The UK Net Zero Review

The Review describes net zero as the ‘economic opportunity of the 21st Century’, citing research from McKinsey that suggests the climate transition could provide UK businesses with more than £1 trillion by 2030. Trends such as falling renewable energy costs show that the UK has already made significant progress. However, there is evidence of the country “not matching world-leading ambition with world-leading delivery”, in part due to a lack of consistency in policy and investment. Increasing consumer awareness is providing further incentive for businesses to decarbonise, while households and commercial property alike benefit from low costs associated with renewable energy.

As the first G7 country to legislate for net zero emissions, the UK has often been a climate leader amongst major economies. In addition to this legal framework and a broad public consensus about the urgency of climate change, the Review notes that the UK is well-positioned in areas such as offshore wind, carbon capture and storage, and green finance when compared to other advanced economies. As other countries scale up their ambitions, “we must act quickly, and in collaboration with our international partners, to cement the UK as a prime destination for international capital and unlock export opportunities for UK businesses”.

The Review explains how a wide range of sectors – from finance to construction – are integral to the net zero transition. Accelerating climate action will bring financial benefits to both businesses and workers, but hesitation could cause demand for high-skilled, high-paying jobs to shift elsewhere. In their responses to the consultation, businesses and industry groups pointed to a lack of Government clarity and support as a barrier to action, particularly for small and medium-sized businesses. The net zero transition’s benefits can also be geographically diverse. Scaling up renewable energy and other emerging industries can bring benefits to many local communities, but must be accompanied by sufficient funding and resources from central Government.

In the challenging economic and social context currently faced by the UK, a rapid shift towards net zero offers much needed investment, competitiveness and job creation opportunities for UK businesses and investors

Nick Molho, Aldersgate Group

The UK has pioneered green changes to the financial system, and the Review suggests further actions to align finance and investment with climate targets. BEIS and the Treasury should set out a clear and ambitious strategy for expanding climate disclosure requirements, and the Treasury should also review how tax policy can aid the net zero transition. Net-zero aligned businesses might benefit from climate-related tax incentives, while climate disclosure is becoming an important compliance issue for a growing number of companies.

In updating its Green Finance Strategy, the Government should also consider how to attract capital to climate-related ventures in the UK. The Review suggests a new forum for regulators to ensure that climate policy and messaging is consistent across all sectors. Long-term and systems-wide thinking is also important. The Review recommended that the next Spending Review should offer some long-term certainty of funding towards net zero industries, and that the Government should create an overarching financing strategy which explains how regulators and government banks will help the UK reach net zero. If the Government follows these recommendations, directors may have more certainty about the climate policy landscape, and their businesses may have more support when capitalising on net zero opportunities.

To capitalise on net zero opportunities, the UK will need to continue aligning its institutions with net zero. On a global level, the Review suggests conducting a strategic review of the UK’s international climate leadership. Directors might consider how their business can help bolster the UK’s climate leadership and reputation. Another suggestion is to develop a pathway for the UK’s Emissions Trading System (ETS) by 2024 that includes a timeline for expanding the system’s coverage. Business leaders should understand how carbon pricing works, and businesses in sectors to which the ETS could expand might consider implementing an internal carbon price ahead of regulatory change.

The Review recommends reforming the local planning system and the National Planning Policy Framework, including implementing a ‘net zero test’ to ensure that it is not a barrier to climate-related developments. It also recommends that the Government back a ‘Trailblazer Net Zero City, Local Authority and Community’ which would reach net zero by 2030, and create a net zero public engagement plan for England by 2023. Directors should consider how their businesses could engage with local communities to help accelerate climate action whilst also providing economic opportunities.

“The government should put in place its own ‘clear, consistent and stable transition plan’ setting out the detail of how the UK will meet its climate commitments. In turn, this will unlock the business actions and investment needed to make the transition a reality.” – Amanda Black, Aviva

The UK has already made significant progress in expanding renewable energy, but there is more to be done. A renewable energy roadmap would set out how to deploy enough solar power and onshore wind to power a net zero grid by 2035, and the Government should also clearly explain its nuclear energy priorities in order to ensure sufficient baseload generation. Hydrogen power is yet to be deployed at scale, but the Review recommends a 10-year delivery roadmap, which should include hydrogen business models. Half-hour settlements, which will be implemented by Ofgem, will help reduce the burden on residential and commercial electricity consumers.

The Review suggests that the UK accelerates plans to phase out fossil fuels, for example through ending routine flaring by 2025. It also suggests that the Government publish an ‘offshore industries integrated strategy’ by 2024 outlining how different actors will contribute to the electrification of oil and gas infrastructure. Directors, particularly those in energy-intensive industries, should consider how their businesses energy use or production aligns with these recommendations, and may use these roadmaps and plans to inform long-term business strategy.

Developing new green technologies and deploying existing technologies at scale is vital. The Review suggests that the Government publish a review of how regulation will be adapted to support green technologies, and create a research and development roadmap for enabling net zero. It also recommends a specific carbon capture and storage roadmap. Business action and investment is important to the green technological revolution, and businesses would benefit from a healthy regulatory environment coupled with a clear vision of Government priorities in this area.

The net zero transition involves significant changes to the built environment that will impact all UK businesses. The Review recommends that the Government provides certainty about the gas boiler phase out date, legislate a gas-free home standard, and require that all homes sold from 2033 to have an EPC rating of C or above. BEIS also suggests mandating a Future Homes Standard by 2025. The Review recommends requiring an EPC rating of B for new commercial properties by 2025, and all non-residential buildings by 2030. Broader suggestions include publishing a Land Use Framework by mid-2023 and delivering a zero-emissions vehicle mandate, while also creating a taskforce to minimize waste and develop circular economy business models.