Clean Growth Strategy: an important milestone for the UK economy

Nick Molho, Executive Director at the Aldersgate Group, reviews the recently released Clean Growth Strategy.

By showing cross-government commitment to growing low-carbon investments and setting out measures to cut emissions across the UK economy, the Clean Growth Strategy sends a clear signal to the business community. Detailed policies in areas such as energy efficiency in buildings will now be essential to ensure private-sector investment is significantly increased and UK climate targets are met.

The Climate Change Act, which many countries around the world are seeking to emulate, requires the UK to cut its emissions by at least 80% by 2050 compared to 1990 levels. To meet this target cost-effectively, the Committee on Climate Change (an independent non-departmental public body that advises the government on addressing climate change) advised in the fifth carbon budget that UK greenhouse gas emissions must fall by at least 57% by 2032.

With many policies supporting energy efficiency and low-carbon infrastructure investment having already expired or running out by the end of the decade, the UK government published its long-awaited Clean Growth Strategy on October 12th. The strategy sets out how the government intends to meet the targets set in the fifth carbon budget. This comes at a time when the UK’s low-carbon economy is growing rapidly, having delivered a turnover of over £77bn (US$101bn) and employing 432,000 people in 2015, more than the UK’s aerospace industry.

Cross-government backing

The strategy indicates that the government has made much progress. First, it appears to have clear backing from across government, something which the low-carbon agenda has rarely benefitted from in the past. In the prime minister’s encouraging foreword she commits to putting clean growth at the centre of the UK’s industrial strategy. This is coupled with measures being supported by a range of different government departments, thus providing a clear sense of direction to the business community. This bodes well for investment confidence.

Second, the strategy is an improvement on previous ones in that it clearly acknowledges that decarbonising the economy is a cross-sectoral challenge and one that requires co-ordinated action. With measures, funding announcements and consultations in areas as varied as industrial and building energy efficiency, low-carbon heat, transport, resource efficiency and agriculture, the strategy sets a comprehensive programme of action to reduce the UK’s greenhouse gas emissions and grow the low-carbon economy.

Tangible measures

Among the key measures announced as part of the strategy, the confirmation that £557m will be made available for a further two offshore wind auctions (with the next one scheduled for early 2019) will help the industry develop a pipeline of projects into the 2020s, continue to invest in the UK’s supply chain and build on some of the remarkable recent cost reductions and technological improvements.

The additional £80m announced to support the roll-out of charging infrastructure, hopefully accompanied by a clear regulatory regime on charging point access to be developed as part of the Automated and Electric Vehicles Bill, can play an important role in supporting an efficient roll-out of electric vehicles. The £184m earmarked for low-carbon heat innovation will be essential in helping us better understand the role that electric heat pumps, hydrogen and district heating schemes can each play in cutting emissions from the heat sector.

The challenges ahead

However, whilst the clean growth strategy is undoubtedly an important step forward, there’s an important caveat. The extent to which it can deliver the necessary increase in private-sector investment and the climate targets themselves will depend on some of the crucial detail that will be announced in the coming months.

On buildings, which represent 19% of the UK’s emissions, the strategy sets out important goals and aspirations to improve the energy efficiency of domestic and commercial buildings as well as social housing. For example, a consultation is to take place on how to improve energy efficiency in new and existing commercial buildings, and there is an aspiration for privately rented homes and as many non-fuel poor homes as possible to reach a level of energy efficiency of EPC (Energy Performance Certificate) band C by 2035 where this is cost-effective.

However, delivering this ambition in practice will depend on the concrete measures that will come out of upcoming consultations. Unless these consultations result in sticks (through the increased use of clear regulations mandating improvements in energy efficiency by a particular date) and carrots (by providing clear fiscal incentives), it is hard to see how the strategy will deliver the significant energy-efficiency improvements urgently needed in buildings. Delivering a positive outcome for commercial and domestic buildings will also require close co-operation between the Department of Business, Energy and Industrial Strategy and the Department of Local Communities and Government.

Other important issues that will need to be addressed in the near future include how mature and cost-competitive forms of renewable energy, such as onshore wind, can be provided with a subsidy-free investment mechanism so that new projects can be built in communities that want them, embarking on a set of pilot projects to inform future policy on low-carbon heat, and aligning transport and power policy to ensure, as much as possible, that an increasing deployment of electric vehicles is accompanied by the development of a flexible, low-carbon grid.

The UK’s Clean Growth Strategy marks an important milestone in the country’s climate and economic policy. If accompanied by detailed policy measures in critical areas such as buildings, it will firmly put the UK economy on a competitive footing for the years ahead.