On 19 October, alongside a number of other important strategy documents (over 2,000 pages in total), the UK Government published its ‘Net-Zero Strategy’ (NZS) which will help achieve the UK’s interim five yearly carbon targets leading up to net-zero by 2050.

The NZS focuses on eight key areas with priorities and policies set out under each area:

1) The Power Sector

The NZS sets out the UK Government’s ambition that the power sector will be fully decarbonised by 2035 (with the caveat that this will be subject to security of supply). The focus is on domestically-generated renewable electricity to create a power system based on a mix of renewables, new nuclear power stations, flexible storage, gas with CCS and hydrogen.

Specifically, the NZS undertakes to:

  • Secure FID on a large-scale nuclear plant by the end of this Parliament;
  • Launch a new £120 million Future Nuclear Enabling Fund.
  • Create 40 GW of offshore wind by 2030.
  • Create up to one of floating offshore wind by 2030.
  • Deploy new measures to help smooth out future price spikes.

2) Fuel Supply & Hydrogen

The NZS re-states the ambition that the UK will deliver 5 GW of hydrogen production capacity by 2030.  The UK will at the same time halve emissions from oil and gas and increase the production of biofuels.

Specifically, the NZS undertakes to:

  • Provide up to £140 million to establish the Industrial Decarbonisation and Hydrogen Revenue Support (IDHRS) scheme, with a target of creating up to 250MW of green hydrogen production capacity in 2023.
  • Introduce a climate compatibility checkpoint for future licensing on the UK Continental Shelf.
  • Regulate the oil and gas sector in a way that minimises greenhouse gases through the revised Oil and Gas Authority Strategy.

3) Industry

The NZS commits the UK to creating four carbon capture usage and storage (CCUS) clusters by 2030.  The UK will support a ‘deep decarbonisation of industry’ through carbon pricing and the creation of low carbon industry clusters, which would have access to Government support under the CCS Infrastructure Fund and revenue support mechanisms.

Specifically, the NZS undertakes to:

  • Accelerate the development of the Hynet and East Coast Clusters to capture 20-30 MtCO2 per year by 2030.
  • Create a ‘reserve cluster’ of Teesside and the Humber, Merseyside, North Wales and the North East of Scotland.
  • Use the Industrial Energy Transformation Fund to future-proof industrial sectors.
  • Consult on a net-zero-consistent UK Emissions Trading Scheme (ETS) cap to incentivise cost-effective abatement in industry.

4) Heat and Buildings

The NZS creates a pathway to ensuring that from 2035 all new heating appliances in homes and workplaces are low carbon and sets 2026 as the date for a decision on the role of hydrogen in heating. The Government will seek to reduce electricity costs and to rebalance energy levies (such as RO and FiTs) and obligations (such as ECO) away from electricity to gas.

Specifically, the NZS undertakes to:

  • Prevent the sale of new gas boilers beyond 2035.
  • A Boiler Upgrade Scheme will incentivize the swap-out of domestic gas boilers.
  • Create a new Heat Pump Ready programme to provide funding for heat pump technologies with a target of 600,000 installations a year by 2028.
  • Rebalance policy costs from electricity bills to gas bills.
  • Fund the Social Housing Decarbonisation Scheme and Home Upgrade Grants and decarbonise public sector buildings by 75% by 2037.
  • Launch a Hydrogen Village trial to inform a decision on the role of hydrogen in the heating system by 2026.
  • Consider mandatory disclosure requirements for mortgage lenders on the energy performance of homes in their portfolios (UK housing stock generates 20% of carbon dioxide emissions).

5) Transport

The NZS aims to remove all road emissions and begin work to deliver zero emission international travel including through new vehicle grants and investment in electric vehicle infrastructure; and to increase use of public transport, cycling and walking.

Specifically, the NZS undertakes to:

  • Introduce a zero emission vehicle mandate to give a clear signal to investors.
  • End the sale of new petrol and diesel cars by 2035.
  • Increase funding for zero emission vehicle grants and EV Infrastructure.
  • Allocate funding to support the electrification of UK vehicles and their supply chains.
  • Trial three zero-emission HGV technologies on UK roads to determine their operational benefits and infrastructure needs.
  • Introduce funding to promote cycling and walking in UK towns and cities.
  • Fund an increase in bus use.
  • Make local transport systems net zero, including through zero-emission buses and trains and supporting infrastructure and remove all diesel-only trains by 2040.
  • Extend the Clean Maritime Demonstration Competition.
  • Research zero emission flights and commercialise sustainable aviation fuel.

6) Natural Resources, waste and fluorinated gases

The NZS sets out the Government’s ambition to increase woodland creation in England to meet the UK’s overall target of planting rates to 30,000 hectares per year by the next election. The NZS aims to encourage farmers to implement low carbon farming practices, including through agroforestry. The NZS sets out the UK’s ambition to encourage a circular economy and continue to phase out the use of F-gases.

Specifically, the NZS undertakes to:

  • Support low-carbon farming and agricultural innovation.
  • Restore 280,000 hectares of peat in England by 2050 and treble woodland creation rates in England.
  • Increase investment in net-zero-related R&D across Natural Resources, Waste & F-gases.
  • Explore options for the elimination of biodegradable municipal waste to landfill from 2028.

7) Greenhouse Gas Removals

The NZS sets out the UK’s ambition to deploy at least 5 MtCO2/year of engineered GGRs by 2030 through Government support to early commercial deployment of GGRs, with an ambition to move towards a market-based framework for GGRs.

Specifically, the NZS undertakes to:

  • Invest in the increased deployment of GGRs.
  • Explore regulatory oversight monitor, report and verify GGRs.

8) Support the transition with cross-cutting action

The NZS sets out the UK’s intention to use its status as COP26 host nation to encourage other countries to get to net-zero by 2050, and set more ambitious interim emissions reduction targets. The NZS encourages the private sector to provide green finance and sets out a policy intent of making choosing green options easier and cheaper for consumers. The NZS aims to support training and skills including through a focus on local solutions and undertakes to embed climate into all Governmental policy and spending decisions.

Specifically, the NZS undertakes to:

  • Deliver funding to support net zero innovation projects.
  • Use the UK Infrastructure Bank (UKIB) to crowd in private finance and pull through low carbon technologies and sectors to maturity and scale.
  • Introduce a new Sustainability Disclosures Regime, including mandatory climate related financial disclosures and a UK green taxonomy.
  • Reform the skills system to incentivize employers and learners in delivering net zero.
  • Publish an annual progress update against a set of key indicators.

Reaction:

Overall, the Net Zero Strategy has been welcomed as providing a clear response to the scale of the climate change challenge and the transformation to the UK economy that decarbonisation will require over the next 30 years.

In particular, commentators welcomed the prominence given to: the ZEV mandate; funding for offshore wind supply chains and infrastructure; the co-ordination of offshore transmission networks; the commitment to review the frequency of the CfD auctions; the restatement of the hydrogen ambitions; and the nuclear power commitments.

Commentators have welcomed the emphasis on carbon sequestration, both through natural means (peat bogs, trees) and new capture and storage technologies.  For others, the requirement for the UK Government to reflect environmental issues in national policy- making, is one of the most important commitments in the document, since it places net-zero at the core of governmental decision-making processes.

On the Other Hand…

No Strategy ever satisfies everyone and some of the critical comments are worth examining briefly.

1) Weaknesses of the Policy Offering

  • The NZS simply consolidates in one place the various UK Government strategies published in the last 12 months, rather than contributes significant new funding, or policy.
  • There is no mention of the EU in the International Cooperation Section of the NZS and therefore no indication of how to solve the issues around carbon pricing cooperation (including any potential linkage between the UK and the EU ETS).
  • The PM’s 10 Point Plan of last December had already made the commitment to 5 GW of green hydrogen by 2030, so the absence of clarity on the UK’s post-2030 hydrogen plans (including silence on the potential split between green and blue hydrogen) in the NZS was a missed opportunity.

2) Reliance on Unproven Technology

  • The NZS’s low carbon future society relies heavily on a techno-centric, market-driven vision, based on largely unproven technology.
  • Greenhouse gas removal technologies (that are untested at scale) must, between now and 2050, be developed and deployed so as to remove and store more carbon than the UK currently emits from all its homes.
  • Green hydrogen is allocated a major role, though the UK currently has very few operating production facilities.
  • Nuclear has been given a (welcome) central role in addressing renewables’ intermittency problems.  But the solution chosen – small modular nuclear reactors – uses largely unproven technology.

3) Financing

  • The Committee on Climate Change has previously calculated that £1.4tn of investment is required over 30 years (equivalent to 2.4% of the UK’s GDP or £46 billion per year) to make the country carbon neutral.
  • The scale of finance committed by the government in decarbonising the UK’s housing stock is less than a quarter of the investment required by 2025.
  • The NZS aims to mobilise £60bn of private finance by 2030 in addition to £26bn of public funds: equivalent to the sum the UK has invested in the renewable industry over the last decade.
  • The NZS target for installing heat pumps is 600,000 per year by 2028. But the grant funding available for heat pumps will cover the installation of only 90,000 pumps.

4) Government Inconsistencies

The Treasury’s Net Zero Review (NZR), released on the same day as the NZS, accepted that action to mitigate climate change was “essential to long-term UK prosperity”.  However, there were points where the NZR did not appear to share the NZS enthusiasm for the green revolution:

  • The NZR raised concerns about the possibility of ‘industrial leakage’ caused by stricter green policies in the UK as compared to other countries.
  • The NZR raised concerns that the race to Net Zero was likely to result in the loss of up to £37bn a year in tax revenues from fossil fuel duty.
  • The NZR noted the need for new taxes to pay for the NZS.
  • The Treasury is concerned about possible job losses caused by the energy transition.
  • Treasury officials are said to be considering some form of road pricing as another mechanism to raise funds.

There are other areas of apparent inconsistency:

  • The apparent tension between Government commitments to grant new oil and gas licenses in the North Sea and open a new coal mine in Cumbria and the green agenda set out in the NZS.
  • The NZS is silent on meat-eating, which contrasts with the approach taken in the UK’s national food strategy.

Comment:

For all this criticism, the NZS is a welcome document.  It is one of the first to comprehensively attempt to chart with some degree of precision how a country (the UK in this case) will reach its mid-century Net-Zero target.

If it was not clear before, the NZS reveals the almost unimaginable scale of the transformation that will be necessary to reach Net-Zero by 2050.  By 2035, electricity will be fully clean; gas boilers and hydrocarbon-consuming cars will have disappeared from the UK’s houses and roads; by 2025, the UK will be planting trees covering an area the size of Milton Keynes annually.  And Net-Zero considerations will be placed at the centre of Government policy decision-making.

It is also clear that the UK is serious about addressing the climate crisis and that there is cross-Party support for accelerating the UK’s Energy Transition.  The government views its Presidency of COP26 as an opportunity to act as a global catalyst for progress in confronting the climate crisis and the NZS is a road-map to which the UK Government hopes other countries will look for inspiration.

There will be turbulence as the UK economy adjusts to the transformation.  Turbulence which may create investment risks, but will also create major opportunities for investment- wind, nuclear, hydrogen, EV, energy efficiency, smart grids, smart storage etc.

Covington is well-placed to offer legal and public policy advice and support to companies seeking to navigate this new environment and discuss these opportunities with you to identify how we might work together.

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Photo of Thomas Reilly Thomas Reilly

Ambassador Thomas Reilly, Covington’s Head of UK Public Policy and a key member of the firm’s Global Problem Solving Group and Brexit Task Force, draws on over 20 years of diplomatic and commercial roles to advise clients on their strategic business objectives.

Ambassador…

Ambassador Thomas Reilly, Covington’s Head of UK Public Policy and a key member of the firm’s Global Problem Solving Group and Brexit Task Force, draws on over 20 years of diplomatic and commercial roles to advise clients on their strategic business objectives.

Ambassador Reilly was most recently British Ambassador to Morocco between 2017 and 2020, and prior to this, the Senior Advisor on International Government Relations & Regulatory Affairs and Head of Government Relations at Royal Dutch Shell between 2012 and 2017. His former roles with the Foreign and Commonwealth Office included British Ambassador Morocco & Mauritania (2017-2018), Deputy Head of Mission at the British Embassy in Egypt (2010-2012), Deputy Head of the Climate Change & Energy Department (2007-2009), and Deputy Head of the Counter Terrorism Department (2005-2007). He has lived or worked in a number of countries including Jordan, Kuwait, Yemen, Libya, Iraq, Saudi Arabia, Bahrain, and Argentina.

At Covington, Ambassador Reilly works closely with our global team of lawyers and investigators as well as over 100 former diplomats and senior government officials, with significant depth of experience in dealing with the types of complex problems that involve both legal and governmental institutions.

Ambassador Reilly started his career as a solicitor specialising in EU and commercial law but no longer practices as a solicitor.