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On 30th March the UK Government launched it’s ‘Powering Up Britain’ plan, and responded to the 2022 Skidmore review. All in there are many pages to read through and many issues and challenges to digest and consider, traversing multiple measures, but, crucially, with many not involving action in the near term, or in the current Parliament. We have to confess that our team at CEP is still in the digestion and consideration stage, but some initial thoughts are emerging.
What stands out for us? We are encouraged to see emphasis on industrial decarbonisation and the need to deliver deep emissions reductions while retaining the competitiveness of UK-based firms. Here, while we are only just starting work on the role of hydrogen in different parts of the economy (starting with our role on the EPSRC Ocean-REFuel initiative), our own research has shown that there are opportunities for green growth in delivering particularly the CO2 Transport and Storage side of CCUS (carbon capture utilisation and storage). See for example our new analysis for the Scottish cluster and Acorn project, conducted as part of the Innovate UK SNZI project. However, ensuring sustained competitiveness does require attention to the potential need for carbon border adjustment mechanisms, especially with the EU taking definitive steps in this regard.
We also welcome recognition of the need for comprehensive skills planning via a new Green Jobs Delivery Group and a set of Government-industry workforce action plans, and of the need to both retain existing workers and skills and attract new ones. Ambition is required here: in addition to develop the jobs and skills required for Net Zero, the UK needs to be prepared for both the retention and attraction of global talent. Other major economies are implementing major initiatives to attract investment and talent for low-carbon projects, so there is a significant risk for a ‘green brain drain’, potentially affecting the delivery of net zero actions.
The central importance of addressing labour market and skills challenges is reinforced by a central finding across our research at CEP. This relates to how different net zero actions may impact the economy is that the persisting labour supply constraint and associated skills shortages are likely to drive further pressure on the cost-of-living and -doing business in the UK, and may limit the extent of ‘green growth’ gains achieved. The solution is focussing on the delivery of productivity and efficiency gains in how we use energy and other resources. Thus, it is frustrating that, while targeted action on supporting lower income and vulnerable households in retrofitting for increased energy efficiency is welcome, government is not committing to support or set a framework for driving the type of efficiency gains required across the household sector to reduce emissions, reduce energy bills and drive sustained economic growth.
On the other hand, the focus on not only the change in domestic heating systems required to decarbonise heat – at this stage through support for heat pump deployment – but on the need to rebalance electricity and gas prices is welcome. The timing is again frustrating, with action on the latter unlikely to take place during the current parliament. We have just published research supported by the UK Energy Research Centre that demonstrates how the price of electricity relative to gas needs to fall not only to encourage uptake of electrified solutions but to ensure that the physical energy efficiency properties of heat pumps actually translate to monetary gains. If this happens, household energy bills can fall, and another source of wider green growth could be unlocked. If not, there is a risk of bills rising and consumer spending power falling.
The pace of action and extent of solid (leadership and financial) commitment is the real challenge at this stage. CEP’s research points to many areas where well-designed actions and timely commitment to net zero delivery can deliver positive outcomes in terms of emissions reductions, real income generation, jobs and GDP – not just in the areas cited already in this blog but in others, such as enabling the EV roll out. However, effective and timely strategy and delivery planning is required if damaging trade-offs and pitfalls are to be avoided, and very real opportunities to exploit early and even first mover advantages are to be exploited. Net zero is the direction to which we have committed for our economy, and, like any form of economic development it requires recognition and understanding of the investment required, rather than regarding what must be done as largely a cost challenge.
Thus, we look forward to this year’s Autumn Budget Statement to see if more firm commitments and firmer strategies backed by action plans and funding emerge. Other countries in the world – not least the US with the Inflation Reduction Act - are recognising and beginning to act on the opportunities offered by aiming for greener growth and the associated delivery of more equitable prosperity, alongside necessary and deep emissions reductions, throughout the Net Zero Transition. The UK must act to ensure we are not left behind and to secure our role as a leader rather than a follower in the direction the global economy is now moving.