory green caucus the Conservative Environment Network, told MECUK that Goldsmith’s broadside “will add to the concern felt by voters, civil society groups, and other nations that responding to climate change and nature’s decline is not among the government’s top five priorities.”

Net zero row: Maybe inevitably, the resignation also sparked off more internal Tory bickering over net zero. Former Brexit negotiator David Frost tweeted: “I hope that Zac Goldsmith is right to have detected less commitment from Rishi Sunak to global preaching on fashionable environmental and climate causes, paid for by U.K. taxpayers.” What was it that Theresa May said last week about an “increasingly vocal minority” seeking to delay climate action?

No 10 says: In his reply to Goldsmith, Sunak said that the government “can be proud of the U.K.’s record as a world leader on net zero,” insisting that the the country “continues to play an important role globally.” 

CLIMATE FINANCE WARNING: Goldsmith also argued that the U.K had “effectively abandoned” a pledge to spend £11.6 billion on climate finance between 2021 and 2026. No 10 said the pledge remained, pointing out that Sunak had committed to it at COP27. But Goldsmith’s claim has spooked campaigners. Climate Action Network U.K. called for a “clear, transparent, and time-bound delivery plan to show that the government means business.”

**A message from SSE: Want to unleash our world-leading offshore wind potential and make the UK a renewables powerhouse? SSE has answers and has published a plan to help the Government prioritise how to accelerate renewables. The UK has led the world in offshore wind. No other country has moved further and faster in developing a technology that will be crucial to reducing our dependence on imported fossil fuels and building up cheaper, cleaner homegrown energy. But to make the UK a renewables powerhouse we need to tackle the barriers and bottlenecks in policy and regulation which act as a drag on growth, slow down infrastructure and add unnecessary years to the time it takes to build a new wind farm. Actions, not ambitions are what’s needed now to secure our energy future. SSE. We Power Change. Find out more.**

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