UK government publishes its Net Zero Strategy: here's what it means for infrastructure

The UK government has set out its route to achieving net-zero greenhouse gas emissions in its long-awaited Net Zero Strategy.

The 368-page document features a host of spending commitments and policy plans, which brings the level of confirmed capital investment in net zero to £26 billion since the prime minister’s 10-point plan for climate change in November 2020.

The ambition is there

We know reaching net zero is essential if we want to avert a worsening climate emergency, and we also know the transition has major potential to create jobs, new industries and revitalise communities. Crucially, we also know infrastructure and civil engineers will play a major part throughout the transition.

So it is worth saying this: the Net Zero Strategy is ambitious and represents the most thorough climate action strategy the UK has ever produced.

Yes, there are gaps, lack of clarity on how certain policies will be effectively funded, little detail on how much carbon each policy will save, and vagueness on how government will ensure the right governance structures are in place to deliver on its ambitions. These will all need addressing.

But it means that, ahead of the COP26 climate conference later this month, the UK can claim to have both world-leading targets, and a plan which could enable them to be met.

What is in the Net Zero Strategy?

The narrative in the strategy is clear and upfront: the costs of inaction outweigh the costs of net zero; we need to act quickly; private investment will play a major role in driving the transition, and we need to look at the wider benefits of net zero, including growth opportunities and addressing inequalities in society.

The strategy outlines an ambition to fully decarbonise the power sector by 2035. The government has grasped that this is key to decarbonising large parts of the economy and supporting transitions in transport, heat, greenhouse gas removal technologies, and more.

On this, it’s also encouraging that the strategy takes a systems approach, recognising that policy changes to one area can directly or indirectly impact others.

Other commitments in the Net Zero Strategy include:

• A final investment decision on a new nuclear plant by the end of the current Parliament, and support for Small Modular Reactors.
• Confirmation of a zero emission vehicle mandate for vehicle manufacturers, first touted in the Transport Decarbonisation Plan earlier this year.
• Support for heat pumps in residential properties, and targets for phasing out gas boilers.
• A new Industrial Decarbonisation and Hydrogen Revenue Support (IDHRS) scheme to fund hydrogen and industrial carbon capture and storage business models.

It provides clear signals to the private sector about the direction of travel and where opportunities lie in the years ahead. But the real change will come when it is actually being used. If we are to reach net zero then every decision the government takes to encourage both businesses and individuals to make a positive change needs to be guided by the Net Zero Strategy.

The strategy is a solid first step, but lacks insight into how policies will help to reduce emissions. Outlining the tangible emissions savings from each sector would help the infrastructure sector work towards delivering on the ambitions set out in the strategy.

How will we pay for the transition?

The Treasury’s Net Zero Review, published alongside the Net Zero Strategy, represents an exploration of the long-term view of the huge economic opportunities from climate action, as well as the costs of inaction.

Significantly, the Treasury concludes that a non-fossil-fueled economy will be more prosperous for the UK.

However, the review still has some glaring omissions.

There is a recognition that fossil fuel taxes, such as Vehicle Excise Duty (VED) and fuel duty, will significantly decrease as part of the net-zero transition, leaving a potential £37 billion black hole in the UK’s finances. But there is still no solution outlined to tackle this, even though confirmed phase-out dates for most petrol and diesel vehicles are in place.

ICE has been involved in this debate for a number of years, and we have previously recommended the government consider a 'pay as you go’ (PAYG) road pricing model to replace revenue from fossil fuel taxes as the country shifts to electric vehicles. Public polling conducted as part of our work showed that the public were willing to support a PAYG model if it replaced both VED and fuel duty.

The Net Zero Review also outlines a reluctance to borrow money to invest in capital projects that will meet net zero. While it is right to be realistic about what we can and cannot fund through taxpayers’ money, especially with the demands placed on the country’s finances by the Covid-19 pandemic, this needs to be set against the risks – financial or otherwise – of not meeting our net-zero target.

The Climate Change Committee has calculated that meeting emissions targets will require up to £50 billion of low carbon investment each year from 2030 to 2050. Given the Office for Budget Responsibility has said it will cost less in the long run to act early and quickly, should financing options such as borrowing be taken off the table at this stage?

The importance of public engagement

Looking ahead, it is important that the government continues to focus on public engagement as part of the net-zero transition. The strategy acknowledges that behavioural change will be vital – and confirms there will be a scenario-based report on the topic next year.

ICE’s State of the Nation 2020 report showed there are areas where public behavioural change can make a real difference in meeting net zero, but they are viewed as difficult to do despite there being ready solutions to make these actions a reality.

Societal acceptance of the need for sustainable change, and crucially the benefits of change, are required in order to ensure a prosperous and just transition to net zero.