The newly published Energy White Paper establishes a domestic trading scheme and sets out plans to clean out energy. 

By Paul A. Davies and Michael D. Green

On 14 December 2020, the UK Government published its Energy White Paper (the Paper). The Paper builds on previous green economy plans, setting them “in a long-term strategic vision, […] consistent with net zero emissions by 2050”.

The Paper further details ambitions unveiled by the Prime Minister in mid-November, in his Ten Point Plan. Moreover, the Paper sheds more light on previously established initiatives, such as the UK Emissions Trading Scheme, previously set into law through the Greenhouse Gas Emissions Trading Scheme Order 2020.

The Energy White Paper

The Paper aims to establish a “decisive shift from fossil fuels to clean energy, […] while creating jobs and growing the economy and keeping energy bills affordable”. The Paper discusses a number of topics, including industrial energy, buildings, and the energy system, and proposes solutions accordingly. The most material announcements are the following:

The emissions trading scheme. The Paper discusses the new UK carbon market, which will be in place from 1 January 2021 and is aimed at replacing the EU ETS at the end of the Brexit transition period. The UK ETS will operate in largely the same manner as the EU ETS; however, the UK ETS will seek to reduce the cap on allowed emissions by 5% from its first day. The UK system will initially apply to energy-intensive industries, as well as electricity generation, and aviation, in a similar fashion to the EU ETS. The UK ETS is said to represent “the world’s first net zero carbon cap and trade market”, aimed at decarbonising completely by 2050. The government is open to linking to the EU ETS market in principle and is “considering a range of options, but no decisions on [the government’s] preferred linking partners has yet been made”.

The government is also set to consult on how to align the cap with an appropriate net zero trajectory, so that the system significantly contributes to supporting the UK’s 2050 net zero ambitions. However, as previously stated in the June consultation conducted by the government, the cap alignment with net zero goals will be implemented by 2023 if possible and no later than January 2024. As the Paper notes, “the technical system underpinning the scheme is in final stages of development and on track to be ready on time”.

Other energy initiatives. The government aims to further develop nuclear energy and to approve the development of at least one large-scale nuclear project in the near future. The government will also consult on whether to accelerate the end of coal generation and on whether to end gas grid connections to new homes built after 2025.

COVID-19 green recovery. The government aims to grow the economy by supporting “green” jobs across the UK, in new green industries. The government plans to deliver four low-carbon industrial clusters by 2030 and at least one fully net-zero cluster by 2040.

A fair deal for consumers. The government will begin a dialogue on affordability and fairness of energy bills, as it considers that bills costs have a marked effect on consumers’ behaviour. The Paper also announces plans to more adequately regulate the wider energy market, such as energy brokers and price comparison websites. The government will also consult on regulatory measures to improve the energy performance of homes.

Next Steps

The government will bring forward a series of sectoral strategies and also launch a series of consultation in the run-up to next year’s COP26 in Glasgow aimed at supporting the goal of net zero emissions by 2050. Latham & Watkins will continue to monitor developments in this area.

This post was written with the assistance of Sabina Aionesei in the London office of Latham & Watkins.