George Osborne has offered to drop his demands for tougher cuts to onshore wind subsidies if the Liberal Democrats back down over “inflexible” targets for Britain’s shift away from fossil fuels.
In the letter, seen by the Financial Times, Mr Osborne said he was “content” to accept a reduction in subsidies of just 10 per cent – as proposed by Mr Davey – in the short term. This would be a concession because some in the Treasury had been pressing for cuts of up to 25 per cent in the onshore “renewable obligation certificates” (ROCs) used to subsidise renewable power.
But the compromise offer came with a list of demands aimed at securing a big role for natural gas in Britain’s energy mix until 2030 and beyond, despite the government’s commitment to shift away from fossil fuels as part of efforts to tackle global warming.
A consultation on onshore wind subsidies was delayed again last week because of the impasse between Mr Osborne and Mr Davey.
In his letter, the chancellor wrote that he wanted no further “inflexible” decarbonisation targets such as the one proposed in a report by the Commons energy committee on Monday.
MPs on the committee will urge the government to create a 2030 “carbon target” in the energy bill, meaning a legal commitment to the virtual decarbonisation of the power market.
“If the energy bill does not set a target to largely decarbonise the electricity sector by 2030, then the UK may miss one of the biggest opportunities it has to create a low-carbon economy in the most cost effective way,” said Tim Yeo, committee chairman.
The committee on climate change, a statutory body, says that without such a commitment the government will miss its “carbon targets” for the broader economy.
But Mr Osborne is determined to prevent Mr Davey from committing to this goal. “Setting inflexible targets on the energy sector is inefficient,” he cautions in the letter.
“The 2030 goal is the most significant test of the Lib Dems energy and environment credentials. If they cave in now they will be judged to have failed,” said Joss Garman, a senior campaigner at Greenpeace.
Mr Osborne believes that a credible gas strategy is imperative for business confidence although he argues it is possible to support both renewables and gas.
In his letter, the chancellor said he expected Mr Davey to make a “clear, strong signal” in a statement that he would support “unabated gas” up to 2030 and beyond. This would include a promise that consumers would benefit if gas prices fell.
He also urged the energy secretary to legislate to take powers to shut down the “feed-in tariff” subsidy scheme “should that prove necessary”.
This provision could further deter investors in the renewable energy sector, whose confidence was undermined earlier this year when solar subsidies were slashed with little warning.
Mr Osborne also told Mr Davey that the government would use “renewables trading” to hit its 2020 target for carbon emissions cuts rather than generating all the green power domestically – a move that would be deplored by environmentalists.
A energy department official said there was relief that Mr Osborne had recognised the need to maintain onshore wind subsidies at a “rational” level. But he said some of the chancellor’s other suggestions would undermine investor certainty.
The Treasury said it was committed to cutting emissions while protecting businesses and consumers.
Additional reporting by Pilita Clark
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