Soon after Liz Truss became prime minister, BEIS initiated a “Net Zero Review” which aimed to establish how net zero targets can contribute to an economic growth target of 2.5% [1]. Given all the recent U-turns on both economic and carbon policy we’re not sure what will happen to the review now. Anyway, at the time, our governing institute, IEMA, was consulted on the Government’s “Net Zero Review”. In turn IEMA asked key members to respond. This is our response to some of the specific questions asked.
- How does net zero enable us to meet our economic growth target of 2.5% a year?
Our understanding is that the “growth” metric is an economic concept that is calculated based on GDP and how much is spent on goods and services in the wider economy. The assumption is that any spending on these goods and services is rational and contributes to the long-term wellbeing of the UK population. One known flaw in this approach is that all spending is included in the calculation, including spending on fossil fuels. Fossil fuels are detrimental to the net zero targets, but arguably beneficial for short term economic growth – a situation that could lead to unintended consequences such as reduced fuel security and the adverse effects of climate change. The question should really be “How can a 2.5% growth rate target enable us to meet our net zero necessity?”
That aside, we have based our answers on:
- Spending that is required to achieve net zero – on the assumption that this will be included in the growth target
- Savings from reduced fossil fuel purchases – on the assumption that many fossil suppliers are non-UK owned, so more money stays in the UK. Also, any savings made by people and businesses could be spent on other goods and services which contribute to the growth target
Our experience and specialism lies with the built environment so we give examples from our own experience.
Our analysis shows that an average of £25,000 will need to be spent on each home to achieve net zero, assuming that plans for a net zero grid continue. Extending this to ~27 million homes means an approximate spend of nearly £700 billion all on insulation, heating technologies and household energy generation. All these items require local skills and people to supply and install. In addition, “making good” after these interventions have been installed will require traditional tradespeople skills.
We are ESOS lead assessors. From ESOS reports approximately 20% energy savings can be made with financially viable payback times for businesses. Again, making these savings will require physical installation of energy reduction technology which requires local skills.
There is some evidence that improving a sustainability ethos (of which achieving net zero is a part) can improve business sales by 6%: https://shiftenvironment.co.uk/news/profits-calculator-estimating-the-profit-from-good-environmental-performance/.
There is also growing evidence that a good sustainability ethos (of which achieving net zero is a part) leads to significant employee recruitment and retention cost savings: https://shiftenvironment.co.uk/news/profits-calculator-estimating-the-profit-from-good-environmental-performance/. 9% of staff turnover can be avoided with a saving of ~£5400 per recruitment. For 27 million UK employees, this leads to approximately £13 billion in business savings.
ESG investment – there is huge and growing interest in international financial markets to invest in projects and organisations that can demonstrate good Environmental, Social and Governance characteristics. Achieving net zero is a very large part of that investment decision. Investors tell us that they find ESG investments are a better long-term bet for them compared to previous investment approaches. £80 billion of investment is in the social housing sector alone with banks gradually migrating this to ESG investment.
Building EPC A new build homes increases spend by about £10,000 per home and avoids future retrofit costs. 40,000 homes per year equates to nearly £0.5 billion to be spent on local skills and materials.
- What challenges and obstacles have you identified to decarbonisation?
- Inconsistent messaging from Government – e.g. a decade ago there were very strong signals (Feed in Tarriff, Code for Sustainable Homes, Net Zero building regulations), which really provided skills and improved delivery of technologies. Then they were all scrapped which has really harmed the carbon reduction sector and makes businesses think twice about entering the field.
- Switching to electrically heated, energy efficient homes using net zero grid electricity is a great pathway to net zero, but one of the many barriers is that electricity is expensive per kWh relative to gas. The recent Heat and Building Strategy called for a review of levies on electricity to be transferred to gas, but this review has yet to materialise.
- Other obstacles identified:
- District Network Operators refusing to accept connections to renewable energy generating equipment or electric heating systems in new build schemes.
- Planning system – inconsistent approach to conservation – for example, some authorities do allow appropriate double-glazing windows in heritage buildings and others forbid it. This extends to solar PV, external wall insulation etc.
- Weak building regulations – the vast majority of new homes are EPC B and still have gas boilers. These regulations need changing immediately to avoid creation of another obstacle to net zero in the near future.
- If expenditure on fossil fuels is included in GDP calculations the this is clearly huge conflict of interest and barrier to net zero. I.e. if growth is dependent on fossil fuel spend, then there is an option for Government policy to be directed more on selling carbon-creating fossil fuels, which is clearly a barrier to decarbonisation.
- Lack of legislative requirements e.g. The Minimum Energy Efficiency Standard (MEES) only prohibits EPC F & G to be let out by landlords. EPC D & E should also be prohibited in line with the Climate Change Committee’s net zero pathways.
- Building regulations are a hopelessly missed opportunity. The sooner EPC A is mandated, the better. The vast majority of new homes are EPC B and even the new Future Homes Standards looks like it will also result in EPC B new homes.
- Lack of viable financing mechanism to pay for refurbishments – “Power Purchase Agreements” (PPAs) are commercially operable and in place which allow upfront interventions to be paid for out of energy bills savings.
- Lack of skilled people – all of our clients highlight how difficult it is to get trained and qualified people to install the actual equipment.
3. What opportunities are there for new/amended measures to stimulate or facilitate the transition to net zero in a way that is pro-growth and/or pro-business?
Addressing all the barriers listed above should pave the way for investment to be made in the scale and type listed in answer to Question 1 and will therefore lead to huge economic growth.
As stated in the opening paragraph, we don’t know what’s next for this review, but it’s useful to know that achieving net zero is compatible with growth.
If you need assistance in developing net zero plans for your organisation, please be in touch. As well as net zero plans we also do ESOS and SECR compliance reporting.
[1] Review of Net Zero: call for evidence – GOV.UK (www.gov.uk)
Photo by Igor Peftiev on Unsplash