Transitioning to net zero carbon – the UK’s political and institutional priorities
“Tackling Climate Change” – a Virtual World Tour ahead of COP26: United Kingdom: Part 1
“Tackling Climate Change” – a Virtual World Tour ahead of COP26: United Kingdom: Part 1
With businesses taking stock of the changes they have either initiated or experienced during the COVID-19 pandemic, PWC’s 24th Annual CEO survey, published earlier this year, captured the sentiment of UK Corporates to use the rebuilding post COVID to address a broader range of issues; with climate change being of particular importance: 70% of the CEOs surveyed said that tackling climate change and achieving sustainability are key concerns – two years ago, only 44% of CEOs had considered those issues to be priorities.
This marked difference suggests that sustainability and, more specifically, environmental criteria may firmly guide the business strategies of ‘Corporate UK’. Is that so? And does it extend to the country’s political agenda, its regulators and its public sector?
Kicking off our Virtual World Tour at home, we start in this article with an overview of the UK’s political and institutional priorities for transitioning to net zero carbon emissions, covering in more detail:
The UK has long been a frontrunner globally in tackling climate change. Focusing on transitioning to clean power, it has been the fastest country in the G20 to decarbonise their economy since 2000: between 1990 and 2018, the UK managed to reduce its carbon emissions by 44% - despite its economy growing by 75% at the same time. Consequently, in 2020, the UK came in second place behind Sweden in the Climate Change Performance Index, an independent monitoring tool that tracks annually the climate protection performance of 57 countries, which are responsible for over 90% of GHG emissions since 2005.
How did it get there? And what are the UK’s next green milestones?
The UK’s landmark Climate Change Act paved the way for its subsequent climate change action. Passed in 2008 with an overwhelming majority amongst political parties (463 to 3), it was the first legally binding national commitment to climate change. The Act committed the UK to reducing GHG emissions by 80% by 2050, compared to its 1990 levels. The target was revised in 2019 to net-zero emissions when the UK became the first major economy to pass a net-zero-emissions-law.
A key element of the Climate Change Act is the introduction of a series of ‘carbon budgets’. Each carbon budget provides a five-year cap on total GHG emissions, which shouldn’t be exceeded in order to reach the net-zero target. The caps are set twelve years ahead of time and can only be amended by the government under very limited and strict conditions.
Five carbon budgets have been set since the Climate Change Act passed, covering 2008 to 2032. The first two emission targets were met, and the UK is on track to meet the third. However, the Committee on Climate Change (CCC), the independent statutory body that advises UK government and parliament on carbon budgets, has warned that the UK is set to miss the fourth and fifth. The sixth budget and first set in line with the net zero target, published in December 2020 by the CCC, requires a 78% reduction in UK territorial emissions between 1990 and 2035 amongst other steps. There’s some concern whether the UK can achieve this: in its 2019 report, the CCC warns that England is not prepared ‘for even a 2°C rise in global temperature, let alone more extreme levels of warming […]’ and that ‘many national plans and policies still lack a basic acknowledgement of climate change’.
However, two years on, a global health crisis – and the prospect of hosting the COP26 in Glasgow – has propelled climate change action to the top of the UK government’s agenda and might just bring the shift in speed the CCC had demanded: in November 2020, Boris Johnson announced a ‘Ten-point plan’ for a green recovery to repair the economic damage of the COVID-19 pandemic. The plan will mobilise £12 billion of government investment and potentially 3 times as much from the private sector. Key measures include:
A month later, the government published the “Energy White Paper”, which spells out over 155 pages the measures and policies that will be introduced to help achieve a green revolution. It also refers to government plans to bring forward a series of sectoral strategies, and an overarching Net Zero Strategy in the run up to this year’s United Nations Climate Change Conference, COP26, in Glasgow, which the UK and Italy are jointly hosting.
Ahead of Prime Minister Boris Johnson addressing the opening session of the US Leaders’ Summit on Climate, which President Biden hosted on Earth Day on 22nd April 2021, the UK government also announced that it’ll set in law the world’s most ambitious climate change target, cutting emissions by 78% by 2035 compared to 1990 levels. This is in line with the recommendation from the Committee on Climate Change (CCC) for the UK to meet the Sixth Carbon Budget.
Notably, for the first time the UK’s sixth Carbon Budget will incorporate its share of international aviation and shipping emissions – allowing these emissions to be accounted for consistently. The UK over-achieved against its first and second Carbon Budgets and is on track to outperform the third Carbon Budget which ends in 2022. This is due to significant cuts in greenhouse gases across the economy and industry, with the UK bringing emissions down 44% overall between 1990 and 2019, and two-thirds in the power sector.
The UK’s departure from the European Union has raised questions about the potential implications for future UK and EU climate policy. On 31st December 2020, when the UK left the EU it also left the EU Emissions Trading System (ETS). The EU ETS was the first large GHG emission-trading scheme globally. It limits emissions from over 11,000 heavy energy-using installations and covers around 40% of the EU’s GHG emissions.
As a result, the UK is in the process of setting up its own domestic trading scheme, which it says will be “more ambitious than the EU system it replaces – from day one the cap on emissions allowed within the system will be reduced by 5%”. Like the EU ETS, the UK system covers emissions from electricity and heat generation, industry and aviation. Both the EU and UK agreed to consider linking their two systems.
Furthermore, the UK government is determined to establish the country as a sustainable finance leader after having left the EU, underlining its commitment with a number of initiatives launched in the past couple years, which we will portray in our next article.
The UK’s Corporate Governance system, well renowned and often praised as best practice globally, has also played a crucial role in helping to bring sustainability to the fore. The 2010 UK Stewardship Code for institutional investors is one example for the country’s progressive governance principles, that have been acting as a catalyst for changing the actions of corporates and investors as well as refining the expectations and attitudes of the wider public. The code sets out principles that institutional investors are expected to follow, mainly “the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society”. The 2020 update of the Stewardship Code requires signatories to annually report on the activities they undertake to fulfil their stewardship responsibilities and the outcomes of this activity.
The UK government’s ambitions are filtering straight through to the country’s public sector organisations, which have already demonstrated – facing austerity for most of the last decade - that carbon management and energy efficiency not only help tackling climate change but also result in considerable cost savings. The National Health Service (NHS), for example, has reduced its energy-related costs by £2 billion over the past ten years.
Looking at energy sources, a survey of 200 sustainability professionals from public sector organisations found that 83% of the respondents had already installed some form of on-site renewable generation capacity to decarbonise their energy footprint, yielding impressive results: in the summer of 2018 public-sector emissions had already dropped by a third against a 2009-10 baseline. In particular, the UK’s local authorities and Higher Education sector are making great strides in switching to renewable energy sources: more than 80 towns and cities in the UK plan to use 100% renewable energy by 2050 while many universities are introducing onsite renewable generation through combined heat and power (CHP) systems and large-scale solar arrays. The University of Cambridge, for example, has installed almost 1,500 solar panels to help the institution to reduce it carbon footprint in the UK by 20 per cent, and will be able to meet up to five per cent of its power needs.
While recycling rates of a large number of councils in England have fallen over the last five years, the circular economy concept is slowly becoming a reality across the UK: Peterborough and Glasgow, for example, are taking steps to become “circular cities” by reducing domestic and commercial waste footprints and implementing measures to encourage reuse and recycling. Meanwhile, the London Waste and Recycling Board (LWARB) has announced to invest £50 million in its circular economy programme, which the London Assembly Environment Committee believes could reduce 60 per cent of the capital’s waste by 2041, put London “on track” to become carbon-neutral, create 12,000 new jobs by 2030 and provide £7 billion net benefit to London’s economy.
A flurry of commitments from UK councils to create low emissions zones and increase the charging infrastructure for electric vehicles followed the government’s announcement to ban all new petrol and diesel vehicles by 2040: London’s mayor, Sadiq Khan, introduced the world’s first ultra-low emission zone (ULEZ) in 2019, while Oxford will become the first place in the UK to have a Zero Emission Zone (ZEZ). The pilot, introduced in August this year, will see non-zero emission vehicles subject to charges in certain zones, between 07:00 and 19:00.
At the same time, cleaner transport is on the rise: the police, fire services and the NHS are all introducing electric vehicles to their fleets, while Leeds has pledged to invest £71 million in 284 new ultra-low emission buses and Arriva Merseyside has introduced 12 e-buses to its Liverpool routes after investing £21 million in greener fleets. In the UK’s capital, 68 fully electric double-decker buses create the largest fleet of its kind in Europe, while the Metropolitan Police is trialing hydrogen fuel cell scooters as patrol vehicles.
Finally, UK cities have started to encourage their citizens to switch to more sustainable modes of transport such as walking and cycling, which have proven to be particularly popular during the lockdowns throughout the COVID-19 pandemic. Pop-up cycle ways, wider sidewalks and cycle and bus-only streets are some of the instruments local authorities can get funding for out of a £250 million fund the UK’s transport minister, Grant Shapps, announced in May 2020, claiming that “if cycling increased by only 5% it would mean 8 million fewer car journeys, 9 million fewer rail journeys and 13 million fewer bus journeys.”
With floods, storms and heatwaves increasingly disrupting communities and the UK economy, many public bodies are prioritising the improvement of built infrastructure in towns and cities, incorporating green infrastructure that enhances air quality, boosts quality of life, conserves wildlife and attracts visitors. Equally, many councils and housing associations are delivering low-carbon and affordable social housing stock, while the roll-out of high-speed broadband internet along with the rise of the Internet of Things (IoT) has helped to design smart and connected infrastructure across cities, positioning the UK as a global leader in smart cities. The Foreign, Commonwealth & Development Office (FCDO) Smart Sustainable Cities project, for example, brings together selected European and UK cities to showcase best practice and provide opportunities for knowledge sharing and networking. The UK has also fostered substantial new innovations in digital technologies such as IoT, AI, 5G, sensors and electronics systems, geospatial and blockchain, all of which underpin future smart city developments.
Finally, the UK’s public sector also sets an example for knowledge sharing and open innovation as can be seen in the multiple green networks and collaborations. Here are just a few:
While the green corporate landscape might be fragmented, overall there is a clear message and belief: a green shift in business strategy can address a large majority of this era’s corporate challenges as well as improve business performance and competitiveness.
Some UK businesses are indeed much further ahead on their sustainability journey than others, in particular smaller businesses with fewer resources for climate adaptation (96% of private sector enterprises have fewer than 10 employees, accounting for 33% of employment and 18% of turnover), haven’t even yet started their transition. However, “doing well by doing good” is making a strong business case for corporate environmental action, evidenced already by the UK’s economic growth by 72% since 1990 while reducing emissions by 42%.
And, ahead of COP26, which will take place in Glasgow in November this year, the green momentum across corporate UK is growing: by the end of March, 30 of the UK’s FTSE 100 companies, representing a total market capital of £650 billion, have signed up to the United Nation’s Race to Zero campaign – the largest ever global alliance committed to achieving net zero carbon emissions by 2050 at the latest, with many firms opting to go even faster.
To encourage businesses of all sizes to set out clear pathways to get to net zero, the UK government has set up Business Leaders Roundtables, chaired by COP President Alok Sharma, and has appointed a ‘Net Zero Business Champion’, Andrew Griffith, who will help the business community embrace green opportunities.
As much as there is the belief that climate change mitigation also brings enormous business opportunities, experts agree that the UK is well positioned with its industry and research strength to capitalise on critical low carbon technologies such as low-carbon heating solutions, offshore wind, electric vehicles and demand-side management. The UK’s share of clean energy patents was 11% in 2018, which was on average higher than in other G7 countries (7%).
In March, the government presented its biggest weapon in its green arsenal to turn corporate UK green: its Industrial Decarbonisation Strategy. With its publication, the country became the world’s first major economy to present an all-encompassing Net Zero Strategy which outlines how the country can have a thriving industrial sector aligned with the net zero target. The strategy covers the full range of UK industry sectors: metals and minerals, chemicals, food and drink, paper and pulp, ceramics, glass, oil refineries and less energy-intensive manufacturing. And, it not only lays out key building stones of the transition such as adopting low-regret technologies and building suitable infrastructure, improving efficiency and accelerating innovation of low carbon technologies but also shows the way forward for getting investors and consumers to choose low carbon.
However, a report from the Green Innovation Policy Commission (GIPC), a business-led Commission set up and supported by University College London (UCL) and UK think tank Green Alliance, points out that the UK, despite being well positioned globally in clean technologies such as offshore wind, marine energy and efficient aviation, hasn’t yet translated this innovation power into green innovation performance. The report states that despite a stable and relatively rapid growth of the UK’s low-carbon and renewable energy sectors, Britain has underinvested in R&D for energy and environment and has a patchy record in innovation in areas driving transition to net zero – the Eco-Innovation Index, which measures green innovation in the EU member states, ranked the UK ninth in 2019.
As mentioned earlier, UK businesses are moving at varying pace, which is unsurprising considering that each sector is affected differently. Therefore, let’s have a look at how some sectors are faring so far:
In the second of our three UK focus articles of our Climate Change Virtual World Tour series we’ll be looking in further detail at the UK’s specific green challenges and opportunities.
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