Brexit Government: Energy & Climate policy | KPMG | UK

The Brexit Government: possible implications for UK Energy and Climate policy

Brexit Government: Energy & Climate policy

The ‘New’ UK Government - Following the vote to leave the European Union, the UK now has a new Prime Minister in Theresa May and, effectively, a new Government.


Partner and UK Head of Energy & Natural Resources

KPMG in the UK


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The Brexit Government: possible implications for UK Energy and Climate policy


The UK has a new Prime Minister and, effectively, a new Government, with only 3 Cabinet Ministers out of 24 retaining their posts.  The Department of Energy and Climate Change (DECC) has been merged back with the Department for Business (BIS) to create the Department for Business, Energy and Industrial Strategy (BEIS), under Greg Clark. Greg will be familiar with the energy and climate brief, having been Shadow Secretary of State for DECC between 2008-10.  Based on what he wrote during that period, he believes in taking action to tackle climate change and in the potential of the green economy to deliver jobs and investment. However, the overall stance of the Government, as set out by Theresa May, will be to focus on the needs of the poorest in society, suggesting an even greater focus on affordability, alongside security of supply, and less emphasis on decarbonisation. That said, the new Government is looking to pursue a more activist industrial policy and may look to infrastructure spend as a way to boost the economy.


The ‘New’ UK Government

Following the vote to leave the European Union, the UK now has a new Prime Minister in Theresa May and, effectively, a new Government.  

With only 3 Cabinet Ministers retaining their positions, 2 new Departments being created (Department for Exiting the EU and the Department for International Trade) and one abolished (DECC), the UK Government has a very different look and feel compared to that under David Cameron – despite the same party being in power. 

The functions carried out by DECC have been merged back into BIS to create the Department for Business, Energy and industrial Strategy (BEIS), under Greg Clark, who moves form the Department for Communities and Local Government (CLG).  This is notable for a number of reasons:

  • Energy used to be in the Business Department before the creation of DECC in 2008, so this is a return to a model used previously in Whitehall; 
  • Energy and Climate Change responsibilities have been kept together, internalising the trade-offs within one Whitehall department (these were split pre-2008);
  • It signals the re-emergence of an active industrial policy – something that had taken a back seat under Sajid Javid, the former BIS Minister; 
  • Greg Clark used to be the Shadow Secretary of State for DECC between 2008-2010, and wrote extensively on the issues of energy and climate policy during that time (see below). 

The new Secretary of State will have a large brief covering business, industrial strategy, science, energy, and climate change. 

Meanwhile, the new Prime Minister, Theresa May, made clear in her first speech as PM outside Downing Street that every decision in her Government will be taken with the poorest in society in mind. And, on balance, the new Cabinet has a more ‘climate-sceptic’ feel. This suggests an even greater emphasis from the Government on affordability, the distribution of energy costs, and security of supply, and less focus on tackling climate change, when considering trade offs in the energy ‘trilemma’.  


Greg Clark

Greg Clark was Shadow DECC Secretary 2008-10 and may have held that brief in Government had the Conservatives won the May 2010 election outright.  Instead, a Coalition with the Liberal Democrats was formed, and the Lib Dems ran DECC under the Coalition Government 2010-15. 

However, Greg Clark did write extensively on the issues of energy and climate policy between 2008-10.  Through that time, he was a strong advocate of action on climate change and the benefits of the transition to a low carbon economy, saying in his 2009 pamphlet 'Conservatism in a Changing Climate':

“We cannot afford not to tackle climate change”

“The net costs of decarbonising the economy should be regarded as an insurance policy”

“Green policies do a lot more than protect our environment; they create immediate new jobs...and reduce our dependence on fossil fuels”

At that time, he advocated a big push on energy efficiency, developing smart grids, exploiting the UK’s natural resources in oil and gas, wind and wave power, phasing out coal, developing Carbon Capture and Storage, and encouraging innovation in new technologies. 

Only time will tell if he still believes in this approach. 


Industrial policy and infrastructure spending

The creation of BEIS does signal a return to a far more active industrial policy.  It is also possible that, given the concerns about the state of the economy, that the Government seeks to boost infrastructure spending as a way of boosting activity.  Philip Hammond, the new Chancellor, has already signalled a desire to change the rules under which fiscal policy operates. So BEIS could feel far more like it did under Michael Heseltine or Vince Cable, than it did under Sajid Javid.  

Energy projects, being by far the biggest component of infrastructure spend in the economy, could be a beneficiary of this change of approach.  This might involve, for example, trying to accelerate investment in new gas and nuclear plants, getting fracking going, and maximising the supply chain benefits from further investment in offshore wind.   For example, on Hinkley Point, the new Chancellor Philip Hammond has said that “it will make a huge contribution” and “we have to make sure that that project goes ahead”.  Whilst Greg Clark, in his time at CLG, did push through reforms to the planning system to override local objections to fracking. 


2015 Conservative Manifesto

Theresa May has said that there will be no early general election and that her Government will continue to implement the commitments in their 2015 Election Manifesto. The Manifesto contained the following 5 commitments on energy and climate policy: 

  • Keep your bills as low as possible and promote competition in the energy market;- Ensure your home and business have energy supplies they can rely on;
  • Help you insulate your home;
  • Halt the spread of subsidised onshore wind farms;
  • Meet our climate change commitments, cutting carbon emissions as cheaply as possible, to save you money.

These commitments should guide the direction of policy for the remainder of this Parliament and should provide a degree of continuity, despite the different make-up of the Cabinet.


Brexit negotiations

Greg Clark will very quickly have to consider what the priorities should be on energy and climate policy for the forthcoming negotiations with Brussels on leaving the EU.  Issues to resolve include:

  • Access to the Single Energy Market;
  • Membership of the EU Emissions Trading Scheme; 
  • Future of interconnection;
  • Future of collaboration with other EU countries on energy research and innovation. 


Some delays inevitable in the short term

With a new department to establish and so many critical issues to consider, it seems inevitable that there will be some delay to announcements that had been due to be made before the Summer Recess on 21 July.   So, for example, there could well now be a delay to the announcement of the next Contract for Difference (CfD) auction round, or the announcements about plans for “greater separation” of the System Operator. This does not mean these wont happen.  But they may not happen on the timescale previously envisaged, with some announcements being delayed until Parliament returns in the Autumn.   

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