On 13th January, former UK Energy Minister Chris Skidmore published his Net Zero Review, hailing net zero as the “growth opportunity of the 21st century” and calling for the UK to lead the global race to green growth. Skidmore urged the UK government to develop a Net Zero Investment Plan. Successfully implementing this plan alongside the Green Finance Strategy could help government turbocharge the net zero transition.
The UK’s net zero transition is at stake. Chris Skidmore’s Net Zero Review presents a challenge to Rishi Sunak’s government: will the Prime Minister and Chancellor commit to adopting the Review’s net zero finance recommendations, including the need for a Net Zero Investment Plan?
Their opportunity to demonstrate commitment to delivering the investment required to reach net zero is approaching fast. The next Budget and updates to both the Green Finance Strategy and the Net Zero Strategy (which the High Court ruled unlawful) are expected in March.
The Net Zero Review asserts that most of the investment required to reach net zero will need to come from the private sector. It urges Rishi Sunak’s government to provide businesses with the policy and investment certainty needed to unlock billions into the economy. The Review concludes that achieving this needs the creation of a stable environment for business to plan and invest in net zero.
A Net Zero Investment Plan
One of the Review’s key recommendations is the development of a Net Zero Investment Plan. This proposal is already gaining strong private sector support, which the Review recognises by highlighting a letter from a coalition of thirty companies with over £3 trillion in assets calling for government to publish one.
A Net Zero Investment Plan is the missing piece of the net zero investment puzzle. The Net Zero Strategy sets out sectoral transition pathways, whereas the Green Finance Strategy Review will establish a framework for transitioning the financial sector. However, clarity on sectoral investment progress and policy incentives is lacking.
Understanding the cause of investment gaps is essential to determine if finance is flowing at the scale and speed required to hit our net zero targets. Investors need certainty about the government’s long-term net zero commitments and clarity on the government plan to incentivise the investment needed to close sectoral financial gaps and address market barriers.
The UK government should commit to delivering a Net Zero Investment Plan to address private sector needs and unleash a market-led transition. To be effective, the government would need to undertake the following actions:
1. Empower an independent body (e.g., Office for Budget Responsibility or the Climate Change Committee) to regularly:
- Assess the total investment required to reach net zero.
- Assess the public and private investment in place, and the planned investment that needs further policies, regulations and incentives.
- Assess sectoral investment gaps, and why they exist i.e. market barrier analysis.
- Produce recommendations to government for actions they could take to tackle market barriers and leverage private investment.
2. In response, the government would publish a Net Zero Investment Plan that includes:
- A detailed plan of how they will get investment on track to net zero and fill any investment gaps. This plan would use the entire toolkit at the government’s disposal, e.g., standard and regulation signals, tax incentives and strategic public investment through levers like the UK Infrastructure Bank.
This would create a positive feedback loop between government policymaking and private institutions. Independent tracking of financial flows will also support market confidence by centring transparency, credibility and expertise into government net zero policymaking. This will ensure the best possible advice was put to government, based on the most rigorous financial analysis.
Leveraging the review for 2050 net zero
Finance can be the engine driving the net zero industrial revolution. But to make the most of this unprecedented economic opportunity and ensure the UK is not outcompeted in the race to zero, it needs gold standard data and advice on investment gaps and a plan on how to close them. This approach has the solid backing of UK PLC. The Green Finance Strategy is an opportunity for the government to get net zero investment back on track.
This blog has been sourced from E3G and can be accessed here