Powering up Britain and what it means for business
Written by Tim Greenhalgh
The updated net zero strategy has landed with a hefty thump – over 2840 pages in all – but what does it mean for business?
“Powering Up Britain” brings together the Energy Security Plan and Net Zero Growth Plan, outlining how the UK will “diversify, decarbonise and domesticate energy production”, making a very big bet on carbon capture and storage (CCS) in particular.
The government’s full strategic intent is embedded in the 44 documents published on Green Day, with Grant Shapps, the energy and net zero secretary, promoting the key parts of a wide-ranging strategy, which include:
- support for carbon capture projects
- nuclear energy
- offshore windfarms
- electric vehicles
- home heat pumps
- hydrogen power.
The aim is to deliver long-term security in four broad areas: energy, consumers, climate and the economy. But significantly there is no immediate response to the commercial challenges from the US Inflation Reduction Act (IRA) and the EU Net-Zero Industry Act.
Chancellor Jeremy Hunt plans to outline a response to these legislative moves in the Autumn, surprising many in the country’s business communities, particularly those spearheading the development of a green economy, who expected rapid and effective action.
The IRA allocates a total of $369bn to climate action, aiming to reduce US annual domestic emissions by at least 40% by 2030, against a 2005 baseline, while the EU has set new targets of at least 40% of clean energy technologies to be manufactured in the EU by 2030.
Carbon border taxes
The government says it will consult on the introduction of carbon border taxes for manufacturers and carbon-intensive industries, potentially very similar to a plan being implemented by the European Union, the carbon border adjustment mechanism (CBAM).
And it points out that it has committed £30 billion of domestic investment for the green industrial revolution in the Spending Review 2021, £6 billion for energy efficiency for 2025-8 in the Autumn Statement 2022, and up to £20 billion for CCUS in the recent Budget.
The government’s green focus is firmly on attempts to create optimal conditions for investment, outlined in the updated Green Finance Strategy that was published at the same time as the revised Net Zero Growth Plan. This includes maximising the impact of the UK’s public financing institutions, for example through the UK Infrastructure Bank with its £22 billion of financial capital, as well as the Infrastructure Bank, British Business Bank and UK Research and Innovation.
The strategy also sets out the route map for the UK to become the world’s first Net Zero Aligned Financial Centre, aiming to embed the country at the forefront of the evolving global green finance market.
Energy Bill Relief Scheme
In support of business, the government also points to reforms to the pensions and insurance sector that will leverage the UK’s deep capital markets to invest in the net-zero transition and green industries in the UK. It also believes that reforms to Solvency II – regulatory requirements for insurers – will support the sector to increase long-term green investment.
It also emphasises that it continues to provide public spending where industry and households cannot, for example through the Public Sector Decarbonisation Scheme, for schools and hospitals.
This all sounds fairly positive in challenging times, but there’s no new money, which will be a huge disappointment for businesses, who will be getting a clear message – “It’s up to you now”.
This week the government scaled back the Energy Bill Relief Scheme, on April Fool’s Day. The new scheme allocates no more than £5.5bn over a 12-month period, while the first had a maximum budget of £18bn over six months.
The scheme has been a lifeline for all businesses, but particularly SMEs. With many businesses also now coming to the end of fixed-rate contracts, the double whammy could see energy bills rise by up to 133%, according to analysts Cornwall Insight.
£7.3bn rise in energy bills
The hospitality sector is facing a £7.3bn rise in energy bills, according to trade association UK Hospitality and it warns that this could drive thousands of venues out of business. The sector’s energy costs are £12bn a year higher than before the crisis sparked by the Ukrainian war.
Not surprisingly, the government’s new communications campaign targeting SMEs with advice on energy efficiency, has met with a cool reception. It includes tips on LED lighting, lighting timers and adjusting boiler flow temperatures as well as heating timers.
The government is also partnering with the British Chamber of Commerce and Federation of Small Businesses to run TV, radio and social media adverts. Some commentators view the move as being too little, too late.
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