Regulators need new powers

According to The National Infrastructure Commission, the UK will fail to reach net-zero greenhouse gas emissions by 2050 if regulators aren’t given new powers to ensure utility companies invest in sustainable infrastructure.

The Commission was asked to undertake a study on regulation by the then Chancellor Philip Hammond on 3 October 2018. The Commission concludes that while the current model has mostly achieved what it was set up to do, it has created a culture of short-termism. The model’s excessive reliance on utility companies for strategic direction means that the long-term investments needed to meet challenges such as climate change have not been sufficiently prioritised. As a result, the system must be updated to facilitate a scale of transformation it was not designed to deliver.

The Commission recommends that government should provide regulators with a clear strategic focus on the country’s infrastructure priorities for the long term, to guide regulation. This shift will be essential to enable the delivery of major new projects to mitigate climate change. In coming years, this will include moving towards renewable technologies for generating electricity, building a nationwide charging network for electric vehicles and finding a clean alternative to natural gas for heating homes. At the same time, regulators must use the price and market controls at their disposal to balance the needs of consumers and investors and ensure the market operates fairly.

Chair of the National Infrastructure Commission, Sir John Armitt, said: “The government has committed the UK to net-zero by 2050, but if regulators aren’t equipped with a new duty to specifically reach this target, then it is simply unattainable. The regulatory system must adapt to meet the demands of the future – and the great challenge we face to bring down emissions and build resilience against increasingly frequent extreme weather.”

The Commission recommends that:

• Ofcom, Ofgem and Ofwat should have new duties to promote the achievement of net-zero by 2050 and improve resilience.
• The government should set out a long-term strategic vision for each of the regulated sectors, through strategic policy statements, within the first year of each Parliament, to support lasting plans and stable funding.
• The UK Regulators Network should be given a stronger leadership role through the appointment of an independent chair to promote collaboration and coordination and ensure markets continue to deliver for consumers.
• Most major strategic investments should be opened to competition to support innovation, rather than relying on incumbents or government to have the best ideas.
• Regulators should be able to prevent companies from engaging in price discrimination that does not provide an overall benefit to consumers.

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