How can the UK deliver its net zero targets in a way that is affordable, efficient, and pro-business? That was the question at the heart of Chris Skidmore’s Net Zero Review – commissioned by the government in September 2022.
The result is Mission Zero – a 340-page document that makes 129 recommendations for transitioning to a thriving green economy. Its message is loud and clear: net zero is the economic opportunity of the 21st century.
The Review travelled to all four nations of the UK, received over 1800 responses to the Call for Evidence, and held more than 50 roundtables, making it one of the largest engagement exercises on net zero in the UK. In the process, hundreds of businesses made it clear that policy help is needed – on skills, energy efficiency, support for SMEs, and providing a tax environment that stimulates investment.
Here are some of the recommendations to government, that will help businesses grasp the benefits of net zero.
Financial incentives for net zero investment, including super-deduction tax relief
The Review heard from a variety of businesses who stressed that to fully seize the opportunities of a sustainable future, the UK needs to accelerate the development of new and emerging green markets and low carbon technologies.
The Review calls for the Treasury to look into how policy incentivises investment in decarbonisation, including via the tax system and capital allowances.
As part of this, it wants the government to consider a successor to the super-deduction tax relief with a focus on increasing investment in low-carbon technologies as the super-deduction is due to end in March 2023.
Tackling carbon leakage
Carbon leakage is the displacement of production and associated emissions from one jurisdiction to another, due to different levels of climate regulation across jurisdictions. Sectors most at risk are energy intensive and highly-traded.
The Review heard concerns about carbon leakage from numerous energy intensive industry stakeholders, calling for the government to speed up action and decision-making. It asks government to progress its consultation on carbon leakage measures, including a carbon border adjustment mechanism (CBAM) and mandatory product standards.
The UK is falling behind on carbon leakage mitigation measures compared to other major actors, such as the EU and Canada. Additionally, industry is increasingly concerned about the lack of certainty of carbon leakage mitigations in light of the review of the UK ETS and Free Allowances (see below).
Clarity on the future of the UK ETS
The UK ETS has a cap set on the total amount of certain greenhouse gases that can be emitted by sectors covered within the UK ETS scheme. With the cap on total emissions set to decrease over time, this provides a clear signal to businesses to invest in decarbonisation as the cost of ETS allowances is likely to increase as the cap is reduced.
However, the current legislated ETS cap only runs until 2030, and it is not aligned to delivering net zero by 2050.
The UK ETS Authority has committed to aligning the cap with net zero and the interim Carbon Budget targets for covered sectors, but the Review found a need for ongoing engagement and clarity by the government on emerging plans.
By 2024, the Review asks the government to work within the UK ETS Authority to set a pathway for the UK ETS until 2040. This pathway should:
- Set out a vision on the future design and operation of the ETS.
- Set out a timeline for expanding the coverage to the rest of the UK economy, as well as sectors consulted on including maritime and waste.
- Address inclusion of greenhouse gas removals (GGRs) to incentivise early investment in new technologies and potentially nature-based solutions.
- Provide reassurance to businesses around how the government will mitigate the risk of carbon leakage as a result of expanding the ETS.
An action plan for green jobs
The government estimates that current net zero and energy policies could support 480,000 green jobs by 2030. But this transition is not without its challenges – the Review acknowledges the current skills shortages and disparities between green jobs creation region by region (opportunities are disproportionately concentrated in London and the South East).
The Review asks the government to publish an action plan for net zero skills that includes a comprehensive roadmap of when, where, and in which sectors there will be skills needs specific to net zero. This should include clear public targets for green skills action and governance to regularly track and report against these.
Support with tackling Scope 3 emissions
Half of the world’s leading institutions and 40% of companies have made net zero pledges. But tackling supply chain, or Scope 3 emissions are a major barrier.
A number of businesses told the Review that a lack of standardised data on emissions in their supply chains creates a challenge for accurately reporting their emissions and taking action to reduce them.
The Review asks government to commission the ONS and/or UKRI to lead an engagement exercise with business to define their data needs and develop bespoke recommendations to address these. This should include consulting businesses on what specific data they would find useful, and exploring publishing government-held data.
Incentivise financial disclosures
To unlock finance, investors need high-quality and consistent information on companies’ and other financial institutions’ sustainability-related risks and opportunities. This was a clear policy ask from investors across the Review’s engagement.
Several initiatives have led to considerable progress in this area, most notably the framework set out by the Taskforce for Climate-Related Financial Disclosures (TCFD). In 2021 the UK became the first G20 country to make TCFD-aligned climate-related financial disclosures fully mandatory across the economy.
Building on this, the International Financial Reporting Standards (IFRS) Foundation has established an International Sustainability Standards Board (ISSB) to set a comprehensive global baseline of sustainability related disclosure standards.
The Review calls for government to endorse and implement the International Sustainability Standards Board (ISSB) standards as soon as possible. It says the UK should lead by example, launching a formal adoption mechanism as soon as the ISSB standards are published and moving swiftly to assess and endorse the standards for use in the UK.
It says the UK should aim for 2024/25 as the first sustainability reporting cycle for companies in scope, encouraging companies to apply the ISSB’s standards voluntarily in 2023/24.
Net Zero Charter Mark for “best-in-class” businesses
The Review says that firms should be able to benefit from their green credentials, and that investors need assurance that those green credentials are based on hard metrics.
On this basis the Review calls on the government to consider introducing a “Net Zero Charter Mark” – a mark to acknowledge “best in class” among firms in terms of their role in the transition to net zero.
To be granted the Net Zero Charter Mark, firms have to be compliant with or ahead of key standards – such as publishing their climate-related financial disclosures, publishing a transition plan with key milestones and progressing against those, and using reliable metrics and data – such as science-based targets – to ensure any disclosure is of high quality. They would also have to be recognised as stewards of the transition within their sector, pushing others along on their journey towards net zero, for example through stewardship along the supply chain.
A solar rooftop revolution?
The review calls for a ‘rooftop revolution’ that removes the existing constraints and barriers to solar panel deployment across residential and commercial buildings in the UK. To facilitate this, it says that there should be no planning permission required to install domestic solar or commercial solar on the rooftops of buildings. It says: “New regulations and business models should be established to ensure that all current barriers to deploying energy back on to the grid from solar are removed. As part of the ‘solar revolution’, the total number of installations and MW capacity per local authority should be monitored to drive deployment forwards.”
Carrots and sticks to drive energy efficiency
The review says it is paramount that businesses save money on energy bills, and acknowledges the most vulnerable energy-intensive sectors such as manufacturing, hospitality, and entertainment and recreation.
On the compliance side, the review calls for government to legislate by 2025 for the minimum energy efficiency rating for all non-domestic buildings, both rented and owned, to be EPC B by 2030. It calls for all new non-domestic buildings from 2025 to have an EPC B rating.
It also calls for the existing Energy Savings Opportunity Scheme (ESOS) to be tightened to increase uptake of energy efficiency measures using powers, including extending coverage and requiring firms to take up recommendations.
The Review also recommends that there are direct funding measures for both SMEs and large companies or those in large buildings (and their landlords where applicable) or projects that are innovative in the short term. This could also involve extending the existing Industrial Energy Transformation Fund (to £185 million, in line with the Conservative Manifesto) and new support for SMEs and in commercial sectors/buildings.
Greater support for SMEs
Building on the UK Business Climate Hub, the Review says government should launch a ‘Help to Grow Green’ campaign, offering information, resources and vouchers for SMEs to plan and invest in the transition by 2024.
An SME role models programme could provide mentoring for micro businesses and the self-employed by 2023. The Review asks government to establish a taskforce of suppliers, small business landlords and business groups to agree on how to cut energy use in rented premises by 2023.
Agriculture and food supply chains
The Review asks Government to ensure that by 2025, 50% of UK-based food and drink businesses measure and report their Scope 3 emissions against a government- and industry-agreed standard. It says Defra and UKRI research should prioritise innovations that support on-farm measurement and processes to accurately collect the remainder by 2030.
Better standards for carbon offsetting
The review tackles the thorny issue of transparency and regulation in the emerging carbon market – which has led to a prevalence of low-quality offsets. The roundtables held by the Review also highlighted examples of so-called ‘greenhushing’ where companies invest in the voluntary market, but do not want to make this public due to the risk of being accused of greenwashing. This leads to less investment despite businesses being keen to lead on decarbonisation efforts.
It says government can mitigate this by putting in place guidance for businesses looking to purchase offsets and endorse international standards to ensure the transparency and integrity of carbon offsets, while avoiding voluntary carbon markets (VCMs) becoming a substitute for businesses to reduce their own greenhouse gas emissions. It says government should endorse international VCM standards as soon as possible and consult on formally adopting regulated standards for VCMs and setting up a regulator for carbon credits and offsets by 2024.
Ecolabelling of consumer products
A lack of confidence about whether green claims made on products are authentic is denting consumers’ confidence: the Review heard that “labelling needs to be standardised.”
In that vein, the Review calls on the government to pursue ecolabelling to help consumers make more informed purchasing decisions, by 2025.
The government has already committed to exploring standardised ecolabelling for industrial products (e.g. glass, paper, chemicals) and the Review says it should aim to roll this out for as many products as possible from 2025.
The Review says ecolabelling should be aligned across different products, to make it easy for consumers to recognise sustainable items. On food, it says the government should continue to work with industry, via the Food Data Transparency Partnership, to develop a mandatory methodology that could be used for ecolabelling. This should prioritise setting a metric to monitor carbon impact.
Steps to kickstart a circular economy
A more ambitious approach to managing waste and encouraging re-use and recycling could decrease emissions and provide significant economic opportunity. The Review says UK policy on this issue has been too slow and is failing to grasp these opportunities.
It recommends a mission to kickstart transition to a circular economy through a joint taskforce on circular business models, working to end the export of plastic waste, and delivery of planned waste reforms. It says this should include the role of Extended Producer Responsibility in promoting reuse, repair, remanufacturing, and rental alongside recycling, in line with the powers under the Environment Act 2021.