Balancing economic growth and environmental protection - the government's new energy dilemma

Though the architect behind the Brexit Freedoms Bill, Jacob Rees-Mogg, is no longer in post following the exit of the Truss Government and the appointment of Rishi Sunak as Prime Minister, Sunak himself advocated a wholesale review of post-Brexit UK law during his leadership campaign in the summer. Whether, in the face of economic crisis, this will remain high on his list of priorities remains to be seen. While Sunak is generally viewed as a "greener" PM than Truss, a believer in net zero and proponent of the Defra adage of leaving the environment in a better state than we found it, the prospect of widespread EU law repeals could have unintended consequences.

In the environmental sphere, a vast amount of UK legislation is inherited from the EU – 570 pieces of legislation fall under Defra's remit (the highest of any Government department by some distance). 437 of these pieces of legislation remain unchanged at the time of writing. The EU was the vanguard of environmental protection; in some areas such as water quality and air pollution, EU legislation pulled the UK up from its position as "the dirty man of Europe". The Environment Secretary has recently declared that Defra is an "economic growth" department rather than a "regulatory" department. According to media reports, the new chair of the Environment Agency supports the widespread removal of EU legislation, believing that the Agency could "deliver better environmental outcomes with less cost for us and less transaction cost for business". It is not yet clear how better outcomes will be delivered in a less regulated climate, unless the Government believes that the good conscience of businesses and pressures from their shareholders will keep behaviours in check.

While there is some speculation that environmental laws could, in certain areas, be tightened, this does not seem to be consistent with the tone of the Government's statements under Liz Truss, and environmental groups are certainly not convinced that this is a likely outcome of the EU legislation review. Levelling Up Secretary Michael Gove said in a recent interview that "[a]nything that might in anyway undermine environmental protections is out" – a bold statement and one that, in light of the above, would keep Defra extremely busy over the next 14 months: if no action is taken to "restate" or "reproduce" retained EU law, under the Retained EU Law (Revocation and Reform) Bill, the EU-derived law will be "sunsetted", or revoked automatically, on 31 December 2023. Government departments can buy themselves a little more time to decide how to deal with EU law, but not beyond 23 June 2026 (a poignant 10 years after the Brexit referendum).

See our detailed briefing for full details of the Retained EU Law bill.

Closely tied into the regulatory reform agenda, the Government is looking to deliver a "Growth Plan", with a paper of that name published on 23 September 2022 and a Government eager to underline the importance of growth; at the time of writing, the Growth Plan remains in place. While tax cuts and the consequential economic fall-out have grabbed headlines, the Growth Plan also details the Government's package to support consumers and businesses faced with ever rising energy prices. This support is primarily in the form of an "Energy Price Guarantee" that will cap unit costs for consumers and businesses for 6 months (the promise to cap consumer costs for 2 years was reduced at the last moment). Both, however, are a stop-gap rather than a long term solution if the existing pressures continue. For the longer term, the Government needs a coherent plan to improve energy security in an unstable political environment. It plans to do this in a number of ways, some more controversial than others.

Fossil fuels, renewables or nuclear?

The Government launched a new oil and gas licensing round in October, expected to deliver 100 new licences for extraction of fossil fuels from the North Sea (though the incoming Business Secretary Grant Shapps has been vocal in opposing reliance on hydrocarbons). The Truss Government said that it would lift the 2019 moratorium on fracking, while Rishi Sunak swiftly reversed that decision, confirming that the moratorium would stay as it formed part of the Conservatives' election manifesto in 2019. The Government will pursue nuclear energy development, with both the Sizewell C and Hinckley Point nuclear power stations to be expedited. Carbon capture and storage, renewables more generally, and specifically offshore wind projects are all expected to benefit from an easier regulatory environment for infrastructure project development - see Section 3 for details of Government plans to fast-track key energy projects. The onshore wind industry was hopeful of a revival given the Truss Government's plans to bring it in line with other forms of renewable energy, but this is now in doubt under the Sunak Government. The question is how exactly will the Government balance the competing demands of project developers in a deregulated world and the natural environment in which those projects are developed?

Infrastructure permitting and consenting is slow. Between 2012 and 2021, the Government states that the time taken to obtain a Development Consent Order (see below for explanation) has increased by 65%.

An update for National Policy Statements

National Policy Statements ("NPS") for energy, which the Government must take into account in deciding planning applications including for DCO, currently date from 2011. They pre-date a significant fall in the cost of renewable energy technology, the rapid roll-out of projects at the height of renewable subsidy support and the exit of the UK from the EU's internal market for energy - all in all, a different world from that in 2022. Therefore the Government has said that it will prioritise the finalisation of revised NPS for energy, almost two years after it started the review process.

Streamlined planning and consenting processes

The Growth Plan indicates that the Government will accelerate "the construction of vital infrastructure projects by liberalising the planning system and streamlining consultation and approval requirements". This may include "disapplying legacy EU red tape". The details for the reforms will be set out in a Planning and Infrastructure Bill, yet to be published. It is expected to reduce the requirement for environmental impact assessment ("EIA") and make changes to the habitats and species regulations inherited from the EU (NGOs are particularly alarmed by the prospect of these regulations ending up on the regulatory bonfire). Either or both of these measures could be amongst those sunsetted at the end of 2023 under the EU Retained Law bill; in the absence of any action from the Government, legislation requiring an EIA and an environmental permit would simply fall away. In an ideal world, the upcoming Planning and Infrastructure Bill would contain provisions which amend, restate or confirm certain rules on EIA; provided the Planning Bill makes it through Parliament before the end of 2023, therefore, the sunsetting of existing EIA provisions would not leave too much of a gap. However, this is all conjecture until the text of that Bill, and the shape of the reforms in light of the change in prime minister, is seen.   EIAs are discussed in more detail in section 4 below.

How far the Government can "streamline" planning "whilst ensuring environmental outcomes are protected" (see section 3) is an important question. While the Government has not said that it will remove the need for an Environmental Impact Assessment (EIA), the Growth Plan said that reducing barriers to infrastructure development will include "minimising the burden of environmental assessments". On the other hand, Sunak mentioned in one of his first speeches that he would prioritise environmental protection, but deregulation is not yet off the table.

For Nationally Significant Infrastructure Projects (NSIPs) in particular, given their scale, EIA is a critical tool in ensuring that projects do not proceed to the detriment of the natural environment. There is no mention of wildlife or biodiversity in the Growth Plan, but the Government is already committed to the protection of both via the Environment Act 2021. This would require, if anything, a more detailed analysis of a project's biodiversity impact than an EIA not just in the development area but also potentially offsite areas that might be needed to ensure "biodiversity net gain" ("BNG") (as well as compatibility with nature recovery zone strategies).  The BNG requirement has not yet been brought into force, but it would be both surprising and disappointing if the Government allowed planning reforms to override environmental principles so recently set out.

The annex to the Growth Plan contains a non-exhaustive list of infrastructure projects which will be "accelerated as fast as possible" with construction targeted to begin before the end of 2023 (including Sizewell C and Hinkley Point C nuclear power stations as noted above); this list contains 7 offshore wind groups of projects but no other specific renewables projects.

There is very little focus in the Growth Plan on achievement of the UK's net zero target, though Rishi Sunak is a clear supporter of net zero in a way that Liz Truss was not. An independent review on how Net Zero can be delivered "while maximising economic growth and investment, supporting energy security, and minimising the costs borne by businesses and consumers" will be completed by the end of 2022. The Government identifies that the economic climate of 2022 is quite different from the economic climate of 2021 when the Net Zero Strategy was published, which leads to a revised focus on the identification of "key economic opportunities" in the context of achieving Net Zero. For many commentators, what this really means is that Net Zero will take a back seat to the "growth, growth, growth" priorities set out by Liz Truss; how Rishi Sunak will balance net zero with economic stability and post-Brexit deregulation will be interesting to follow.

The emphasis on new technologies and new ways of doing things for the achievement of Net Zero has been criticised by the Committee on Climate Change as a "considerable risk", given the lack of certainty that novel (and inherently untested) solutions will result in the desired outcomes. Potentially, the Government is missing an opportunity to tie planning reform into achievement of emissions reductions; reducing the need for environmental impact assessments could remove the opportunity to ensure that developments protect green spaces, and also are sited with easy access to low-carbon transport solutions including cycling and walking. Many commentators object to the implication in the Growth Plan that there is a binary choice between advancing economic growth and pursuing sustainable development and strategy more generally.

The EU also sees that renewable energy projects (rather than infrastructure projects in general) would benefit from a streamlined planning and consenting process in order to accelerate their development. A study found that lengthy and complex administrative procedures were one of the biggest barriers to the deployment of established renewable technologies such as wind and solar; similarly to the slow UK system, some EU member states may take as long as 5 years to issue consents for onshore wind projects. Therefore, in May 2022, the Commission proposed an amendment to the Renewable Energy Directive 2018/2001 ("RED II") which would significantly expedite permitting and consenting for renewables projects. It introduces a presumption that such projects are in the overriding public interest, overcoming a further hurdle to consenting.

The Directive would require member states to designate "renewables go-to areas", being areas particularly suitable for renewables development, meaning that much of the analysis of suitability, impacts and demand is done before the application is submitted. While such a strategy may be best suited to countries with larger land masses and greater homogeneity in terms of landscape, even the designation of smaller areas would be beneficial: it should mean that no compromise is needed in terms of assessing the full implications of the project, but projects can nonetheless proceed to decision at a much faster rate (and with less expense) than if each applicant is required to undertake a separate assessment, even for adjacent projects.

The amended RED II would require member states to act on applications for renewable energy projects within tight deadlines, differing according to whether the project is located in a renewables go-to area or not. Small projects could be decided in 6 months, and solar installations on existing (or future) buildings in as little as three months.

Controversially, there would be a default positive decision in the event that an authority has not issued a decision within the time limits. There is concern that this may result in authorities making negative decisions at the eleventh hour in order to avoid implied consent being granted, which will ultimately delay rather than expedite projects. Conversely, local authority inaction could result in projects with significant impacts being approved where they should be either turned down or subject to conditions (though the risk of this is reduced by the designation of go-to areas). Whether the EU will be able to push these reforms through the legislative institutions remains to be seen. Client Earth, the environmental NGO known for its innovative approach to driving environmental improvements through litigation, supports the overall direction of increasing renewables capacity but opposes the achievement of this at the expense of adequate environmental impact assessment. A similar charge could be levelled at the UK approach, where many would also have less confidence that environmental standards will be upheld.

Despite some concerns, the EU's "can do" approach to renewables development (see section 7) is in stark contrast to the UK Government's previous blanket ban on onshore wind; projects could only be developed if they were located in an area identified as suitable for wind energy in a local or neighbourhood plan and additionally planning impacts on the affected local community were addressed and the project was supported by that community. Since the policy was introduced in 2015, 89% of local authorities did not identify any suitable areas for wind projects. The Government under Liz Truss said that it intended to amend planning policy to facilitate easier development of wind farms, but at the time of writing this is in doubt under Rishi Sunak. Solar developments are in a similarly uncertain position, with no single discernible Government policy on their development and both the outgoing and incoming prime ministers opposing the use of (in Sunak's case, certain) farmland for solar energy. In its current state of flux, it seems fair to describe UK energy policy as a patchwork, presenting a challenge to any potential developer of or investor in energy assets.

While the UK Government is, in common with the EU, looking to ensure that certain projects can proceed more easily (see section 3 and section 4 above), when viewed in combination with the EU Reform Bill, it is easy to see why many commentators are raising concerns about the place of environmental protection in a much more lenient planning system. The EU proposals at least provide compensatory provisions to ensure that, as far as possible, energy security and environmental protection for fast developing areas proceed on a similar footing. It is also worth noting that the EU's proposals are limited to energy infrastructure, urgently needed to abate the current energy crisis as well as to achieve the EU's Net Zero ambition. There is a less convincing case that improving roads or delivering digital infrastructure, rather than rolling out low carbon energy projects for the achievement of carbon neutrality, justifies a similar level of compromise on environmental matters.

Any policy which threatens to undermine environmental protections and jeopardise progress on climate change sits uncomfortably alongside the current focus on ESG for both corporates and investors, and the Government should be helping maintain the momentum of the ESG movement in difficult times rather than allowing it to wane. More generally, there is little appetite for widespread deregulation in the environmental sphere, rather a need for consistency – this has been lacking for some time, evidenced for example by the swings in financial and policy support for renewables. The change in leadership comes with some prospect of longer term stability, but in the short term, changes, U-turns and new policy statements only add to uncertainty (see also our recent commentary on the Government's better regulation principles, where we highlight the lack of emphasis on certainty as a goal of regulatory policy).

The emerging picture is one of a range of complex policy and practical demands, many competing. This leaves businesses and those investing in them in a tricky situation, trying to work out which will take precedence. The Government seems to have further work to do to create the stable investment environment which encourages the economic growth it aspires to in its Growth Plan.

Spotlight on better regulation

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