By Jeremy Nicholson, Corporate Affairs Officer, Alfa Energy
To read some recent headlines, you might be forgiven for thinking the UK is starting to scale back its net-zero ambitions – or possibly even going cold on the idea altogether. If true, this would be an astonishing U-turn for the UK, which has cut emissions faster than any major economy and was the first in the world to legislate for net zero.
The reality behind the headlines is rather less dramatic, which will no doubt be a relief to anyone concerned about the net-zero agenda. Nevertheless, it’s worth reflecting on what’s actually happened in the UK, how similar issues are in play elsewhere in Europe, and what the lessons might be for achieving net zero globally.
Prime Minister’s speech changes everything – or does it?
The immediate cause of the alarming headlines was a speech by Prime Minister Rishi Sunak on 20 September 2023, which had been briefed as a major shift in approach. It’s important to understand the context in which this speech took place, amid mounting public concerns about the cost of living, and the Conservative government badly trailing the Labour Party in the opinion polls ahead of a general election in around a year’s time. The PM was desperate to appeal both to voters who have been experiencing the pain of inflation, and to activists within his own party, many of whom are sceptical about the cost and practicality of some environmental policy measures.
So, what was actually announced by the PM? The two most notable changes were pushing back the phaseout dates for sales of new petrol and diesel engine cars and vans from 2030 to 2035 (in line with the EU) and for installing new gas boilers from 2026 to 2035. Other, more positive announcements, such as lifting restrictions on onshore wind in England, and increased grants for installation of heat pumps, received much less attention.
The impression of slippage was exacerbated by the failure to attract any bids for new offshore wind projects in the most recent Contracts for Difference (CfD) auction round, largely because of an unduly tight price cap imposed by the Department for Energy Security and Net Zero. Similar problems have occurred elsewhere in Europe and the U.S. as the offshore wind industry adjusts to higher materials, and labour and financing costs, which have inevitably raised the cost of new projects.
The UK government is not alone, therefore, in having to adjust policy to accommodate this reality, and this is likely to be reflected in a higher CfD price cap at the next auction round in March 2024. None of this means there isn’t a hugely important role for offshore wind as far as new generation is concerned. But it does mean growth rates are likely to be somewhat lower than optimistic activists and industry lobbyists may have expected.
Perhaps, on reflection, the most notable thing about the PM’s speech is how much has not changed – including the Climate Change Act itself, comprised of the 2050 Net Zero target and the mechanism for setting interim budgets towards achieving it, which remains in place exactly as before. The government remains committed to net-zero electricity generation by 2035, the total phaseout of generation from coal by 2024 (already almost complete), and a zero emissions mandate for car manufacturers starting in 2024, with a requirement for 22% of new cars and 7% of new vans to be zero emission (in practice, electric vehicles), rising to 80% by 2030 and 100% by 2035. It has also recently confirmed a £500m package to assist Tata Steel (the UK’s largest steelmaker) to decarbonise production at their huge Port Talbot site in South Wales.
Taken as a whole, the outlook for net zero is not perhaps as different as some activists and commentators might initially have thought. The political consensus around net zero in Westminster also remains remarkably resilient, with no major party questioning the UK’s legal obligation to deliver it by 2050. To the extent that there is a debate between Conservative MPs, it is about how, not when (let alone if), the net-zero target should be delivered. And if there is a change of government at the next election (which current polls suggest is likely), there is every possibility of a strengthening in policy to decarbonise energy production and use.
Lessons to be learned
What lessons might be learned from all of this? The most obvious one is that a debate around the costs of net zero was inevitable at some point. If anything, it’s remarkable how long it has taken to come about, both in the UK and elsewhere in Europe.
The total cost of achieving it can never be known with precision (there are too many uncertainties about future technology costs, what other countries will do, etc.). But it will unquestionably be substantial, probably running to £1 trillion or more in the case of the UK, so ensuring value for money and minimising the impacts on consumers during the transition will be vital. It will be vital for other countries, too, including those that have yet to fully sign themselves up to the net zero-agenda, whose efforts will also be required if emissions are to be reduced globally.
A second lesson might be that policymakers need to be more open with the public and the business community about the costs and efforts required of them as a result of the net-zero transition. There will be benefits, too, of course – cleaner energy, more efficient use of it, and doubtless other innovations we have yet to imagine (and hopefully, in the long term, cheaper energy, too). But unfortunately, it’s the costs that are being felt first, so keeping consumers on board – and ensuring energy intensive businesses remain internationally competitive – will be a concern to any government for some time to come.
A third lesson for businesses might be that there will always be some degree of political uncertainty, even over issues like net zero, where parties remain remarkably aligned. Clarity and consistency in energy and climate policy would certainly help businesses plan and invest for the future. But, as with any aspect of business, although that risk can never be eliminated, it can still be managed. Forward-looking businesses will therefore be exploring opportunities to manage the carbon footprint of their operations, their energy supply, and their supply chain, regardless of the occasional hiccups in net-zero policy that are bound to continue arising from time to time.
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