Energy Industry Policy

Is the UK’s ‘Green Revolution’ Really Revolutionary?

The United Kingdom is currently facing two very different crises. The more prominent crisis currently is the coronavirus pandemic. It has had a direct impact on our daily lives and has plunged the country into a deep economic recession. The other crisis is much longer term in nature. Climate change has not been put on pause because our attention has been focused on a different threat. It still requires urgent, transformational changes to happen if we are to avoid dangerous levels of global warming.

The UK government hopes that it has found a solution that will help to tackle both crises. The UK’s green recovery plan announced recently has been dubbed the “Ten Point Plan for a Green Industrial Revolution”. Prime Minister Boris Johnson promises that this will allow the UK to “build back better” by supporting 250,000 green jobs and investing heavily in clean energy initiatives. The plan is light on detail but does contain some ambitious targets. The question is ultimately, is it going to kickstart the scale of transformative policy action that Britain needs to meet its net zero pledge?    

The UK economy has been one of the worst-hit by the pandemic. According to figures from the ONS, monthly GDP growth suffered a record drop in April of 19.5%, and by September the economy is still 8.2% below where it was in February. Thanks to the support schemes implemented by the government, the unemployment rate in the UK has held stubbornly flat but the latest data from the ONS shows that it is beginning to rise (up 0.7% to 4.8% in last quarter) and will no doubt rise substantially once the furlough schemes end next year. Since the Coronavirus Job Retention Scheme was first announced by Chancellor Rishi Sunak, more than 9.6m people have received a furlough payment, at a cost of £43bn. With the latest lockdown and further tiered restrictions stopping more people from being able to work, the cost is expected to continue to increase substantially into the winter.

The message from the UK government is that from the depths of this crisis, the UK economy can grow back both stronger and greener. The economy needs significant government spending and this fiscal stimulus can be focused on green initiatives. Investments in new industries and job creation schemes will be crucial for ensuring that the UK economy can start to rebound in 2021. So, on November 18th, the UK government published their “Ten Point Plan for a Green Industrial Revolution” (the “Plan”). It is more of a vision statement than a detailed policy plan but it covers a wide range of areas which the government is pledging action on.

Within the Plan there are some eye-catching figures and headlines. The Plan promises to mobilise £12 billion of government investment and create and ‘support’ up to 250,000 green jobs. Offshore wind capacity will quadruple between now and 2030 and £0.5 billion in investments will help Hydrogen capacity grow to 5GW from virtually nothing today. Planting 30,000 hectares of trees a year by 2025 and rewilding “30,000 football pitches worth of countryside” (an average football pitch is roughly 0.7 hectares).

The government estimates that the cumulative effect of the Plan will be a 180MtCO2e reduction between 2023 and 2032. For reference, in 2019 total UK GHG emissions were 435MtCO2e. If the government’s estimates are accurate, this would put us on track for achieving net zero in 2050 as illustrated by the chart below using data from the ONS and the planned 180m reduction.

There is a lot of information in the Plan so we can’t cover everything in this article. But here at Ingena we have picked out some of the most important details which we will discuss below:

There is a lot of information in the Plan so we can’t cover everything in this article. But here at Ingena we have picked out some of the most important details which we will discuss below:

Green Energy

The transition away from fossil fuels is vitally important in reducing our GHG emissions. The UK has made great progress in this regard. In the third quarter of 2019, more electricity was generated from renewable sources than fossil fuels for the first time ever. Wind, solar and biomass have been the most important to this journey thus far. The Plan suggests that the government wants to focus specifically on 3 sources of clean energy: offshore wind, low carbon hydrogen and nuclear power.

The goal of achieving 40GW of offshore wind capacity is hugely ambitious. Generation currently stands at just over 10GW. This quadrupling of capacity would result in emissions savings of 21 MtCO2e. Low carbon hydrogen has not been used at any scale in the UK but the government is planning on investing £0.5bn in the new technology and has set goals of 1GW of capacity by 2025 and 5GW by 2030. The Plan also includes “hydrogen neighbourhoods” and “hydrogen towns” with the hope that whole communities can be powered purely by hydrogen.

Nuclear power is always a controversial topic. Many had questioned its future in the UK as many of the country’s power plants are going offline in the next 10 years and a proposed £15bn new plant in Wales was announced to no longer be going ahead after Japanese firm Hitachi couldn’t reach a deal with the government.  However, the Plan is explicit that nuclear power will be core to the UK’s electricity plan for the next 30 years. Nuclear is a reliable source of low (not zero) carbon electricity and integral to a stable energy grid as our electricity consumptions increases. The Plan estimates that the electricity system could double in size by 2050 due to the continuing electrification of sectors like transport and heating.

Green Transport

The transport sector is the largest source of GHG emissions in the UK, accounting for 34% of total emissions in 2019. This is why zero-emission vehicles are such a major focus of the government. The Plan brought forward the ban on new petrol and diesel cars from 2040 to 2030 and states that hybrid vehicles will be banned by 2035. Conscious of the importance of the car manufacturing industry to the economy, especially in the North, the Conservatives have coupled this with a support package of £2.8bn for the car manufacturing industry. This transition from cars with internal combustion engines to electric vehicles is projected to save 5 MtCO2e by 2032 and 300 MtCO2e by 2050.

EV take-up has been slow so far in the UK. Pure electric cars make up less than 7% of new car sales in the UK so far in 2020. One lingering concern from motorists has been around charging their electric vehicles and their ability to do longer journeys. To mitigate these concerns, £1.3bn will be spent on charging infrastructure on motorways and major roads. The goal is to have 2,500 high powered charge points in place by 2030 which will be able to charge an EV in minutes. It is not just private vehicles involved in the transition, public transport will also be made greener with £120m of spending to purchase at least 4,000 zero emission buses and plans to electrify more railway lines.  

Green Buildings

The UK has the leakiest housing stock in Europe and this is a serious issue since energy use in homes accounts for 14% of all GHG emissions in the UK. And making homes more energy efficient is a real win-win as it not only lowers the carbon footprint of each home, but also saves households on energy bills. In order to make these improvements, the government has announced a series of measures. £1 billion to achieve 600,000 heat pump installations per year by 2028; an extension of the Green Homes Grant for another year to replace fossil fuel heating; and a new home building standard which will see buildings with 80% lower emissions than those built to current standards. The government estimates that these measures will contribute to savings of 71 MtCO2e by 2032.

Green Finance

The Conservatives want to make the UK the global centre for green technology and finance. ESG issues have become a focus for investors and the government wants to capitalise on this demand for green investments. They estimate that the £12bn of spending that is set out in the plan will help to mobilise 3x as much private investment by 2030. They have committed to increasing research and development investment to 2.4% of GDP by 2027 and proposed £1 billion of government funding in “net zero innovation”.

There is a lot to like in the plan if you are focused on ESG investing. The call for mandatory reporting of climate-related financial information by 2025 is encouraging. Ingena have written previously on the importance of good ESG data for the ESG investing industry. There are also plans for the UK to issue their first Green Bond next year – green bonds will help to finance sustainable infrastructure projects. And finally, following the EU’s announcement of a green taxonomy, the UK plans to do the same which is important for clarifying which investments should be designated as ‘green’ for investors.  

Although broadly speaking environmental groups have praised the Plan, there have been some criticisms raised of it by others. The fact that the Plan contained only £4bn of additional spending was chief among these criticisms. It is considered far too small an amount to properly tackle climate change and is dwarfed by the spending announced by Germany and France for example in their green recovery plans. It also pales in comparison to the spending on HS2 (£100bn) and the recent announcements on increased defence spending (£16bn) which perhaps indicate the priorities of this government and where climate change ranks among them.

The lack of mention of solar power and biofuels was also slightly alarming. These two renewable sources of energies are currently an integral part of our energy mix and it is vital that the government signals to companies that there is a place for them going forward. The focus on hydrogen technology has also troubled some people. It is a new, somewhat unproven technology and the size of its use that is proposed in the Plan may be unrealistic both in timeline and in scale.

It is important to note that the Ten Point Plan is not a piece of legislation or actual policy. It is a white paper which lays out an optimistic set of goals that the government hopes will help the UK’s economic recovery and lead us further towards our net zero goal. In that sense, we should be encouraged that a conservative government has chosen to pair an economic recovery with green initiatives. Is it enough to get us to net zero by 2050? Most certainly not. But it is another step in the right direction and will encourage a great deal of private investment in some of these nascent technologies and industries which is vitally important.

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