Comment by Ben Shafran, Head of Markets, Policy and Regulation, at Energy Systems Catapult.

In this short blog I’ve had-picked some of the biggest energy policy stories of the past month and highlighted what they mean for energy innovation.

Tariffs

Tariffs are in the news (you may have heard). This is a fast-changing situation, and things may well change between when I write this and when it’s published.

But at the core of the issue is the trading relationship between the US and China, so it’s reasonable to expect that those countries will be looking to sell their products elsewhere – this is often known as ‘dumping’ – including in the UK. Particularly when it come to products made in China, this raises questions about: (i) whether this results in the UK ‘importing’ emissions from China, and (ii) the impact on British industry of being undercut by Chinese imports.

Fortunately, there are ways for the government to mitigate these effects. As far back as October 2024 (and before the US election), the government confirmed that a Carbon Border Adjustment Mechanism (CBAM) will be introduced from 1 January 2027. The CBAM is a tax, applied to imported products at a level that matches the carbon price that would have applied had that product been produced in the UK:

The CBAM will apply to emissions-heavy products in sectors that face international competition: aluminium, cement, fertilisers, hydrogen, and iron and steel.

For the CBAM to work as intended and support British industry, it needs to be based on good carbon emissions data. That can be very difficult given the complexity of global supply chains. That’s why we think the UK government should pay more attention to carbon accounting.

We recently completed a three-year study into the sector and found that carbon accounting is messy and disjointed, standing in the way of not only government’s understanding of emissions across the economy but also of the ability of British companies to innovate and collaborate. On that basis, we are recommending that the Audit, Reporting and Governance Authority (currently the Financial Reporting Council) should be given the remit of economy-wide regulator of carbon accounting. In this role, it should hold carbon accountants to a standard of professionalism and accuracy (much like we do with financial accountants); hold companies that are subject to mandatory sustainability reporting requirements to the same standards as external providers; develop a consistent approach to mapping emissions across the economy; and promote consistency and clarity on carbon accounting on an international scale to safeguard the competitiveness of UK businesses.

Electricity flexibility

We’re going to need flexibility from a variety of sources to complement a system that mainly relies on wind and solar generation. The Clean Power 2030 mission is targeting a five to six times increase in flexibility from household electricity use.

The most important enabler is that flexibility providers are rewarded for the impact they have on the system. The outcome from the Review of Electricity Market Arrangements (REMA) will be key here and is expected in early-summer. Citizens Advice has joined the National Energy System Operator (NESO), Ofgem and, of course, us at the Catapult in supporting the introduction of zonal pricing in the wholesale electricity market. We think that, if government acts with sufficient urgency, zonal pricing could be introduced in time to support meeting the 2030 target.

While we wait for the REMA decision, there has been important progress in recent weeks on other enablers of flexibility, with standardisation being the operative word:

• Elexon, which is due to become the facilitator of flexibility markets across the electricity system, has also been given responsibility for developing a standardised register of small-scale assets that participate in flexibility markets (the Flexibility Market Asset Register).
• NESO has been given the responsibility to develop a standardised way of sharing data across energy system participants (the Data sharing Infrastructure).
• NESO has also set out its programme of work to reform markets for ancillary and balancing services, to improve participation by new technologies and support system operations.
• NESO and UK Power Networks have launched a service in which closer coordination between the respective control rooms enables flexible assets located on UKPN’s system to respond to network constraints identified by NESO at the transmission level.

Great British Energy

The picture is starting to form around what GB Energy will be (at least to begin with): funding was announced to support the installation of rooftop solar in schools and hospitals, as well as £5 million in grants to support community energy schemes.

The government also reiterated the expectation that GB Energy will develop and own renewable energy projects, including through equity stakes and joint ventures, with GB Energy’s Interim Chair highlighting a particular focus on floating offshore wind.

We think GB Energy could act as a major catalyst for decarbonising heat, particularly if it (potentially together with the National Wealth Fund) supported capacity-building at local authorities to enable them to make better informed decisions about decarbonising their local economies.