Rishi Sunak’s net zero U-turn puts UK business investment at risk

Responding to the British Prime Minister’s net zero speech on Wednesday 20 September, Esin Serin highlights the contradictions in the announcements and what the U-turn means for business, consumers and the UK’s net zero pathway.

In a speech on Wednesday, Britain’s Prime Minister Rishi Sunak announced a new approach to meeting net zero emissions which will “embrace with even greater enthusiasm the incredible opportunities of green industry.”

It is true that the large-scale investments required to transform the British economy towards net zero – the majority of which will need to come from the private sector – could open up important growth opportunities where domestic firms and innovators are able to create products and services competitively and meet growing global demand. But business requires certainty to invest.

The Independent Review of Net Zero gave the Government a firm warning against a stop-start approach to net zero policy, voicing industry concerns that sudden policy changes “reduce investor and developer confidence, increasing the cost of capital and overall cost of decarbonisation.”

Moving the phase-out date for the sale of new petrol and diesel vehicles (deemed “immovable” just a few months ago) is exactly the kind of policy uncertainty that puts business investment at risk and undermines the UK’s ability to capture opportunities of green industry. Some car manufacturers themselves were among the first to voice their anger when rumours leaked that the Prime Minister was looking to relax the phase-out date.

Bringing people along

Sunak was clear in his intention to remove “unacceptable costs on hard-pressed British families” throughout his speech, but failed to acknowledge that how the costs and benefits of net zero distribute across society is not pre-destined by the targets themselves – it is a political choice.

A recent analysis estimated that delayed action on deploying renewables, insulation, rooftop solar panels, heat pumps and electric vehicles added up to £2,150 to UK household bills in 2022.

The Prime Minister’s ambition to mitigate “unacceptable costs” would have been much better served by targeting support to families who will find it most difficult to make the necessary transitions, rather than defaulting to the kind of policy delays and exemptions he set out on heat pump and energy efficiency plans.

A credible path to net zero

In his speech, Sunak quoted the Climate Change Committee in saying “you don’t reach net zero simply by wishing it.” It is welcome that the Prime Minister reiterated numerous times that the Government remains committed to net zero, but the presence of a target on its own amounts to wishful thinking in the absence of a credible policy programme to deliver it.

Moving the phase-out date for the sale of new petrol and diesel cars to 2035 represents a three-year delay in comparison to the Climate Change Committee’s Sixth Carbon Budget advice. The Prime Minister’s defence for the delay was the upfront cost of an electric vehicle still being high. He went on to state that the costs are reducing and that he expects most of the cars sold by 2030 to be electric.

It was almost ironic that, in building his argument, Sunak made the comparison with offshore wind for which “costs have fallen by 70% more than we projected in 2016.” The costs of offshore wind did not fall as a result of the Government taking a step back and delaying action; they fell because the Government stepped in to provide long-term revenue certainty to industry – in particular through its flagship Contracts for Difference scheme – which drove large-scale technological deployment and innovation.

Even before yesterday’s weakening of various net zero policies, there were serious concerns about the UK’s ability to deliver on its 2050 target. With the costs of inaction vastly outweighing the price of action, any divergence from its pathway to net zero would be an economic as much as an environmental failure for the UK.

This should be time for the UK to double down on net zero policy, not delay.

This commentary was originally published in Context News, Thompson Reuters Foundation on 21 September 2023.