UK Labour takes the reins: how will its victory affect energy policy?

Labour won the UK election by a landslide, putting pressure on the party to deliver its ambitious green policy goals. However, its plan to cut public investment conflicts with the need to invest in renewables. This is causing particular concern in the oil and gas industry, as the government plans to introduce windfall taxes to fund spending and stop issuing new licences, S&P Platts reports.

Labour won the UK general election, securing 412 seats in the 650-seat parliament. The new government will therefore have a very strong mandate to pursue ambitious green goals that go significantly further than those of the outgoing administration. The promised green policy measures are expected to be implemented quickly, including a ban on sales of new cars with internal combustion engines, the construction of new offshore wind farms and a tripling of installed solar capacity by 2030.

"Labour’s strong election victory gives it a clear mandate to deliver its clean energy mission," said RenewableUK chief executive Dan McGrail.

It is worth noting that the Liberal Democrats, who won a record 71 seats, had an even more ambitious green platform than Labour and will press new Prime Minister Starmer to set even higher targets for the low-carbon economy. Similarly, the Green Party, which increased its number of seats from one to four, will support raising those ambitions. By contrast, Nigel Farage’s right-wing Reform UK, which called for the complete abolition of the net-zero target, entered parliament with just four seats.

Labour’s convincing election result contrasts with the recent European Parliament elections, which are seen as having slowed the momentum behind green policies.

The need for investment

Significant investment decisions will be needed to deliver the planned policies, many of which were already made under the Conservative government. UK investment in the energy transition rose by 84 percent last year to $73.9 billion, the fourth-highest figure in the world, according to Bloomberg NEF analysts. However, analysts warn that annual investment will have to nearly double for the UK to get on track to meet its net-zero target, the Financial Times reports.

Labour’s plan to cut public investment overall led it to reduce the amount of green investment originally planned. Nevertheless, Labour has proposed £23.7 billion in investment, to be channelled through two new bodies intended to spur much larger investment from the private sector.

One of these bodies will be Great British Energy, a publicly owned company funded by a windfall tax on oil and gas producers. It will invest in clean energy technologies and individual projects, as well as support local investment in clean energy by funding local authorities and offering low-cost loans to communities.

The second body will be the National Wealth Fund, into which £7.3 billion is to be invested. The fund will invest in strategic sectors to support growth and clean energy, with the aim of attracting private investment. More than a third of its capital will be earmarked for the steel industry, with other target sectors including ports, electric vehicle batteries, carbon capture and green hydrogen.

Planning and construction reform will also be key. Renewable energy projects face long and burdensome permitting processes, much like in the Czech Republic, and a small number of local residents can often block projects. Labour has also pledged to streamline the approval process for nuclear power plants and work to upgrade the electricity transmission grid, which it sees as an obstacle to the deployment of clean energy.

Concerns in the oil and gas industry

Labour and the Conservatives have markedly different positions on the oil and gas sector. Sunak’s Conservative government promised to maximise oil and gas production in the North Sea to support energy security and national income. Keir Starmer’s team, by contrast, has pledged not to issue any new licences, although it agrees that North Sea production will continue for decades. The new government also plans to increase the existing energy profits levy from 35% to 38% and backdate it to the beginning of 2022.

Offshore Energies UK, which represents the North Sea oil and gas industry, said it was committed to working with the new government to ensure energy security, jobs and skills, and create an “irresistible investment environment”. However, it remains deeply concerned about Labour’s proposals to introduce an additional windfall tax and stop issuing new licences. If poorly managed and implemented without industry involvement, these policies would threaten jobs and undermine the decarbonisation of the UK economy, it said.

Analysts at Commodities Insights expect UK oil production to fall below 600,000 barrels per day by 2030, from 710,000 barrels per day in 2023.

Labour is also pursuing an ambitious target to decarbonise electricity generation by 2030. However, the pledge has been met with widespread scepticism, as gas-fired power plants supplied 32 percent of UK electricity last year, with a further one percent coming from coal. Replacing most of these fossil fuel power plants will require a dramatic acceleration in the growth of low-carbon generation and the deployment of carbon capture technology at the plants that remain.