The Climate Change Committee (CCC) have published their annual report on the UK Governments progress to date in reducing emissions. This statutory report provides a comprehensive overview of progress across different sectors and assesses action against policy ambition. Overall, the report highlights that real progress is behind policy ambition in many areas. The report presents the following 6 key messages.
- The UK Government now has a solid Net Zero strategy in place, but important policy gaps remain.
- Tangible progress is lagging the policy ambition. With an emissions path set for the UK and the Net Zero Strategy published, greater emphasis and focus must be placed on delivery.
- Successful delivery of changes on the ground requires active management of delivery risks. Not all policies will deliver as planned. Some may be more successful than expected, while others will fall behind.
- Action to address the rising cost of living should be aligned with Net Zero. There remains an urgent need for equivalent action to reduce demand for fossil fuels to reduce emissions and limit energy bills.
- Slow progress on wider enablers. The Net Zero Strategy contained warm words on many of the cross-cutting enablers of the transition, but there has been little concrete progress.
- The UK must build on a successful COP26. The UK presidency of the UN COP26 climate summit in Glasgow last November successfully strengthened long-term global ambition and introduced new mechanisms to support delivery. It should prioritise making those new mechanisms work in practice and strengthening global 2030 ambition, while preparing for a focus on climate finance and adaptation at COP27 in 2022 and COP28 in 2023.
CEP’s response: the need for economic realism
The CCC are correct to say that there has not been sufficient action, or even strategizing or planning for action across many areas such as increasing building efficiency and agriculture. The CCC highlight that in these areas, policies are not yet fully in place to drive the delivery programme required. Without policies in place, especially in more complex areas like energy efficiency, where policy must be carefully designed to ensure that households and organisations can and will engage with the implementation phase, there is a real risk that targets may be missed. As highlighted by the CCC, delaying action not only brings real climate risks, it also brings risks of higher costs.
However, while rapid large scale action might seem like the right answer, and one that the CCC would be expected to advocate given their remit and focus, it is important to understand the real world trade offs involved, and to bring some real economic realism into the wider debate.
Crucially, economic growth and sectors across the economy are challenged by the current labour and other supply shortages, along with the impacts of the energy price crisis. Stepping up large scale infrastructure development in particular would add to the pressure the economy is currently experiencing. This would bring not only delivery/scheduling challenges but could increase costs of delivery through higher wage and other costs. This will ultimately feed through to not only more pressures on the cost of living, but also adding to the bill for whoever pays (be it the taxpayer and/or other).
Moreover, it would risk proceeding without developing the domestic supply chain content that everyone agrees we need. For example, where labour and other domestic resources are scarce, we must accept that not every project can deliver in this regard. In short, everyone cannot deliver in near term AND use what local capacity and content is available now, which in turn needs to further develop if we are not to become an even more import-intensive (and carbon leaking) economy. Building local content and supply chain capacity and expertise to ensure UK firms, workers, households and the public budget ultimately benefit in a net zero economy – and ensure a successful transition from more carbon-intensive activity - is crucial and must be a key consideration when thinking about the timing of delivering actions.
The need for steady action
Thus, while the CCC would be correct to argue that late action may raise overall costs, condensed early action may also prove so. On this basis, steady action may be what we need, with a priority on maximising both emissions reductions and economic benefits, while minimising costs, particularly to those least able to pay if the transition is to be economically, socially and politically as well as technically feasible.
Delivering steady action in the new economic context of a supply constrained economy means that we need planning now to understand which actions to prioritise. Where energy costs to low income households are a concern, routes to making people more resilient to shocks such as what is currently going on with energy prices, such residential energy efficiency (and retrofitting supply chain development), must surely be a high priority in the short term. However, realising energy efficiency gains will take time, so we cannot expect increased even early action in this regard to substantially reduce energy bills for some time. Moreover, the scale of efficiency gains required to substantially offset the impacts of energy price shocks such as the current one, and particularly if it/they become sustained and/or frequently recurrent over time, may mean we should focus more effort on shifting homes to more efficient low carbon heating systems.
Nonetheless, delivering steady action also means that there is a need to quickly consider the policy frameworks used and the outcomes they are driving to meet and how costly and potentially competing (for scarce resources) activities can be spread sufficiently to avoid a range of cost and price pressures arising, and implications such as scheduling risk (where projects simply cannot deliver due to a lack of availability of factors such as suitable qualified workers).
Designing long term policy frameworks also allows policymakers and industry to focus on longer term goals like driving wider productivity and efficiency gains in energy and other service delivery, which can act to offset price and cost of living pressures across the economy. The recently announced draft determinations for Ofgem’s RIIO electricity distribution price control for 2023-28 are a good example of this. Through increased productivity and lower financial returns to network companies, £2.7bn worth of network upgrades needed to accommodate EV charging and heat pump uptake are being delivered with no increased cost to consumer bills.
While many net zero actions will deliver wider economy benefits, given the new economic context and cost of living crisis, it’s more important than ever to understand who really pays, how and when. Building this understanding, and designing mitigating action around it is a crucial component in delivering the progress the CCC are calling to see.
Professor Karen Turner