BLOG | Hannah Corbett | Dec 2023
2024 promises to be a busy year for energy and net zero policy in the UK. The Future System Operator will be established and a UK Government Net Zero Workforce and Nature plan will be published. Consultations are ongoing around the seventh carbon budget, domestic supply chains, heat in buildings bill and standing charges to name but a few. There will also be a General Election and a new UK Government elected - by January 2025 at the latest. Momentum must be sustained and accelerated if the UK is to meet its net zero ambitions. Long-term planning and action, efforts to instil certainty and confidence and ensuring a laser focus on issues of equity are crucial. Drawing on our research around energy efficiency, worker and skills shortages and energy demand, we set out why they are important and how they might be achieved.
Thinking, planning and acting long-term – the energy efficiency case
Long-termism is absolutely critical to effective energy and net zero policy design and implementation and in generating positive economic impacts from these processes. Evidence from our research on energy efficiency underlines this point.
Previous CEP research exploring the impacts of an £8BN investment over 20 years within Scotland involving a mix of Government grants and industry and household contributions on improving residential energy efficiency, suggests an average 9.6% reduction in energy required to run Scottish households by the end of the 20 year programme and a 13.2% reduction for the 20% of lowest-income households. Lower bills will mean increased household spending power which could result in cumulative gains of £7.8BN in Scottish GDP over a 30-year period. Furthermore, approximately 6,000 full-time equivalent (FTE) long-term jobs could be supported and sustained, with the potential for additional temporary job creation within the 20-year programme. However, the magnitude of these outcomes is dependent on policy commitment to such a long-term programme, not least to provide sufficient confidence to supply chain actors to enable commitment to delivery.
Later UK-wide CEP research published in 2021 also highlighted that shifting to more substantial longer-term programmes could increase energy efficiency and wider economy gains. A wider UK 15-year programme involving £68.5BN of retrofitting activity could lead to a 10.4% energy efficiency improvement across UK housing stock with a £100 to £270 average household income boost per annum as a result of lower energy bills. This increase in household spending power could lead to a £1.3BN sustained GDP increase and 22,500 jobs ultimately sustained across the UK economy. However, it is worth noting that in both cases, how these energy efficiency programmes are funded – e.g., through loans, bills and/or taxes – will impact on the wider economy outcomes, who ultimately pays, how and when, as well as policy commitment to such a long-term programme.
In short, for a new UK Government considering how to define its energy and net zero agenda, and a Scottish Government finalising and implementing its energy strategy and just transition plan, this long-term outlook is critical. This includes the importance of offering homeowners the advice, guidance and certainty on the changes that will be required to heat their homes in the future and how this will be funded.
Instilling certainty and confidence amongst industry and the public
Instilling certainty and confidence for everyone who is required to act is essential. Without it, households will struggle to improve their homes’ energy efficiency or invest in low-carbon heating systems in line with Government targets. Moreover, without the right signals, businesses and industry will be reluctant to invest in low-carbon technologies or the skilled workforce required to drive the net zero transition. The latter is particularly important given the current worker and skills shortages and risks they could pose to delivering net zero projects and wider economy outcomes. For example, our research on Carbon Capture Utilisation and Storage (CCUS) deployment in the UK shows that addressing such shortages will not only help ensure timely project delivery but also increase the number of jobs supported (by up to 300%) and GDP generated (by up to 84%) by a related and emerging transport and storage industry.
In the absence of the right signals, organisations could choose to take their business elsewhere, attracted by the subsidies and incentives offered by mechanisms such as the US Inflation Reduction Act or the European Green Deal. The Prime Minister’s decision to roll back targets around the sale of petrol and diesel cars and the phase out of gas boilers, or the Scottish Government’s recent admission that they are unlikely to meet the ambition of 1 million homes with low-carbon heating by 2030 could also serve to undermine certainty and confidence. This is especially so if no clear action pathways are defined and shared in the light of extended or delayed deadlines. It is not a problem unique to the UK national and devolved context, with similar concerns being expressed over the outcomes of COP28, where laudable and arguably ground-breaking wording in this year’s agreement are not backed up by sufficiently detailed delivery plans and pathways.
Designing energy policy with equity outcomes in mind
All pathways must be designed with affordability and fairness in mind. Energy prices are rising, with Ofgem announcing a 5% increase in the price cap (from January 2024) and also a review on how standing charges on energy bills are determined. Given persistently high energy prices, there have also been calls from across NGOs, charities, industry and others for the introduction of a social tariff. Yet government action on this to date has not been forthcoming. In 2024 CEP plans to undertake further research on these issues as part of its work in the Energy Demand Research Centre, in which it is leading a theme on addressing equity challenges.
Affordability and fairness concerns, and the issue of who pays, must remain central to plans around the transition, and ensuring that it is politically, economically and socially as well as technically feasible. There will be costs attached to net zero actions such as upgrading infrastructure for electric vehicles and heat pump rollouts and government support to guarantee demand for emerging industries such as carbon capture, utilisation and storage (CCUS), and hydrogen. Some or all of these costs are likely to be passed on to households via bills, prices and/or taxes, and action on energy prices will go only so far in helping households to meet these costs. Policy attention also needs to focus on raising people’s incomes, significantly reducing the numbers living in poverty and ensuring a fairer distribution of the benefits of the transition.
In all of this there are also important lessons to be learnt from history. For example, the switch from town to natural gas that took place over the 1960s and 1970s, which involved a ten-year plan and long-term coordination across Whitehall, town halls and households. While the scale and cost of the transition to low-carbon heating are significantly larger in comparison, the type of sustained action, coordination and commitment underpinning the switch in the 60s and 70s can help deliver the changes required today. In turn, not only helping us to meet our net zero ambitions, but also generate sustainable and more equitable prosperity for the UK. This must be the priority going forward, and will continue to be a central focus of CEP’s research.
Image credit: Israel Palacio, Unsplash