Later this week, the UK Government is expected to make a number of announcements in relation to the green economy.
This may include the following elements:
· A revised Net Zero Strategy, after the Government lost a High Court case in 2022 because they had not published the carbon savings from their policies.
· A Net Zero Growth Plan, setting out how UK net zero policies will support UK economic growth.
· A revised Green Finance Strategy, setting out what action the government will take to green the UK finance industry and leverage its investment for the net zero transition at home and abroad.
· A response to Chris Skidmore’s Net Zero Review.
The launch of these strategies has been labelled as ‘Green Day’ by some commentators, although there is speculation that some in government would prefer it to be labelled ‘Energy Security Day’ and that it might also include announcements related to supporting the oil and gas industry. This has led to criticism that if this is the case, investors will not be convinced that the UK Government is serious about competing in the green industrial revolution.
The UK is struggling to catch up after the Inflation Reduction Act was passed in the US last year, which will provide an estimated $369 billion in subsidies for green industrial development. A new analysis from Goldman Sachs suggested the package is set to mobilise $3 trillion worth of total investment in clean energy tech through to 2031. The EU has responded with plans for a Net Zero Industry Act that will also massively increase subsidies for green industry and strengthen regulation to support the net-zero transition.
The UK government did not announce any new public investment or tax breaks for green industry in the Spring Budget, to the disappointment of UK businesses and the finance industry. Financial pledges for the net zero sector included in the Budget, including £20 billion for CCS over 10 years, had been previously announced in 2022. This has increased pressure on the Government to show on ‘Green Day’ that it is serious about the regulatory reforms needed to mobilise far more private sector investment into the clean economy.
The National Infrastructure Commission has released a report this week warning that the UK is badly off track in delivering net zero infrastructure. This includes electric vehicle charging infrastructure, grid investment and enough support for the decarbonisation of buildings.
What will success look like?
Below are two tables showing how E3G will rate the ambition of announcements related to green finance and green homes, two areas where E3G specialises.
Green Finance for Green Growth
The upcoming Green Finance Strategy should set out a clear, coherent and consistent package to build a world-leading Net Zero-Aligned Financial Centre and deliver a UK green growth boom. This should include:
· Committing to create a UK Net Zero Investment Plan before the end of the year to unlock investment at scale, reflecting growing calls from the private sector. This should include detailed sectoral analysis of how investment will be generated to get on track to net zero.
· Establish a permanent, independent body to track public and private financial flows across the economy against the UK’s Net Zero and Adaptation targets. This analysis should inform regular updates to the Net Zero Investment Plan.
· Tackle greenwash by delivering the delayed UK Green Taxonomy, including 1.5 °C-aligned science-based guidance for what is and is not considered a green economic activity for public and private finance – i.e. excluding gas.
· Empower UK financial regulators with a clear Net Zero objective to ensure they have the powers they need to secure the UK’s place as the global home of high-quality green finance products.
· Set out a clear timeline for when transition plan requirements will be extended to all large companies, including private companies and deliver clear and specific guidance to support implementation.
· Set out a clear roadmap to centre UK’s nature and biodiversity goals in green finance regulation, including in Transition Plan requirements.
· Clear commitment to support international ambition to tackle climate change: This includes promoting transition plan adoption, the interoperability of high-ambition standards on greening the private sector, and committing to work through key international spaces like the G7, G20 and UFCCC to support global green financial reform, including support for the Bridgetown Initiative.
Greener, warmer homes
· Regulations to phase out fossil heating systems confirmed: Phase out new gas boilers by 2033, and set timelines for off-grid fossil heating phase-out.
· Private rented sector regulations: Tighten minimum energy efficiency standards for the private rented sector to EPC C.
· Levies shifted from electricity bills: Lowering the cost of clean electricity will support the transition towards electric heat pumps.
· ECO Plus: £1bn was announced in November for ECO Plus. We welcome that the government is taking this forward, but note it is not new money. E3G has recently highlighted that there is still an outstanding £2.1 billion pledged for green homes in the 2019 Manifesto, with a further £8.67bn needed to plug the “investment gap” for net zero.
· Moving forward with market-based mechanism: We hope to see the government move forward with plans to boost the heat pump market.
· No hydrogen blending: A 20% hydrogen blend in the gas grid could increase consumer bills by at least 16%, while only reducing emissions by 7%.
· No hydrogen boiler mandate: A decision to mandate ‘hydrogen ready boilers’ could lock households into fossil heating systems and create greenwash, since these boilers are likely to burn fossil gas for decades to come.