On 24 June 2021, the Climate Change Committee (“CCC”) published its 2021 Progress Report to Parliament on the UK’s progress in reducing emissions to deliver on its climate change commitments (the “Report”). The key takeaway from the Report is that while significant commitments and statements of ambition to reach net-zero have been expressed by the government over the last year, these have been undermined by delays to essential policy and legislation, and publication of much-needed plans and strategies. With COP26 around the corner, stronger leadership, clarity on tax changes and public spending as well as active engagement with stakeholders and the public will be needed in order to make these ambitions a reality and deliver on decarbonisation commitments.
In this article we focus on some of the key policy gaps flagged in the Report, as well as providing recommendations on what these long-awaited policies should include and how broader progress in these policy areas could be delivered.
In line with recommendations from the CCC, in April 2021 the UK adopted its Sixth Carbon Budget which enshrined in law the world’s most ambitious climate change target – to reduce emissions by 78% by 2035 compared to 1990 levels.
This followed several high-profile policy publications such as the Energy White Paper, National Infrastructure Strategy, and the Industrial Decarbonisation Strategy. In addition to these, a swathe of further promised policies remain outstanding, such as the publication of a Net Zero Strategy, the Treasury’s Net Zero Review, a Heat and Buildings Strategy and a Transport Decarbonisation Plan –which have now been delayed by a year or more.
The Report notes that as a result of such delays, there is a significant policy gap in the UK and more crucially, the pipeline of credible policies for delivery only cover around 20% of the required reduction in emissions to meet the commitments in the Sixth Carbon Budget. For this reason, a key theme across the Report is that effective policies must be developed at greater pace in order to deliver the rapid scale-up in low carbon investment and choices across the economy.
1. Net Zero Strategy and the Treasury’s Net Zero Review
The Net Zero Strategy will undoubtedly be a significant step in the UK’s path to net-zero and will underpin efforts to decarbonise across all parts of the economy. The Report stresses that the Net Zero Strategy must set out a coherent vision for the transition to a low carbon economy and clarify the government’s ambitions, particularly as the Net Zero Strategy will largely form the basis of essential public engagement and buy-in to the UK’s climate change commitments. Moreover, it is recognised that the Net Zero Strategy must be underpinned by i) longer-term approaches to funding and ii) lower-risk approaches to financing, of the transition via the Treasury’s Net Zero Review.
The Treasury published its interim Net Zero Review in December 2020, which concluded that delivering on net-zero commitments will be essential for long-term prosperity and that well-designed policy can reduce costs and risk for investors as well as supporting innovation and the deployment of new technologies. It is anticipated that the final Treasury Net Zero Review (which was slated for “Spring 2021”) will aim to reduce policy uncertainty to encourage innovation, address risks to competitiveness and consider how the Treasury can incorporate climate considerations into spending reviews. As was demonstrated by the last carbon capture and storage competition – “Demo 2” – from which government funding was withdrawn in 2015, a failure by government to provide strong monetary commitments to back up their decarbonisation policies can dampen progress and ultimately, in some cases, prove fatal.
Looking ahead, the Report states that it will be vital for the Treasury’s Net Zero Review to effectively set out who pays and who gains from the transition to net zero, with the Report calling for the following to be included in the Treasury’s Net Zero Review:
A plan for funding decarbonisation and reviewing the costs for business and households, particularly in terms of how such costs should be determined and allocated;
Near-term as well as long-term decarbonisation funding needs and policy implications, setting out principles to inform the scale and nature of long-term government funding; and
Reformation of price signals, including the potential to raise offsetting revenues by greater use of carbon taxes and rebalancing policy costs between gas and electricity to ensure the uptake of low-carbon electricity solutions is not hindered.
2. Heat and Buildings Strategy
The Energy White Paper saw the government commit to a series of strategies aimed at decarbonising buildings; including improving energy performance certificates of existing building stock, consulting on whether to end gas grid connections to new homes built after 2025 and ramping up the installation of heat pumps to 600,000 per year by 2028.
The government’s Heat and Building Strategy, originally promised by Summer 2020 and then rescheduled for Spring 2021, has not yet been published and is flagged as a priority by the Report, which is critical of the government’s lack of policy in this area. In addition, certain policies which have been made, such as those around the heat pump roll-out, are criticised for not being ambitious enough – with the Report noting that the government’s heat pump ambitions fall a third short of those recommended by the CCC in order to meet the Sixth Carbon Budget targets.
Once published, the Heat and Building Strategy should provide detail of policy commitments for decarbonising buildings as well as how these will be funded. One area requiring clarification is how the government’s plans to possibly end gas grid connections for new housing stock will sit alongside the plans to use green hydrogen to heat homes. In addition to the Heat and Building Strategy, the dedicated Hydrogen Strategy (expected in Q1 2021 and currently delayed) should provide some clarity on this and on plans to achieve 5GW of low carbon hydrogen production by 2030. At present, the Ten Point Plan’s ambition of a Hydrogen Village by 2025 seem a long way off.
3. Carbon Capture, Usage and Storage (“CCUS”)
Also eagerly awaiting publication of the Hydrogen Strategy is the UK’s nascent CCUS industry. With the deadline for submission of CCUS cluster plans just around the corner in July 2021, clusters intending to incorporate hydrogen production into their submissions may be hampered by the strategy’s delay.
The Report notes that the government’s current ambitions of capturing 10Mt of carbon dioxide by 2030 are only about half of what will be required to realise the Sixth Carbon Budget’s ambitions. To date, commercialisation of CCUS in the UK has been hindered by a lack of committed government funding and an inability to agree business models that work for government, project companies and their debt providers. BEIS provided a further update on their CCUS business model thinking in May 2021, but there is much still to be agreed. The enshrining of business models which are palatable for all stakeholders into legislation will be needed in time to realise the government’s ambition of bringing the first CCUS cluster online by 2027.
4. Transport Decarbonisation Plan
In November 2020, the government took the “historic step towards net-zero” by ending the sale of new petrol and diesel cars in the UK by 2030, putting the UK on course to be the fastest G7 country to decarbonise cars and vans. As such, ramping up the uptake in electric and hydrogen fuel cell vehicles will be essential in delivering on these targets.
While the government’s target was welcomed by many across the industry, concerns were raised that the UK lacks a sufficiently comprehensive policy package to enable the delivery of the 2030 transition to low-carbon transport. More specifically, it is emphasised in the Report that the ramp-up in electric vehicle (“EV”) sales in the run up to 2030 (and beyond) will need to be supported by the deployment of almost 280,000 public charge points across the country by 2030. However, there are currently only around 20,800 public chargepoints across the UK, and many of these are disproportionality located in urban areas.
The Transport Decarbonisation Plan is expected to build on the 2030 commitment even further by setting out the UK’s plans to decarbonise its entire transport system (covering everything from active travel, to electric vehicles, public transport, aviation and shipping). In respect of EVs, the Report notes that the Transport Decarbonisation Plan should include a full strategy for the widespread deployment of charging infrastructure across the UK. This will encourage the level of investment (both public and private) required and ensure that the public charging network is sufficient and appropriate across the country. It is also recommended that the decarbonisation of transport should be supported by a “Zero-Emission Vehicle Mandate”, requiring manufacturers to produce a rising percentage of zero-emission vehicles each year, alongside more ambitious CO2 emissions regulations.
In addition to these policy gaps, key questions still remain in respect of funding the transition to EVs in particular, such as how: i) consumers will be incentivised to switch to EVs, with available vehicle grants recently being reduced, ii) sufficient investment in UK EV supply chains will be delivered, particularly in light of Brexit and iii) how the £1.9 billion committed by the government for charging infrastructure and consumer incentives as part of the November 2020 Spending Review, will be allocated and effectively applied.
The UK has made notable progress on its climate change commitments, with emissions now almost 50% below 1990 levels and its policy leadership across a number of areas (such as implementation of the Climate Change Act) has helped bring COP26 to the UK. However, significant strides still need to be taken in order to reach net-zero. The message of the Report is clear – the government must match its bold statements with effective policies and implementation, and more importantly, to act with the urgency that science demands. With COP26 drawing closer, the spotlight will be on the UK government to lead the global effort to decarbonise by way of example and deliver a consistent and comprehensive policy framework to deliver on net-zero ambitions across the economy.
While we have seen the challenges of real-world implementation of policy, such as the recent failure of the Green Homes Grant, the UK does have some compelling success stories. The growth of the UK’s world-leading offshore wind industry is a testament to the effectiveness of well-designed and well-executed support schemes and policies. For example, long-term government support via the contracts for difference scheme has to date awarded support to 13GW of offshore wind capacity and accelerated innovation and investment in the sector. Looking ahead, it will be essential that lessons learned from the implementation of decarbonisation strategies across other industries and policy areas are taken into account in order to create an effective long-term roadmap to net-zero.