In Short : The UK’s net-zero policy, while ambitious, is facing challenges that are concerning both investors and the global community. Despite commitments to reduce carbon emissions to net-zero by 2050, there are growing concerns that the UK’s progress is not aligning with the necessary pace to combat climate change effectively. Investors are apprehensive about the lack of clear and consistent policies, hindering their ability to make long-term sustainable investments. This uncertainty is also impacting the broader international efforts to address climate change, as the UK’s leadership is crucial in inspiring global climate action. It underscores the urgency for the UK government to strengthen its commitment, provide clearer policies, and accelerate efforts to meet its net-zero targets. Failure to do so could have significant consequences for both investors and the world’s fight against climate change.
In Detail : At the last count, the UK’s contribution to global emissions was less than 1%, although it’s worth noting that the UK historically has been responsible for some 3% of total CO2 emissions since the industrial revolution.
Despite this relatively low number, there is no denying the attention that recent decisions by Prime Minister Sunak’s government on climate and energy policy – which by consensus have watered down the UK’s commitment to its net-zero goals – have generated both in the British public policy debate and internationally.
Against this background, we address the controversy through Carbon Tracker’s regulatory, economics and finance nexus, in particular the signals which it sends to the finance and investment community – and considers what a sound net-zero policy ought to rest on in terms of generating investment for the longer-term.
The wrong direction
None of the following developments or decisions can be viewed individually as positive for the UK’s net-zero goals:
last month’s Contracts for Difference (CfD) auction, which failed to attract a single offshore wind project bid, was viewed as badly-designed by the industry and whose outcome should “set alarm bells ringing in Government”, according to RenewableUK;
the change of policy announced by the Prime Minister to delay the ban on new petrol and diesel cars, which attracted widespread criticism from business;
as part of the same announcement on net-zero, the decision to scrap the policy to force landlords to upgrade the energy efficiency of their properties; and, related to that, the dissolution of an expert home energy efficiency taskforce (only six months after it was established);
confirmation that the Government, despite the fact that the UK is already the second largest North Sea producer, plans to proceed with issuing over 100 new oil and gas licenses (including for the controversial Rosebank project) ;
reactionary downward price swings in the UK Emissions Trading System, which have left prices at significant discounts to the EU scheme, reducing the amount of revenue which can be redirected to green projects in the UK, and potentially leaving domestic producers with significant additional administrative costs for exporting to the EU.
The over-arching point is really about the cumulative impact of this set of decisions, and what they say to investors and the wider world about the British Government’s overall direction of travel on climate change and the energy transition.
Many interest groups in the UK have drawn their conclusion. Investor groups have been critical. A senior business representative said that handling government policy was like “wading through treacle”; the parliamentary Environmental Audit Committee, in a letter to Rishi Sunak, said they were “deeply concerned”.
A little better elsewhere
However, before making a final assessment, it is worth listing – in the interests of balance – any recent developments which might be considered more positive and progressive.
The following might come under this heading:
the review of grid planning and approval to speed up the removal of bottlenecks (a priority for Carbon Tracker, as our research demonstrates);
the promise to provide more public money and increased grants for replacing boilers with heat pumps (even if major questions remain over capacity to administer the scheme);
the launch of Great British Nuclear and the progress made on Small Modular Reactor (SMR) technology via a public competition for government financial support (notwithstanding the question-marks over likely costs, permitting and construction times, and opportunity costs compared with supporting renewables).
Why the Cumulative Impact Matters
Taken at face value, the negative side of the ledger does outweigh the positive elements, There are moreover two principal reasons to back up this negative assessment up, neither of which in themselves are about reducing emissions: one is for what it says about UK leadership and its place in the world; the second about the clarity and consistency of messaging for the investment community.
Internationally, it was noticeable how much the Prime Minister’s speech on 20 September cut through unfavourably with commentators and decision-makers. Whatever the motivations, timing that speech to coincide with the UN Secretary-General’s Climate Ambition Summit in New York (designed amongst other things to showcase climate leaders in government and business) was unfortunate. It also didn’t go un-noticed that the UK failed to get a ticket (putting it in the company of Norway, interestingly) to attend Guterres’ summit. This has all added to the sense that, despite the British Government’s claims to the contrary, the UK no longer sits at the top table when it could deservedly do so less than 10 years ago: where it was a prime mover on EU climate and energy; was spearheading the growth of the offshore wind market; and even as recently as COP26 in Glasgow, where it was able to convene major announcements ranging from coal exit to green finance. The Government’s objectives for COP28 in Dubai will have been weakened by this episode.