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What is the Net Zero Strategy?
The UK Government’s Net Zero Strategy, published on 19 October 2021, sets out the Government’s long-term plan to end the UK’s domestic contribution to human-caused climate change and achieve a net zero greenhouse gas emissions economy by 2050.
This Strategy has been released alongside more specific sectoral approaches including the Government’s Heat & Buildings Strategy and its Green Finance Roadmap. HM Treasury has also published its Net Zero Review, which provides an economic analysis of the costs and opportunities associated with the net zero transition. The Climate Change Committee has recently published their independent assessment of the Strategy, which is generally positive but outlines key areas where proposed policies may be insufficient for meeting the UK’s climate ambitions.
The Strategy proposes emissions reductions across sectors to meet upcoming carbon budgets defined by the Climate Change Act, and the UK’s commitment to reduce GHG emissions under the Paris Climate Agreement – known as a Nationally Determined Contribution (NDC). The Strategy also sets out the UK’s vision for a decarbonised economy in 2050.
In its latest NDC, the UK commits to a reduction in emissions of at least 68% by 2030 from 1990 levels; and its sixth carbon budget sets a legally binding commitment to reduce emissions by 78% by 2035 from 1990 levels. Since 1990, the UK has reduced its emissions by 44% while growing its economy by over 75%.
The Strategy makes a strong case for UK leadership, positioning the net zero transition as an unprecedented economic opportunity to build back greener from the pandemic and create new high skilled, high wage, sustainable jobs across UK. This explainer summarises some of the key aspects of the Strategy and how this might impact non-executive directors.
What is the UK Government planning to do?
The Strategy sets out the Government’s plans for reducing emissions from each sector of the economy, addressing remaining hard-to-abate emissions, such as those from freight, shipping, aviation, steel and heavy industry, with greenhouse gas removals. It is important to note that this is a long-term plan for transition over three decades – the proposed policies will be phased in over time and may change. Below is a summary of the key policies in the Net Zero Strategy:
11% of UK emissions (2019), expected reduction of 80-85% by 2035 (from 1990)
Continuing to decarbonise the UK’s power sector with the goal for the UK to be powered entirely by clean electricity by 2035. Supporting policies include financial support for new nuclear technologies and sites, new targets and finance for offshore wind. They also include the deployment of new flexibility measures, including electricity storage, that aim to respond to consumer demand whilst also ensuring a stable and efficient grid.
Fuel supply and hydrogen
5% of emissions, expected reduction of 53-60% by 2035
Increasing the availability of low-carbon fuel alternatives such as hydrogen and biofuels in sectors that cannot electrify, including a new Industrial Decarbonisation and Hydrogen Revenue Support scheme for businesses that deploy these technologies.
15% of emissions, expected reduction of 63-76% by 2035
Accelerating the industrial transition by creating new economic hubs across the UK for green jobs, providing financial support for communities and industries through the £315 million Industrial Energy Transformation Fund, and establishing a net-zero-consistent cap for the UK’s emissions trading system to incentivise cost-effective emissions reductions in industry.
Heat and buildings
17% of emissions, expected reduction of 47-62% by 2035
Reducing emissions from heat and buildings with the aim of selling no new gas boilers by 2035 by providing grants for households that install low-carbon heating systems, and funding innovative heat pump technologies. There will be funding for decarbonisation of social housing and public sector buildings with the aim to reduce emissions from public sector buildings by 75% by 2037. A trial will be run to decide on the role of hydrogen in heating by 2026.
32% of emissions, expected reduction of 47-59% by 2035
Decarbonising transport in the UK by ending the sale of petrol and diesel cars by 2030 and making all cars zero emission capable by 2035, funding local electric vehicle infrastructure, trialling zero emission methods of transporting freight, improving public transport systems, and funding the development of sustainable aviation fuel
Natural resources, waste and fluorinated gases
20% of emissions, expected reduction of 39-51% by 2035
Improving the country’s natural resource management by supporting low-carbon farming through the Farming Investment Fund and Farming Innovation Programme, investing in nature by boosting the Nature for Climate Fund, and restoring natural peatland and woodland. The Government also plans to reduce waste and the use of fluorinated gases by funding local authorities and supporting research and development in this area.
Greenhouse gas removals
Support the early commercial deployment of greenhouse gas removals (GGRs) by investing in innovative technologies and providing regulatory oversight for monitoring, reporting and verification processes. In time, the Government aims to shift to a market-based approach to funding and deploying GGRs.
Taking cross-cutting action to reduce emissions by delivering at least £1.5 billion to support net zero innovation, gathering private finance through the UK Infrastructure Bank, introducing a new Sustainability Disclosure Requirements that include mandatory climate-related financial disclosures; and reforming training, education and employers to develop the skills needed for the net zero transition. An annual progress update will be published to assess the overall success of the UK’s transition to net zero.
For the Government’s indicative delivery pathway to 2037 by sector, see page 18 of the full strategy.
It allows for sectors to make progress at different rates depending on a range of factors including availability of technological solutions, development of supply chains, financing, infrastructure, and the need to overcome wider delivery barriers.
What does this mean for non-executive directors?
The Net Zero Strategy will impact all sectors in the UK economy. It is important that non-executive directors (NEDs) consider how the businesses they represent can and should respond to, and prepare for, the proposed policy changes. Some broad considerations are listed below:
- Is expanded innovation funding an opportunity for the businesses you represent? The Strategy commits to increasing government investment in net zero innovation to £22 billion by 2027. This will be delivered via funding programmes across power, buildings and industry; transport; natural resources, waste and fluorinated gases; and greenhouse gas removal technologies. Could these funds present an opportunity for the business you represent, and how might they prepare to access them?
- Consider what is relevant to the whole value chain. Even aspects of the Net Zero Strategy that seem distant from a business’ core activity might be relevant to its broader value chain. Encourage the businesses you represent to engage with suppliers about the proposed policy changes and consider how they might be impacted. This could involve changes to waste and natural resource management, or transport infrastructure and vehicle requirements.
- Make sure workforces are equipped for the future. The Government is keen to support training and education that develops the skills for a net-zero future. You could help ensure your businesses prepare to develop their workforce by integrating these new skills into hiring and training practices.
- Get ahead of mandatory requirements to decarbonise buildings and transport. The Government has set ambitious targets for the built environment and transport sectors that will impact businesses in all sectors, including rapid shifts away from gas heating, and petrol and diesel vehicles. Consider how the businesses you represent are making plans to decarbonise their transportation networks and buildings ahead of mandatory requirements.
- Keep up to date with new disclosure requirements. The new Sustainability Disclosure Requirements will implement mandatory Task Force on Climate-related Financial Disclosures-aligned reporting for many businesses, including for investment funds and asset managers. As further details emerge about the Requirements, make sure your businesses are measuring and reporting their emissions, including Scope 3 emissions.
- Consider the Net Zero Review recommendations on trade and competitiveness. HM Treasury’s Net Zero Review explores the potential trade-offs for, and exposure of, businesses and households to the net zero transition. You may wish to consider some of the recommendations in the Review, particularly those focusing on trade and competitiveness.
Five questions to ask in the boardroom:
- What needs to change in our current corporate climate strategy in light of the UK’s new Net Zero Strategy?
- What opportunities does the UK Net Zero Strategy provide for our business to reduce its emissions? Are there any quick wins?
- How can we collaborate with other businesses to ensure that we are leveraging opportunities to reduce emissions and achieve net zero?
- An increasing number of countries are now setting ambitious net zero targets, how might our activity abroad be affected?
- What skills should we be developing in our workforce to ensure it is equipped for the future?