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UK's Net-Zero Strategy - 10 Key Points that Businesses and Investors Need to Know

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The UK unveiled its net-zero strategy (the strategy) in October 2021, ahead of the COP26 talks in Glasgow held in November 2021. The strategy, published under Section 14 of the Climate Change Act 2008, sets out how the UK plans to meet its legally binding climate goals by 2050.

The strategy builds on the UK’s Ten Point Plan for a Green Industrial Revolution, published in November 2020. The objective remains to create conditions for the private sector to invest confidently to ensure that the UK achieves net-zero by 2050.

The strategy lays out a comprehensive road map for the UK to achieve net-zero and is one of a series of climate change initiatives planned by the UK. This net-zero strategy is effectively a road map for how the UK economy will be decarbonised, affecting nearly every business in the UK.
The strategy expects to achieve this by a combination of private sector investment, providing grants, establishing market mandates, and using government-funded contracts such as contracts for differences (CfD).

Electrification, hydrogen and innovation are the key pillars of the strategy.

Here are the key points that businesses and investors need to know.

1. The key numbers

The UK aims to achieve net-zero by 2050 and reduce its carbon emissions by 78% by 2035. It expects the strategy to create 440,000 jobs by 2030 and to require £90 billion of private investment by 2030. The UK estimates the cost of the transition could be 1-2% of GDP by 2050. It also expects a shift away from fossil fuels to reduce tax revenues.

2. Power

By 2035, the UK expects to be powered entirely by clean electricity (e.g. renewables, nuclear, storage, natural gas with carbon capture utilisation and storage (CCUS) and hydrogen), subject to security of supply considerations.

The UK is betting big on new nuclear and aims to secure a final investment decision on a large-scale nuclear plant by 2024. It also plans to launch a new £120 million Future Nuclear Enabling Fund to keep its options open for future nuclear technologies, including Small Modular Reactors.

The UK continues its big bet on offshore wind with £380 million of funding to achieve 40GW of offshore wind, including 1GW of floating offshore wind by 2030, together with more onshore solar, storage and other renewables. The current CfD model will be the critical mechanism for adding renewables to the grid.

The UK aims to make electricity bills cheaper by shifting environmental levies onto natural gas to encourage electrification.

3. Hydrogen

The UK aims to have 5GW of hydrogen production capacity by 2030.

The UK has established the £140 million Industrial Decarbonisation and Hydrogen Revenue Support (IDHRS) scheme to fund hydrogen and carbon capture business models. £100 million will be used to award 250MW of contracts for electrolytic hydrogen production capacity in 2023.  Further allocation is planned for 2024.

The UK is also launching a Hydrogen Village trial to inform a decision on the role of hydrogen in the heating system by 2026.

A funding envelope to be announced in 2022 will enable the first contracts for industrial carbon capture facilities and CCUS-enabled hydrogen production projects from 2023 through the cluster sequencing process. This will help deliver up to 3 MtCO2 per year of industrial carbon capture and up to 1GW of CCUS-enabled hydrogen by the mid-2020s.

Further allocation rounds for all types of eligible low-carbon hydrogen production and industrial carbon capture from 2025 is planned to enable the UK to meet its 2030 deployment ambitions of 6MtCO2/year of industrial carbon capture, 5 GW hydrogen production capacity, and four CCUS clusters.

From 2025, all revenue support for hydrogen production is intended to be funded by levies. The government is expected to consult and legislate on the matter.

The government also intends to introduce “climate compatibility checkpoints” for future licensing on the UK Continental Shelf and regulate the oil & gas sector in a way that halves greenhouse gas emissions.

4. Industry

The UK has set an ambitious target to capture 20-30 MtCO2 per year by 2030 and at least 50 MtCO2 by the mid-2030s.  The UK will deploy £315 million to future-proof industrial sectors through the Industrial Energy Transformation Fund (IETF).

The UK’s first two carbon capture storage hubs will go forward for a government funding plan - it has allocated £1 billion for four carbon capture projects. The sites will be subject to value-for-money tests. By choosing areas with the most industrial activity, the UK aims to have many businesses use the same infrastructure to reduce costs.
The East Coast Cluster plans to develop the offshore infrastructure to transport and store CO2 in the UK’s North Sea. The Hynet cluster plans to produce clean hydrogen and capture and store CO2 from energy-intensive industries.

The UK will also consult on a net-zero consistent UK Emissions Trading (ETS) cap to incentivise cost-effective abatement in the industry at the pace and scale required to deliver net zero.

5. Heat and buildings

The UK intends to ensure that, by 2035, no new gas boilers will be sold. A new £450 million three-year Boiler Upgrade Scheme will see households offered grants of up to £5,000 for low-carbon heating systems. A new £60 million Heat Pump Ready programme will fund heat pump technologies to support the target of 600,000 installations a year by 2028.

The UK will also deploy nearly £3.2 billion to fund the decarbonisation of social housing and public buildings and support home upgrades.

6. Transport

A new mandate will require carmakers to sell an increasing percentage of emissions-free vehicles from 2024 to help meet the 2030 target for the phase-out of petrol and diesel cars and the target that all cars must be fully zero-emissions capable by 2035.

The government plans to have 100% of its car and van fleet be zero emissions by 2027. A further £620 million is committed (on top of the £1.9bn already pledged) for zero-emission vehicle grants and local electric vehicle (EV) infrastructure.

The UK will also deploy: (i) £350 million from its £1 billion Automotive Transformation Fund (ATF) to support the electrification of UK vehicles and their supply chains; (ii) £2 billion to enable 50% of journeys in towns and cities to be cycled or walked by 2030; and (iii) £3 billion to create integrated bus networks, more frequent services and bus lanes to speed journeys.

The UK also intends to transform local transport systems with 4,000 new zero-emission buses and the infrastructure to support them, plus a net-zero rail network by 2050, aiming to remove all diesel-only trains by 2040.

7. Shipping and aviation

The UK will also establish a UK Shipping Office for Reducing Emissions. The UK also aims to become a world leader in zero-emission flight and to kick-start the commercialisation of a UK sustainable aviation fuel (SAF) market to deliver 10% SAF by 2030, with a £180 million funding for the development of SAF plants.

8. Natural Resources, waste and fluorinated gases

The UK will support the existing £640 million Nature for Climate Fund with a further £124 million to invest in peat restoration, woodland creation and management by 2025. The objective is to restore 280,000 hectares of peat by 2050, treble woodland creation and increase planting rates to 30,000 hectares per year by 2024.

9. Greenhouse Gas Removals (GGR)

The UK expects to deliver £100 million of investment in GGR innovation to enable further deployment of GGRs to leverage private investment and demand for transferrable engineering expertise from the UK’s oil and gas sector. The UK will explore options for regulatory oversight to provide robust monitoring, reporting and verification (MRV) of GGRs.

10. Cross-cutting action

The UK will deliver at least £1.5 billion of funding to support net-zero innovation projects. The new UK Infrastructure Bank (UKIB), with an initial £12 billion investment, is expected to provide leadership, help mitigate risks, and support private sector investments in the development of new technologies, particularly to scale early-stage technologies that have moved through the research and development phase. This is expected to support more than £40 billion of investment and help low carbon technologies and sectors achieve maturity and scale. The UK will also introduce a new Sustainability Disclosures Regime, including mandatory climate-related financial disclosures and a UK green taxonomy. Further, the UK will publish an annual progress update against a set of key indicators for achieving its climate goals.

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