Overview
Last year’s unprecedented heatwave brought into sharp relief how quickly climate change is accelerating, even for the UK. The war in Ukraine and the energy price crisis has also hastened the need for energy security. Today the Government launched “Energy Security Day” and sought to address both challenges via 21 different policy documents and consultations set out over 1,000 pages.
These announcements do not come entirely at the time of the Government’s choosing. The publication of “Powering Up Britain” comes after the Government’s previous net zero strategy was ruled inadequate by the High Court. The Committee on Climate Change have also said the UK needs to increase both its net zero ambitions but also its delivery plan. They and other climate experts have said that, at present, only a fraction of the legally required emission reductions is accounted for by confirmed policy, let alone secured finance.
Ministers claim today’s announcement represent a multimillion-pound investment in green energy across a raft of new measures that they say will deliver energy security and meet the UK’s climate targets. The plan does not represent any fundamentally new approach or change in policy direction. It builds upon last year’s British Energy Security Strategy and the two previous net zero strategies but tries to move from targets to delivery. The Government will say it is comprehensive and detailed with nuclear and renewables at its heart, supported by emerging technologies such as hydrogen and CCS. Details on the establishment of Great British Nuclear, the publication of new National Policy Statements, and reform of the planning system for offshore wind, do represent a move to focus on delivery.
Business has been encouraged by some of the positive signs, but it has raised concerns that the strategy still falls short in a number of key areas. For example, no sites have yet been confirmed for Small Modular Reactors, which would help to give certainty to the private sector to invest. And there are gaps on wind power; the cheapest form of renewables remains onshore wind and the Government is yet to set out when it will raise the ban on new onshore windfarms.
Whether today’s announcements match the scale and pace required to deliver the Sixth Carbon Budget is an open question. There is already criticism that this is a reheated collection of old policy ideas and that there is little new money available.
Furthermore, there is now a global race for green investment with companies based in the US being given incentives worth hundreds of millions of dollars under the Inflation Reduction Act. The Chancellor has been clear that increasing financial incentives is not how the UK will compete with the US and EU, who has also announced its own subsidy regime. Instead, the UK will set a framework, send signals to the market, and seek to drive private capital into the country.
The Green Industries Strategy that would have set this out, however, has been delayed until the autumn and in its place an inward investment review announced. This last-minute delay plays into a perception that the Government does not yet properly understand the urgency of the current challenges. The danger is that the UK will not only fail to meet its climate targets but also lose competitiveness internationally and miss out on the green jobs of the future.
Whether or not today’s announcements are sufficient will become clear relatively quickly. The transfer of capital and investment from the UK to the US and EU may happen sooner than the Government is expecting. And if today’s revised strategy does not measure up to the requirements of the Sixth Carbon Budget, the Government will find itself back in the High Court.
Critics will say the time has come, therefore, to take big strategic investments on the delivery of projects rather than continuing to test pilot schemes and consult on policy. The political clock is also not on the Government’s side. Within 18 months the UK’s energy strategy may well be rewritten again, but this time under a Labour Government.
Powering Up Britain: Diversifying, decarbonising, and domesticating energy supply
In combining its Energy Security Strategy and updated Net Zero Strategy under one tagline – Powering Up Britain – there is a clear acceptance amongst policymakers that these two issues both go hand-in-hand and cannot be taken in isolation: “two sides of the same coin,” as the documents profess. While this is perhaps a simple and relatively straightforward concept, it’s something that, until today, many would argue had yet to be properly acknowledged at the highest level.
The framing of the accompanying policy announcements within a wider picture of economic growth and green jobs is also helpful – not least because this acknowledges that the transition to net zero can be good for economic growth as well as energy security. This acceptance is vital given the massive economic commitment – on both a personal and national level – that achieving net zero will require.
There are also real positives that can be pointed to in terms of specific policy announced today. Efforts to address barriers to expansion of the electricity grid and the need for respective changes to planning policy have been broadly welcomed, as has the concrete progress made on supporting nascent hydrogen and Carbon Capture and Storage (CCS) projects – vital to the decarbonization of heavy industry. However, important gaps remain. Little information is given on plans to retrofit an estimated 27 million homes, for example, while there is no mention of an independent delivery body for net zero – something experts have repeatedly called for to coordinate action to hit net zero targets.
Overall, therefore, Powering Up Britain does represent important progress. However, it also emphasizes just quite how far there is still to go if net zero is to be achieved.
Key Commitments
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Launch Great British Nuclear (GBN) and the Small Modular Reactor (SMR) selection process to help ramp up nuclear capacity to 24GW by 2050.
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£160 million of funding for pilots of the Floating Offshore Wind Manufacturing Investment Scheme to build UK port infrastructure to reduce the cost of offshore wind.
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The expansion of Carbon Capture, Usage and Storage (CCUS) with £20 billion of funding announced at the Budget to help balance residual emissions from hard-to-abate sectors.
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Reforming the planning system to better support large-scale and nationally significant infrastructure projects like offshore wind, nuclear power and CCUS.
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Launching a £30 million Heat Pump Investment Accelerator to leverage up to £270 million of private investment to boost UK manufacturing and supply chain and support the Government’s commitment to install over 600,000 heat pumps each year by 2028.
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Requiring an increasing percentage of new car and van sales to be zero emission in order to support delivery of all new vehicles being zero emission by 2040. Between 2030 and 2035, new cars and vans will only be able to be sold if they offer significant zero emission capability.
Green industries strategy delayed
Hunt was also widely expected to set out the UK’s response to the Biden administration’s Inflation Reduction Act, a $369 billion package for clean energy and green technologies that has sparked concerns about a subsidy race with other countries seeking to avoid their businesses moving to the US to capitalize on the subsidies. The EU, for its part, last month unveiled its Green Deal Industrial Plan, which gives member states further leeway to extend and expand the relaxation of EU state aid rules until the end of 2025.
However, the Chancellor decided he needed more time to calibrate the UK response, which cannot compete with the US and EU in terms of raw fiscal firepower. Indeed, he conceded as much in an op-ed for The Times today in which he argued: “We are not going toe-to-toe with our friends and allies in some distortive global subsidy race…Yes, we will continue to back industries of the future, however, we will target public funding in a strategic way in the areas where the UK has a clear competitive advantage.” This is now expected in the autumn.
This lack of a comprehensive response was criticized by Labour, with Shadow Net Zero Secretary Ed Miliband complaining, “As other countries in the global race for clean jobs and industries speed off into the distance, the Tories are going to waste months deciding whether to tie up their laces.”
Aside from subsidies, another lever the UK can pull is to attract more inward foreign investment, and Hunt has tasked Lord Harrington, a former business minister, to conduct a review into how the UK can better attract foreign direct investment into clean technologies. This will include a review of the provision of grant incentives as well as the mandate of the UK’s Office for Investment.
Green Finance Strategy
Net zero transition, in all its many guises, won’t happen unless finance and investment is mobilized to do this at scale. Today’s Green Finance Strategy – building on the first version published in 2019 – is a big step forward. Speaking to EGA, a Treasury insider said: “Green Finance is definitely key to the Chancellor’s Inflation Reduction Act response, and ensuring we aren't wholly focusing on subsidies, but [also] encouraging investment.”
Consulting on making transition plans mandatory for all big companies, whether private or publicly listed, is a big step forward. As is the plan to consult on Green Taxonomies, which provide investors with clarity on which activities are net zero compliant. The Government’s commitment to “maximize interoperability” of these taxonomies and work to ensure that global standards are all in the same direction is key to global progress on the net zero transition. A key diplomatic priority of the Government is to ensure that all financial centers are pulling in the same direction on green investment.
Domestically, the Government is also going to consult on regulating ESG ratings providers. This is something long called for by many in the green finance sector and an essential step towards preventing greenwashing, and is also something the Government says “will position the UK to serve as a global hub for voluntary carbon trading.” But only yesterday the FCA said sustainable disclosure rules would once again be pushed back as it processes industry responses. The regulator is right to listen to industry and make sure it gets it right. But there is a risk that these kinds of measures take so long to pull together that the moment where they would be useful has passed.
While most commentators welcome the significant progress in green finance, the Government’s documents do also beg the question of “And what else…?” In a punchy statement, Stephen Hadrill of the Finance and Leasing Association articulated the concerns of many when he said: “It’s disappointingly light on detail. While the Government has calculated that £50-60 billion of capital investment will be required each year between the late 2020s and 2030s, it really seems to be a case of knowing the facts but missing the point. There is no credible plan for how this funding will be generated [and] no recognition that a sharing of risk will be required to keep the price of funding competitive…”
The Government wants London to be the hub of net zero finance. Nearly four years on from the first Green Finance Strategy we are inching towards that. But more progress more quickly is needed for the city to definitively grab that title.
Key Commitments
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Provide further information and clarity for trustees on their fiduciary duty in the context of the net zero transition by reviewing Stewardship Guidance (late 2023).
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Consult on the introduction of requirements for the UK’s largest companies to disclose their transition plan if they have them. This consultation will take place once the TPT has completed its work in autumn/winter 2023.
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Publish a series of net zero investment roadmaps and a nature investment roadmap.
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Consult on the specific steps and interventions needed to mobilize additional finance through high-integrity voluntary markets and protect against the risk of greenwashing.
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Work with UK financial institutions to start a series of Government-convened roundtables to further tackle deforestation-linked finance.
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Consult on the UK Green Taxonomy.
Transport announcements
Transport is the largest emitting sector and its decarbonization is a key priority for the Government, as demonstrated through its ambitious Transport Decarbonisation Plan, which was published in 2021.
Today, through a series of announcements by the Department for Energy Security and Net Zero, and the Department for Transport, the Government has sought to flesh out its plans to achieve the ambition of net zero by 2050.
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The Government has now launched its final consultation on the ZEV mandate regulations, which will apply from 2024, ensuring the delivery of its ambition to phase out the sale of new non-zero emission cars and vans.
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Through the Local EV Infrastructure Fund and the On-Street Residential Chargepoint Scheme, the Government will now be providing £470 million of public funding for local electric vehicle charging over three financial years.
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The Government has committed to have at least five UK Sustainable Aviation Fuel (SAF) plants under construction by 2025, supported by the £165 million Advanced Fuels Fund, and to introduce SAF mandate targeting at least 10% SAF in the UK aviation fuel mix by 2030.
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Following the commission of an independent review into the conditions needed to create a sustainable long-term UK SAF industry, the Government will be responding to its findings imminently.
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The Government has confirmed £685 million to support the development of new ultra-efficient and zero-carbon aircraft through the Aerospace Technology Institute Programme.
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The Government is championing a 2050 zero emissions target for international shipping through a leading role in IMO negotiations and launched the Clydebank Declaration at COP26.
Labour responds
In response to today’s announcements, Shadow Secretary of State of Climate Change and Net Zero Ed Miliband MP was quick to criticize the Government, calling the measures “a weak and feeble groundhog day of re-announcements, reheated policy, and no new investment.” He set out what Labour feels has been omitted, including not removing the ban on onshore wind, “no new investment for energy efficiency which could cut bills,” and “no response to the Inflation Reduction Act, which could help Britain win the global race for clean energy jobs.”
Highlighting the key dividing lines between the two main parties in this area, Miliband argued that it is the Labour Party who has “a plan to make Britain a clean energy superpower, with a plan for clean power by 2030 and GB Energy, our publicly owned energy company, to cut energy bills, strengthen energy security, and create good jobs.” As we approach the next General Election, these arguments will continue to take center stage as Labour seeks to position itself as the Party with the ideas to tackle the big challenges facing the country.
