Net zero is the UK’s chance to become Europe’s economic powerhouse once again. We have the windiest seas, much of Europe’s carbon storage potential, and a world-leading offshore wind industry. But with the USA and EU offering enormous subsidies to entice green investment away from our shores, we risk becoming uncompetitive unless the Chancellor uses his budget to keep the UK in the race.
Ensuring the UK remains an attractive place to invest in net zero industries and technology is critical to delivering on the government’s five priorities. The Chancellor will want to use his budget to deliver on halving inflation, growing the economy, and reducing public debt. There’s no better way to achieve these goals than accelerating the transition away from volatile fossil fuels and backing the UK’s growing net zero economy.
Our reliance on expensive gas is to blame for high inflation rates and has hampered our economic recovery from the pandemic. Thanks to Conservative policies, we’ve successfully won investment to build enough British renewables to provide 40 per cent of our electricity, up from 7 per cent in 2010, and driven costs down significantly.
Winning investment for cheap and secure renewables is vital to lowering energy bills for households and businesses, and we’ve been very successful at it so far. But President Biden’s $370 billion Inflation Reduction Act could jeopardise our efforts, luring clean energy investment away from British projects, which already face planning hurdles that can tie them up for years.
We must deliver an enormous amount of private investment to meet the Government’s Energy Security Strategy’s ambition to decarbonise 95 per cent of our electricity grid by 2030. Our offshore wind sector alone must secure £155 billion between now and the decade’s end. But the windfall tax on electricity generators doesn’t offer an investment allowance, which would reduce their tax liability, and incentivise renewable firms to invest in new capacity here in the UK. Considering that, under the terms of their windfall tax, oil and gas firms have an investment allowance of 29 per cent for new extraction and 80 per cent to help decarbonise operational processes, this policy sends the wrong message about our commitment to clean energy too.
The Chancellor can rectify this by offering electricity generators an investment allowance. Combined with our successful market-led Contracts for Difference scheme (CfD), where renewable developers compete for a guaranteed price for their energy, driving costs down for households and businesses, this could be a winning proposition. If further paired with planning reforms to cut the bureaucracy that means offshore wind farms take 13 years to build, we can protect our status as a world leader in renewables.
We need to do more than give out tax breaks in his budget to keep the UK competitive. Our net zero economy of almost 20,000 businesses are growing fast – up 30 per cent between 2020 and 2021. It’s also 1.7 times more productive than the rest of the economy, and creating jobs paid £9,000 more than the national average. But its success relies not only on our renewables sector but ensuring the UK is the best place to build net zero factories and develop new clean industries.
One way the Chancellor could do this is by backing Britain to be the home of Sustainable Aviation Fuel (SAF), which can cut a flight’s emissions by up to 80 per cent. He should create a mechanism similar to CfDs so firms can compete to get a guaranteed price, driving costs down and giving investors confidence to back SAF in the UK. The Chancellor could fund this using the industry’s tax revenue by ending their free permits under the UK Emissions Trading Scheme. This will reduce investor risk and encourage more SAF producers to build factories in the UK so we don’t become reliant on imports and to ensure we meet the government’s mandate requiring the aviation sector to use more and more sustainable fuel.
Finally, the Chancellor should use his budget to make it easier and more beneficial for homeowners to invest in energy efficiency. The government is already helping fuel-poor households insulate through grants. It must build on this to cut energy waste and meet its target to reduce the UK’s energy consumption by 15 per cent by 2030. The Chancellor can do this by reforming stamp duty to offer a tax cut for homes sold with an EPC rating of C or higher and provide a rebate for homes that buyers retrofit within two years of purchase. It would incentivise sellers to upgrade their homes to be more financially attractive and help buyers finance home upgrades, saving households money, reducing emissions, and cutting the cost of government energy bill support.
With over 90 per cent of the world’s economy now covered by net zero targets and the USA and EU competing on clean subsidies, the race to lead the green industrial revolution is intensifying. We can’t match the Americans’ subsidy, but the UK has enormous advantages that we should take advantage of, from our geography and skilled workforce to our scientific know-how and ambitious net zero policies. Without action, we risk falling behind. I hope the Chancellor considers these three policies to keep the UK economically competitive and take us a step closer to achieving net zero.