Last reviewed 9 July 2019

In her final weeks as Prime Minister, Theresa May has committed the United Kingdom to a net zero carbon emissions target by 2050 — the first G7 country to do so. But how will it work in practice and what are the likely impacts on businesses across the UK? John Barwise has been finding out.

On 12 June 2019 the Government laid secondary legislation to introduce a target for net-zero greenhouse gas emissions by 2050. This historic move will consolidate the UK’s position as a world leader on climate change and, perhaps more importantly, if other G20 countries follow suit, the chances of keeping temperature rises below the 2˚C tipping point outlined in the Paris Agreement, become a real possibility.

The proposed legislation follows a recommendation from the Government’s advisory body the Committee on Climate Change (CCC), that net zero ‘’is necessary, feasible and cost effective”. Commenting on Theresa May’s commitment, CCC Chair Lord Deben said: “This is a major commitment for the coming decades…The target must now be reinforced by credible UK policies, across government, inspiring a strong response from business, industry and society as a whole.”

Controversially, the proposed legislation does allow for international carbon credits to be used to “offset” UK emissions, which commentators say will mask some of the UK’s carbon footprint.

What do stakeholders say

Overall the net zero carbon policy has been broadly welcomed by most stakeholders. Over 120 of Britain's leading businesses wrote an open letter in May urging the Government to adopt a legally-binding net zero emissions goal for 2050. Those signing the letter included BT, Unilever, John Lewis, Waitrose, Arup and Coca-Cola.

Investors also say the policy sets a clear direction of travel. Ben Nelmes, Head of Public Policy at UK Sustainable Investment and Finance Association (UKSIF), said setting a net zero target for the UK was “clearly the right thing to do.”

Environmental groups see it as a “crucial first step” as WWF’s Head of Climate Change Gareth Redmond-King put it. Greenpeace says that overall “net zero — done right — could be a really good thing,” but argues that any loopholes such as international offsets should be closed, adding that the policy will only work if there is funding and commitment to deliver it.

Costs and benefits

Chancellor Philip Hammond is one of the few to add a note of caution, arguing that a net zero carbon policy could cost the UK economy up to £1 trillion by 2050. In a letter to the Prime Minister seen by the FT, Hammond advised against the plan saying that, whilst it was right for the UK to lead when it came to climate change, the move of speeding up the process could leave some UK industries "economically uncompetitive." unless other countries follow suit.

In contrast, the CCC report puts the cost of meeting the net-zero target at 1-2% of GDP, which is the same as the predicted cost of the current 80% target — with most of the additional savings coming from cost reductions and efficiencies in key technologies such as renewable energy. The CCC also highlights long term savings from avoiding climate damage costs, avoiding climate adaptation costs and other costs, eg health-related air pollution.

The Office of National Statistics also points out that switching to low carbon economy opens new opportunities for industry. The environmental goods and services sector (EGSS), for example, which covers a wide range of technologies and business services related to climate change, contributed £62.5 billion of output to the UK economy in 2015, and employed around 335,000 full-time equivalent employees — an increase of 10% from 2010 to 2015 and representing around 1% of total UK employment.

Net zero means industry-scale disruption

The IPCC’s highly acclaimed report on the negative environmental impacts from rising global temperatures warns of a real and present danger to land and ocean ecosystems and the essential services they provide. But whilst the case for rapid emissions reduction and plans to transition to net zero economy are gaining traction, what is less clear is how disruptive the transition is likely to be.

A recent report from the UK Environmental Research Council (UKERC), concludes that getting to net-zero will require economy-wide changes that extend well beyond the energy system, “leading to rapid and unprecedented change in all aspects of society.”

The report, Disrupting the UK energy system: causes, impacts and policy implications, points out that although businesses are making stronger commitments to a net-zero carbon future, some sectors will need to make fundamental changes to their business models and operating practices, and others could be required to phase out some of their core assets.

The report offers some evidence that the energy sector, particularly the big 6 utilities have changed their strategies in response to climate policy, but says change is at an earlier stage in other sectors. For example, disruptive change is likely to be required in the construction sector to transform our building stock and make it compatible with climate change targets.

It also remains unclear what changes heating firms, such as those reliant on gas supplies, will need to implement to deliver decarbonisation, and whether they will have the capacity to do so. Some industries face starkly divergent futures — including futures where their core assets will need to be phased out.

Sectors facing disruption

The report focuses on four key areas of the economy, highlighting how they may need to change to remain competitive and meet future carbon targets.

Heat — the UK low carbon heat transition up to 2040 is likely to be characterised by continuing reliance on national infrastructure, but with an emerging ‘patchwork mix’ of different low carbon solutions. All approaches for heat decarbonisation are potentially disruptive, with policymakers favouring those that are less disruptive to consumers. Building-scale heat pumps were seen as the most significant heat supply innovation, with local heat networks also playing a role. However, the report finds that since it is unlikely that rapid deployment of low carbon heating will be driven by consumers or the energy industry, significant policy and governance interventions will be needed to drive the sustainable heat transformation.

Transport — UK transport transition to 2040 is likely to be dominated by technological substitution, with electric vehicles making the largest contribution to changes in personal transport. Targets for phasing out conventional vehicles will lead to some disruption, but the Government’s ‘Road to Zero’ strategy for road transport will make this transition much less disruptive. Vehicle manufacturers and the maintenance and repair sector may feel the strain, along with the Treasury, which relies on tax-generating fossil fuels for much of its income. In a separate UKERC news article, UKERC Co-Director Dr Christian Brand, argues that the ‘Road to Zero’ may neither hit the targets nor make the early gains needed for a 1.5°C trajectory, suggesting that more ambitious bans — for example, a 2030 ban that allowed only battery EVs to be sold — would require some ‘disruptive’ change within the existing transport and energy system.

Electricity — strategies of the Big 6 energy companies have changed considerably in recent years, with varying degrees of disruption to their traditional business model. Large scale renewables were seen to be the single most important contributor to change in the power sector. Demand-side management and response, energy storage and smart electricity networks, are also expected to make important contributions in enabling the greater distribution of renewables.

Construction — the report points out that the buildings sector accounted for about 40% of UK energy consumption in 2017, including all fuels and end-uses. To deliver low-carbon building performance will require disruptive changes to the way the construction sector operates. In particular, major reductions in energy demand will need to come through renovation and retrofit of existing buildings, with an emphasis on energy efficiency and emissions reduction through large-scale deployment of currently available technologies such as insulation and heat pumps.

The report concludes that with a flexible and adaptive approach to net zero policy implementation, decision makers can plan for disruptions to existing systems and deal more effectively with unexpected consequences to ensure delivery of key policy objectives.

Will net zero carbon emissions become reality?

The Government’s advisors on climate change, CCC, argues that net-zero is necessary, feasible and cost-effective. Necessary — to respond to the overwhelming evidence of the role of greenhouse gases in driving global climate change: feasible — because the technologies and approaches to deliver net-zero are can be implemented with strong leadership from government: and, cost effective — because the cost of net-zero are the same as those accepted by Parliament in 2008 when it legislated the present 80% target for 2050.

But there will be disruption. In a report to the CCC, Chair of the advisory group Paul Ekins, said the costs and benefits of net zero will involve; “a wholesale transformation of several of society’s most important socio-techno-economic systems: energy, transport, land-use, food and buildings, to name just five.” The report notes there will be winners and losers and says these changes “will need to be handled fairly if the transition is to win social acceptance”.

To win public support, the debate needs to focus not just on the costs of implementing a net zero strategy and the disruption this might cause, but on the longer-term opportunities for emerging businesses and technologies and the economic benefits these are likely to bring.

Equally important are the benefits to society as a whole — reduced air pollution, healthier diets, better transport and energy systems and improved quality of living that come from adapting to a low carbon economy.

There is broad political consensus for a net zero economy, with MPs recently approving a motion declaring an environment and climate emergency. And there is growing public recognition that climate change poses a real threat to society. Hosting next year’s international climate change conference, as seems likely, will also add momentum to the UK’s world-leading commitment.

The more difficult bit will be finding ways to follow through on actions that can deliver net zero carbon with minimal disruption to industry and the wider economy — that will require a much more cohesive framework that puts sustainability at the heart of all government policies going forward.