- EY responds to the UK Government’s revised Net Zero Strategy
- Follows the publication of Powering Up Britain publications released by the UK Government on Thursday 30 March
- Topics commented on include energy, green infrastructure, incentives for green investment, automotive and electric vehicle developments, carbon pricing and sustainable aviation fuel
Rob Doepel, UK & Ireland Managing Partner, EY Sustainability, comments on the UK Government’s Powering Up Britain policy and revised Net Zero Strategy:
“The Government’s revised approach contains some new detail and sensible recommendations to support the UK transition to Net Zero, while setting out a welcome fresh narrative for how progress will be economically beneficial for UK households. However, while it’s encouraging to see the Government position decarbonisation as a significant economic opportunity for the UK, you would expect this to be matched with a raft of substantial new investment and commitments to accelerate delivery. The UK still enjoys a leading position when it comes to Net Zero expertise, access to private financing and green innovation, but there’s a risk the UK’s competitive advantages disappear as other countries take enormous strides forwards while we take incremental steps.
“The Government has reaffirmed its belief that Net Zero is a credible, worthwhile ambition, and recognises that if the UK is to meet its legally bound targets then more investment will be required. So we know what needs to happen and are clear about why it needs to happen, we just need the funding, clear policy framework and delivery to make it happen. While these new announcements do represent progress, we risk delaying significant investment until two- or three-years’ time, by which point many may wish that we’d seized the opportunity to get a head start in 2023.”
On incentivising private green investment
“It was concerning to see the Government defer any decision on further green subsidies until the autumn. This will mark a further six months of relative inactivity in this area while the US offers substantial incentives and the EU progresses its own plans. There is a risk that, by the time the UK does act, there will have been a significant loss of investment, talent and innovation. Losing this access to green financing, leading businesses and sustainability expertise would be doubly costly for the UK, as they would be unavailable to support own growth while also strengthening our international competition. Ultimately, these resources are finite and will make the difference between whether the UK simply meets its climate obligations or harnesses Net Zero as an economic asset and becomes a leading green superpower.
“The Government position appears to be that a substantial increase in government funding is not possible or necessary, but that the UK can still offer a compelling environment for green business with clear, stable policy and regulation that supports investment decisions. Investor responses to the revised package offered today will test whether this approach will be successful. Further detail and potentially more funding will be announced in the autumn, so we can expect the pressure for more direct action to continue.”
The perspective for business
“For those industries relating to Carbon Capture, Hydrogen or Nuclear infrastructure, today’s announcements likely offered some exciting news. For others across the private sector, there was relatively little revealed today that will inform a revised business approach or motivate new behaviour. There seems to be few immediate incentives for business and not much in the way of new regulatory information.
“It was somewhat disappointing to see business transition plan disclosure referenced so lightly in the Green Growth Plan, with a commitment to consult on requirements for the UK's largest companies ‘by the end of 2023’. This Plan was a response to Skidmore Review, which commended the concept of transition plan disclosure for all businesses and praised the Transition Plan Taskforce’s draft Framework as a gold standard for companies to follow when developing their own credible, detailed decarbonisation strategies. The Government could have given much-needed certainty to the UK’s largest businesses by using a more transparent timeframe. This would send a clear message of the direction regulation is moving in and emphasise that inaction is not an option.”
On CCUS, hydrogen and nuclear commitments
“There was welcome news with commitments to Carbon Capture, Utilisation and Storage (CCUS), Hydrogen and Nuclear. This fresh detail should help entice private capital, as institutional investors will be noting that these areas are being outlined as national priorities.
“The decision to move ahead with the first CCUS projects was encouraging. CCUS is sometimes regarded with scepticism by some in the market, but investment in the area is shrewd, given the UK’s geographic position and legacy oil and gas infrastructure. CCUS expertise come become a key differentiator and competitive advantage for the UK, and it will also be an essential tool in the decarbonisation high-emission industries such as steelmaking.”
On home insulation measures
“The announced funding for additional home insulation and the Boiler Upgrade scheme offer welcome steps in the right direction, but more support and enhanced regulation will be required to deliver real action in this area. The UK has seen numerous home insulation programmes fail and this is often, in part, due to a lack of public interest in taking up the offer. The Government’s reaffirmation that Net Zero is a benefit to UK homes may make a difference here, but we’ll need to see more detail on how it intends to convince households that this scheme is worth accessing.
“The launch of a consultation on the recovery of policy costs from electricity bills to gas bills is a particularly interesting step. This has been discussed many times before and never taken forward, but could represent a game changer in terms of reducing the costs of operating heat pumps relative to alternatives. This could be still present challenges, as not all households use gas and decisions have yet to be made on the role of hydrogen for home heating. It remains to be seen what the outcome of this consultation will be and whether the Government will take these proposals forward.”
Rohan Malik, EY UK&I Government and Infrastructure Leader, comments on the implications for UK infrastructure:
“While the Government’s announcements offer a welcome step forward for UK green infrastructure aspirations, this was perhaps a missed opportunity to make a leap of progress towards Net Zero. While the UK has the potential to become a leading green superpower, without harnessing the private sector capital, skills and investment, it could mean that we fail to keep pace with international competitors.
“Green infrastructure will provide the UK with resources and stimulus to reach our climate goals, and funding this partially with private investment will plug public spending gaps and mean the taxpayer isn’t left with the entire bill. Mobilising this private capital requires a clear, investible proposition, so the Government’s commitments to offshore wind funding, nuclear energy and a faster planning process should help here by offering much-needed clarity over UK infrastructure priorities. Investors now have an indication of the sort of green projects that will be of national importance and could avoid significant setbacks. They can also feel confident that incoming planning changes will accelerate project delivery.
“The Government’s decision to delay its response to the US and EU green subsidy plans until the autumn is a missed opportunity for the UK to set out its stall with a framework that provides a stable, favourable investment clean technology environment. With a lack of clarity on how it intends to attract green capital, the UK risks spending time watching investors, jobs and our own homegrown clean technology companies flow towards the US and EU. Rather than acting as just a deployer of new technology developed overseas, the UK’s strong industrial fundamentals, backed by targeted government incentives, present a clear opportunity for the UK to invest in R&D and crucially, in the domestic manufacture of the technologies, tools and infrastructure that we need to deliver Net Zero.”
Maria Bengtsson, Electric Vehicle Lead at EY in the UK, comments on the EV-related announcements:
“Despite rumours that the UK would follow the EU and amend its plans to phase out Internal Combustion Engine (ICE) cars and vans, the Government has reconfirmed the target to ban the sale of petrol and diesel cars by 2030.
“The Government has also confirmed its plans to require a percentage of manufacturers’ new car and van sales to be zero emission each year from 2024.
“This is a show of support to the UK’s EV transition. With the scale-up and roll out of EV chargers across the country - one of the UK’s key challenges in the face of the EV transition - the announcement of £380million in additional funding to boost infrastructure and charging points is also a step in the right direction.
“It will now be crucial that the additional capital is utilised effectively to facilitate the successful and accelerated installation of charging points, by improving infrastructure and training electricians to carry out the work, as well as supporting the production of chargers.
“Making charging easier and more convenient for consumers is also crucial, and actions the Government is taking following the consultation on the consumer experience at public charge-points will be key. These measures will necessitate investments from Charge Point Operators (CPOs) and other players, which may put some financial pressure on some of them, but equally, it should improve the customer experience.
“However, given the Government’s significant ambitions to install 300,000 charging points in the UK by 2030, further funding above and beyond £380million could well be required.”
David Borland, EY UK&I Automotive Leader, comments on the ZEV transition for automotive businesses:
“Given the different powertrain technology available in the short term – and the long development cycle times for new vehicles - the new targets set by the Government will be challenging for some car manufacturers. Having flexibility to meet targets will be critical for manufacturers given the required capital investment, reskilling and recruitment, training and time needed to bring new products to market.
“Support through the non-Zero Emission Vehicle (ZEV) sales allowance banking and borrowing options, for example, will be crucial to enable the automotive sector to navigate its way through such a significant transition. With that said, it will also be pivotal that the Government works closely with manufacturers to collaborate on solutions and understand the challenges they’re likely to face as they drive to scale up their production of ZEVs.
“An aligned approach to ensuring the necessary infrastructure is in place for the roll-out and adoption of ZEVs will also be vital, so automotive manufacturers can match consumer demand with supply.
“As part of the transition, the key for the Government will be striking the right balance between providing adequate support across the eMobility ecosystem, including incentives for manufacturers to keep launching ZEVs in the market at pace.”
Alwyn Hopkins, EY UK&I Advanced Manufacturing and Mobility Sustainability Leader, comments on the announced Carbon Border Adjustment Mechanism consultation:
“The announced consultation on UK carbon leakage mitigation will likely receive little immediate attention, but introducing a UK Carbon Border Adjustment Mechanism or Mandatory Product Standards scheme may have a significant effect on competitiveness of UK goods in the domestic market. A CBAM could also lead to a far greater number of businesses paying a price on greenhouse gas emissions when compared to current rules. While careful consideration of the economic and business impacts of such a policy will be required, successful implementation of a UK CBAM or MPS could accelerate the UK’s Net Zero transition, while supporting the move towards a consistent global carbon pricing approach.
“As background, UK businesses currently pay a carbon price on emissions intensive sites in the UK, but compete with imported goods made by international firms which can pay a lower or even no carbon price on their facilities overseas. Without government intervention, this policy divergence gives a competitive edge to imported goods and can also encourage manufacturers to shift emission-heavy production to jurisdictions where it is less heavily taxed. A CBAM regime or MPS would be designed to level the playing field by applying a carbon price or new standards to imported goods, equivalent to that faced by UK firms manufacturing domestically.
“A CBAM applying a new carbon price to UK imports would broaden the scope of businesses facing carbon pricing in the UK. The current UK Emissions Trading Scheme regime has direct effect on only a limited set of emitting ‘installations’ in a narrow band of industries. A CBAM could apply a new carbon price and compliance requirement to UK companies, meaning pricing could be required for businesses ranging from supermarkets, to car manufacturers, housebuilders, farmers, and many more.
“The implementation of MPS on embodied emissions would have a divergent impact from a CBAM, as it would respond to carbon leakage risk via a non-carbon pricing policy measure. Given the different policy levers, it is of course possible that the UK could choose to implement a combination of CBAM and MPS, targeted at different groups of businesses or products.
“The EU is implementing its own CBAM from October, and the Government may choose to use this 12 week consultation to explore different shapes for a UK regime, rather than following directly in the EU footsteps. Consequently, engaging with the process is a valuable opportunity for UK business to shape a significant decarbonisation policy. That said, it’s likely that UK policymakers will observe the EU implementation with interest to understand how CBAM influences business behaviour in practice.”
Alwyn Hopkins, Advanced Manufacturing & Mobility Sustainability Leader, EY UK&I, comments on the Government’s announcements on sustainable aviation fuel:
“The UK’s policy on decarbonisation in the aviation industry has included a focus on Sustainable Aviation Fuel (SAF) for some time now, so to see the latest roadmap for a SAF mandate and a second consultation is no surprise.
“Many aviation businesses have made policy-aligned commitments in the recent past, committing to and investing in the continued expansion of SAF usage. The proposed mandate aligns to some of these existing commitments by requiring the equivalent of at least 10% (around 1.5 billion litres) of jet fuel to be made from sustainable feedstocks by 2030. With that said, the move towards long term mandate rises appears positive, and the opening of another round of applications for the Advanced Fuels Fund will help to support the required technological development needed to achieve key sustainability goals.
“Supporting the SAF industry to practically and sustainably meet these commitments, however, will be complex. The latest consultation reflects this, identifying areas for consideration ranging from a Hydrotreated Esters and Fatty Acids (HEFA) cap to manage limited feedstock availability, through to the design of the planned tradeable certificate scheme to complement existing and developing regimes such as the UK Emissions Trading Scheme (ETS) and Carbon Off-setting and Reduction Scheme for International Aviation (CORSIA).
“At a broader level, SAF isn’t the only route towards the decarbonisation of aviation, so UK Government policy must also continue to support investment in innovation for flight patterns, the mitigation of embodied emissions in equipment and consumables, and the decarbonisation of ground fleets – to name but a few areas.”
