Labour’s energy policy and its potential impact on the British energy sector

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Introduction

Labour won the 2024 UK General Elections by a landslide, giving Keir Starmer a strong mandate to govern the country. The new Labour government has promised moderation and stability, keeping VAT and corporation taxes untouched, while also watering down its more ambitious environmental goals during the campaign.

However, Keir Starmer and Ed Miliband (the new Secretary of State for Energy) have indicated that the state will take a much more active role in pursuing climate goals compared to the Conservatives. This article aims to break down what Labour’s energy policies are and how they might affect the UK energy sector. This article focuses primarily on green investments, fossil fuels, and biofuels. However, it is important to note, that many of the bills mentioned in the article have not yet been introduced to Parliament, and are rather an examination of the Labour Manifesto and the King’s Speech.

What is the ultimate goal of Labour’s energy policy?

The ultimate goal of Labour’s energy policy is to fully decarbonise the UK’s power system by 2030. Miliband has called this his department’s ‘North star’. Through this, the government hopes to make Britain a ‘clean energy superpower’ that has a secure source of clean energy. It is hoped that this decarbonisation process will produce 650,000 ‘green’ jobs as well as cut the energy bills of ordinary British people.

Policy 1 – State investment in green energy

Labour aims to work with the private sector to double onshore wind, triple solar power, and quadruple offshore wind by 2030. A core part of this policy will be the newly created Great British Energy and National Wealth Fund, which the government promises to introduce through the Great British Energy Bill. GB Energy will receive £8.3 billion in state investment, partially funded by an increase in windfall taxes imposed on oil and gas companies, while the NWF will also receive £7.3 billion for projects aimed at increasing sustainability, such as ports and sustainable steel production. GB Energy, in practical terms, would be a publicly-owned clean energy generation company that seeks to emulate the successes of Sweden’s publicly-owned energy company, Vattenfall – it will not directly supply energy to homes. GB Energy seeks to give state backing to new and existing green energy projects which cannot be pursued by private companies alone.

To complement their decarbonisation efforts, the government has promised to change the planning system so that it is easier to start infrastructure projects around the country without being hindered by local resistance.

What would this mean for the energy sector?

It is not yet clear what the impact of GB Energy will be on the energy sector. Firstly, it is not clear if Labour can deliver on its promises, as supply chain and local resistance could delay the transition to green energy. Furthermore, Ashfords, a UK law firm, argues that GB Energy could be an unwelcome competitor in the Energy market.

However, Labour’s policies also present opportunities that should be seized on by energy companies. For example, companies that already invest in nascent, risky low-carbon energy projects should look to work with GB Energy and NWF to de-risk their otherwise risky green projects. Furthermore, the new British Jobs Plus scheme has promised up to £500 million per year in funding to energy companies that commit to domestic skills and supply chain development which help realise decarbonisation efforts. KPMG, the global professional services provider, states that energy companies that are involved in such projects should consider how they could use the extra funding provided by the government to their advantage.

Policy 2 – North Sea oil and gas

Miliband has said that his department will not grant any new permits for oil and gas drilling in the North Sea. However, the government has also stated that those with existing licenses will be allowed to continue to operate in the North Sea, and that “oil and gas production in the North Sea will be with us for decades to come”.

On the other hand, Labour are looking to further tax the oil and gas industry to pay for their aforementioned green projects. The 75% windfall tax on oil and gas companies, which was introduced by the Conservatives in May 2022 when oil and gas profits skyrocketed following the Russian invasion of Ukraine, is set to increase by 3% under Starmer to a total of 78%. Furthermore, Labour has labelled the investment allowances given to oil and gas companies as “unjustifiably generous” and is expected to close the ‘loophole’ at this year’s Autumn Budget. It is unclear whether Labour will scrap the entirety of the investment allowance scheme or merely seek to cut it back.

What would this mean for the energy sector?

The prospects for oil and gas companies, regardless of assurances by Labour, are bleak. Even before the election, oil and gas production in the North Sea had been in constant decline, according to KPMG. The 75% windfall tax introduced by the Conservatives has wiped out much of the profits made by the North Sea oil and gas companies. For example, Harbour Energy, the largest company operating in the North Sea, saw nearly all their profits wiped out by such taxes in 2023 and 2024. In 2024, their pre-tax profit of $597 million was reduced to just $32 million, effectively making the company pay 95% of its profits in taxes. Stocks of companies such as Harbour Energy also went down when Labour released its Manifesto, and when Labour won a resounding majority at the General Elections. The new taxes imposed on the oil and gas sector appear to be contradictory to growth and investment and present a “difficult outlook” for the sector according to KPMG.

Policy 3- Biofuels

Labour seeks to increase the production of sustainable aviation fuels (SAFs) through the Sustainable Aviation Fuel (Revenue Support Mechanism) Bill, which was confirmed during the King’s Speech. SAFs, although similar to conventional jet fuels, emit less carbon than conventional jet fuels and are therefore likely to play a critical part in decarbonising air travel. However, the SAFs industry remains underdeveloped because of the lack of revenue guarantee which makes venture capitalists and private equities unwilling to invest in such costly and risky projects. In fact, Phillips 66, which operates the Humber refinery, is the only producer of SAFs currently operating in the UK. The Bill aims to create a guarantee of demand by mandating that by 2030, companies that supply fuel to airlines must ensure that at least 10% of their fuel supply is SAFs.

What would this mean for the energy sector?

It is hoped that with clear legislative backing and financial certainty provided by the government, nascent biofuel projects are more likely to thrive in the future. The government hopes that although the 10% quota could be met by imported SAFs, the guarantee of demand and revenue created by the Bill would encourage domestic production and would eventually create a secure domestic supply of SAFs. The Bill could lead to an increase in the number of SAFs plants being built across the UK in the coming years.

Conclusion

Labour’s energy policy is a reflection of its social, economic, environmental, and foreign policies. It reflects Labour’s desire to increase the role of the state in bringing about economic and social change, while using the green transition to secure its energy supplies and increase its soft power as a leader in the fight against climate change. If its ambitious goals are realised, Labour’s policies could boost confidence in the emerging renewable energy and biofuels sectors. However, the outlook for the oil and gas industry remains bleak.