Principles for a Net Zero Strategy and building back greener

Professor Karen Turner

The Government’s long awaited net zero strategy is finally published. At near on 400 pages, this blog is by no means an in depth review of that strategy. However, the Government sets out four key principles that underpin the strategy at the start of the document. These are working with ‘the grain of consumer choice’, ensuring biggest polluters pay most, ensuring the most vulnerable are protected and delivering deep cost reductions in low carbon tech. Here we take a look in turn across the piece and at each of the principles individually and give some initial thoughts on what works and what’s missing.

A framework for net-zero decision-making

Let’s start by saying CEP has already set its own stake in the net zero ground. Over the last seven years of conducting research into the wider economic and societal outcomes of transitioning to net zero, we have come up with our own list of net zero principles. Five in our case. They are:

  1. Understanding who really pays and gains.
  2. Identifying pathways that deliver growing and equitable prosperity.
  3. Assessing which actions can deliver near-term economic returns.
  4. Determining how outcomes that simply involve ‘offshoring’ of emissions, jobs and gross domestic product can be avoided.
  5. Seeking to frame net zero as a public policy rather than a technological challenge.

There are some common threads between the two sets of principles. These run across ensuring that transitions are regarded as socially just and align with ‘just transitions’ and ‘levelling up’ ambitions. We also focus on addressing issues of competitiveness and efficiencies in industry, which our research demonstrates if left unaddressed could also have knock-on effects for tackling regional inequalities. However there are also divergences and gaps. Below we take a look at the Net Zero Strategy principles in the light of the latest research and evidence from CEP on some of the potential opportunities and challenges of the net zero transition.

1. Working with the grain of consumer choice

While it is right that no one will be required to rip out their existing boiler or scrap their current car, our research has highlighted the need to identify where risks associated with delaying delivery of, for example, retrofitting projects to maximise household energy efficiency, extend beyond emissions reduction challenges to potentially sacrificing real household income, jobs, and other wider economy gains. We also need to understand what may limit choices across different groups in society, and how a combination of regulation and government intervention can motivate change, for example by creating smart and reliable EV charging infrastructure, and enabling productivity gains in electricity supply and vehicle manufacture to make EV’s more affordable to access and run.

2. Ensuring biggest polluters pay most

Here the Government’s principle refers to fair carbon pricing more broadly, which is an essential development. However, we need to understand knock-on effects of requiring big polluters, such as the industries clustered across the regions of northern England and the east of Scotland, taking on significant additional costs to decarbonise. For example, consider the cluster sequencing announcement just made about introducing carbon capture and storage (CCS) in Merseyside and the Humber. While a welcome development, our research on the specific nature of cost implications for firms associated with installing and operating equipment to capture CO2 shows that, if the timing and focus of support for ‘early movers’ isn’t designed effectively, those who ultimately bear the costs could be the workers and communities whose jobs and livelihoods depend on the continued international competitiveness of these firms.

3. Ensuring the most vulnerable are protected

This is absolutely essential and especially if we are to avoid carbon poverty. However, the real challenge again lies in who ultimately pays the bill. Reducing carbon emissions to meet net zero targets will inevitably involve new costs that firms in the energy, manufacturing and other industries will look to recover and this will ultimately feed through to higher prices for all types of goods and services. For example, our work on EVs shows that the costs of upgrading electricity networks to support new and growing demand for electricity will cause electricity prices to rise, and this is most challenging to those on lower incomes who tend to only use as much electricity as they really need to and, therefore, find it difficult to reduce their use when prices are high. On the other hand, fuelling cars using electricity rather than petrol and diesel can bring wider economy benefits through more reliance on UK supply chains, which creates new jobs often with higher than average wages. However, not everyone will benefit, while everyone does share in the pain of higher consumer prices, which will be exacerbated where, for example, growing sectors have difficulty recruiting workers (something that is all over the news right now).

4. Delivering deep cost reductions in low carbon tech

In the face of all the types of challenges set out above, finding ways to improve the efficiency of how people and businesses work with new and existing equipment and technologies, and for all sectors of the economy to become more productive, is the real key to keeping costs and prices down as we transition to new ways of living and working. Arguably, letting those more able to pay go first in how they heat their homes and get around using new heating systems and electric vehicles, is a good way to identify and exploit sources of efficiency so that those who follow can do so in a less costly manner. Similarly, where Government can focus support and incentivise investment in industries required to be ‘early movers’ in adopting transformative solutions (such as the CCS infrastructure being introduced in the north of England) in ways that allow firms to build their efficiency in operating the required equipment and systems, the outcome could be important gains in competitive advantage in changing international markets, while limiting the impacts on consumer prices and creating new jobs.

Over the coming weeks in the run up to, and during the climate change conference COP26 taking place in Glasgow, we will be exploring some of these issues in more depth and examining what our research and evidence suggests about the steps we need to take to accelerate progress towards a sustainable, equitable and prosperous transition to Net Zero.