Cabinet meeting: 10 October 2022

• Rt. Hon. Mark Drakeford MS
• Rebecca Evans MS
• Vaughan Gething MS
• Lesley Griffiths MS
• Jane Hutt MS
• Julie James MS
• Jeremy Miles MS
• Eluned Morgan MS
• Mick Antoniw MS

• Hannah Blythyn MS
• Julie Morgan MS
• Lynne Neagle MS
• Lee Waters MS

Apologies

• Dawn Bowden MS

Officials

• Andrew Goodall, Permanent Secretary
• Des Clifford, Director Office of the First Minister
• Will Whiteley, Deputy Director Cabinet Division
• Toby Mason, Head of Strategic Communications
• Jane Runeckles, Special Adviser
• Madeleine Brindley, Special Adviser
• Alex Bevan, Special Adviser
• Daniel Butler, Special Adviser
• Ian Butler, Special Adviser
• Kate Edmunds, Special Adviser
• Sara Faye, Special Adviser
• Sam Hadley, Special Adviser
• Clare Jenkins, Special Adviser
• Owen John, Special Adviser
• Mitch Theaker, Special Adviser
• Tom Woodward, Special Adviser
• Christopher W Morgan, Head of Cabinet Secretariat (minutes)
• Damian Roche, Cabinet Secretariat
• Catrin Sully, Cabinet Office
• Tracey Burke, Director General Climate Change & Rural Affairs
• Jo-Anne Daniels, Director General Education, Social Justice and Welsh Language
• Reg Kilpatrick, Director General, COVID-19 recovery and Local Government
• Tim Moss, Chief Operating Officer
• Andrew Slade, Director General, Economy, Treasury and Constitution
• Nick Wood, Deputy Chief Executive NHS Wales
• Andrew Jeffreys, Director Treasury (item 3)
• Emma Watkins, Deputy Director Budget and Government Business (item 3)
• Ed Sherriff, Deputy Director Energy (item 4)
• Rhiannon Phillips, Head of Renewable Energy (item 4)

1.1 Cymeradwyodd y Cabinet gofnodion 3 Hydref / Cabinet approved the minutes of 3 October.

2.1 Cabinet considered the contents of the Plenary grid and noted voting time was scheduled for 5:45pm on Tuesday and around 6:25pm on Wednesday.

3.1 The Minister for Finance and Local Government introduced the paper, which provided Cabinet with an update on preparations for the 2023 to 2024 Draft Budget and wider fiscal context.

3.2 This was the toughest Budget the government had faced since devolution, tougher than those during the worst years of austerity. Alongside the in-year pressures 2022 to 2023, there was a need to make very difficult choices in preparation for the 2023 to 2024 Budget. No additional funding was expected from the UK government and there was the prospect of potential reductions in funding in an, as yet unspecified, UK Spring Budget.

3.3 In addition, inflation was significantly eroding the existing Budget. The heightened expectations for inflation would result in year-on-year real terms reductions over the next 3 years before any further cuts to the settlement. Furthermore, the UK Treasury had indicated that the Welsh Government’s settlement would be reduced by £70 million each year, in response to reductions in employer NICs paid by public sector bodies resulting from the withdrawal of the social care levy.

3.4 All of this presented a very challenging picture, and Ministers had no choice but to take action to live within the existing settlement.

4.1 The Minister for Climate Change introduced the paper, which invited Cabinet to approve the next steps in implementing policy to reduce greenhouse gas emissions from the combustion of fossil fuels in power stations and industry. The paper also outlined the policy position in relation to the use of hydrogen and carbon capture utilisation and storage (CCUS).

4.2 The government had an effective policy position on the extraction of fossil fuels, which was a key element of the net zero pathway. The next challenge was to significantly reduce emissions from the use of fossil fuels across the Welsh economy, which was essential to achieving the target.

4.3 Around 20% of the total UK capacity of gas-fired power stations were in Wales. Since the closure of Aberthaw, such generation had increased and accounted for 62% of electricity generated in Wales in 2020.

4.4 The UK government was responsible for consenting large power stations, above 350MW, and had considerable financial levers at its disposal to manage energy supplies. Industry also had a far greater role in the Welsh economy than the UK average. Consequently, the proportion of greenhouse emissions from these sectors was significantly higher for Wales than for the UK as a whole.

4.5 The Welsh Government had been clear and consistent on the need for a just transition away from fossil fuel extraction and consumption, to set Wales on a pathway to net zero whilst ensuring Welsh businesses remained competitive, particularly on a global stage.

4.6 However, the UK government had confirmed that its approach to energy security would include further exploitation of North Sea oil and gas alongside a relaxation of rules around hydraulic fracturing. The Welsh Government would not support applications for hydraulic fracturing or issue new petroleum licences in Wales.

4.7 The vast majority of greenhouse gas emissions from fossil fuel use in Wales were the result of three activities, which were accountable for 60% of all Wales’ greenhouse gas emissions: combustion at power stations or industrial sites to generate electricity or heat; combustion to heat buildings; and Combustion within the transport sector.

4.8 Officials were developing a Heat Strategy and associated action plan which would tackle emissions from the combustion of fossil fuel in building and Net Zero Wales provided an overview and policies and proposals to reduce emissions from transport.

4.9 Hydrogen may have a role in decarbonising the economy in Wales to support the delivery of the net zero target. There were technical issues to overcome to produce green hydrogen at scale so some thought could be given to using hydrogen produced by fossil fuels in the interim. However, there were risks associated with transport, storage and greenhouse gas escape. It was also very energy intensive to produce hydrogen by this method.

4.10 There was also the potential to use CCUS in achieving net zero, however this too had risks and uncertainties such as passing on the liability to future generations. In addition, the industry in South Wales did not have access to pipeline storage solutions.

4.11 Cabinet welcomed the paper and agreed that a pragmatic approach was required. Ministers confirmed it was the Government’s long-term ambition to use solely green hydrogen to support a net zero economy. However, in the short term it was important to explore the need for a transition through fossil-fuel based hydrogen with carbon capture and storage (CCS). There would be a need to put steps in place, including through the permitting regime, to encourage a rapid transition as technology and costs would allow.

4.12 The production of hydrogen from fossil fuels without CCS would be limited to the short term and would not be acceptable once the UK had an operational CO2 transport and storage market. The quantification or criteria associated with the short-term limits would be tested through consultation.

4.13 In terms of CCUS, and in line with the advice from the Climate Change Committee, Ministers recognised the need to explore the role this may have to play in reaching net zero, in particular amongst those sectors which were most difficult to decarbonise.

4.14 The government would support industry across Wales who, after exhausting the other options in the hierarchy, only had CCUS as a possible solution to decarbonise in their attempts to secure business models and had appropriate funding from the UK government, to ensure a just transition to net zero.

4.15    Cabinet approved the paper, subject to officials taking into account comments raised by Ministers.

Cabinet Secretariat
October 2022