With the UK due to host the COP 26 climate summit in a year’s time, the UK Government is keen to set out its credentials as a global ‘green‘ leader and demonstrate not only that it can make good on its election promise to level up (with much of the promised Green Industrial Revolution investment being focused in old industrial heartlands in the North of England), but that it intends to seize the coronavirus pandemic as an opportunity to build back better and create a genuine green revolution.
On 18 November, the Prime Minister announced a 10-point Plan billed as the Green Industrial Revolution Plan—which should be seen in that context and is the Government’s Blueprint for delivering on the UK’s domestic legal commitment to be a net zero economy by 2050. There will be a slew of legislation over the coming months which will implement the Plan and a Hydrogen Strategy is also promised (see below).
An initial £4 billion has been allocated in financial support to the Plan, with the Government having already committed £8 billion in the Spring Budget with an objective of securing three times as much investment from the private sector by 2030. The Government announced that 250,000 new jobs would be created as a result of the Plan’s implementation.
The Plan has been broadly welcomed as a good starting point, though some critics note that the finances allocated are insufficient given the size of the challenge. The Plan positions the UK as a leader in the run-up to COP26 and enables the Government to credibly encourage other countries to follow suit.
This Alert summarises the main points of the Plan, and provides some preliminary comments relevant for companies in the energy, project finance and technology fields.
1) Offshore wind: The UK will quadruple its offshore wind capacity to 40GW by 2030.
Comment: That is enough to power every UK home at current demand levels, but the UK’s electricity demand will go up as homes switch from gas to electric heating and from hydrocarbon to electric-powered vehicles, so significant additional generating capacity will have to come on line in the years up to and beyond 2030.
2) Hydrogen: The UK will aim to generate 5GW of “low-carbon” hydrogen production capacity by 2030, with the creation of a Hydrogen Neighbourhood in 2023 and a Hydrogen Village by 2025. Domestic hydrogen supplies will initially be blended with gas (the concentrations are currently unspecified).
Comment: Although the Plan does not say so specifically, given the measures for electric cars—see below—investment in hydrogen as a transportation fuel for vans and the heavy haulage road industry will also have to be brought forward. This will presumably form part of the Government’s consultation on diesel in lorries—see below. The focus is currently on ‘blue’, rather than ‘green’ hydrogen. An implementing strategy (the UK’s Hydrogen Strategy) will be released in Q1 2021.
3) Nuclear: The UK will scale up large nuclear generation at Hinkley Point and Sizewell C, while also developing small and advanced reactors.
Comment: This is a problematic area for the government. The UK currently gets about 20% of its power from nuclear, but all but one of its plants are due to come off-line in the next 15 years, so replacing them to ensure reliable baseload is important. Replacing them is expensive and only two new reactors are currently under discussion—Hinkley Point (which will produce 7% of the UK’s electricity), where development has been hit by delays and cost overruns, and Sizewell C -—where the plans are still under review. The cost to consumers of nuclear-generated electricity is already extremely high compared to other forms of generation and public acceptance remains low. And technology of the small reactors has yet to be proved.
4) Electric Vehicles: The UK will end the sale of new petrol and diesel cars and vans by 2030 and the sale of new Hybrid cars will end in 2035. The UK will accelerate the rollout of charge points and make grants available to incentivise EV purchasing, with a large-scale factory for the production of EV batteries planned to be built in the Midlands. And the government will begin a consultation on the phasing out of diesel lorries.
Comment: the 2030 deadline is 10 years earlier than the UK government had initially indicated it would ban the sale of new petrol and diesel cars. It makes the UK’s measure the second toughest in the world, after Norway’s 2025 deadline. To support this measure there will need to be significant investment in a network of charging points and the purchase cost of new electric cars will (at least initially) have to be reduced through tax breaks or similar incentives.
The measure places pressure on the car manufacturing sector, which may now decide to discontinue R & D into new petrol and diesel cars for the UK market. There are no provisions (yet) concerning the manufacture in the UK of petrol and diesel cars destined for export.
5) Public transport: The UK will incentivise cycling, walking and investment in zero-emission public transport.
Comment: COVID has demonstrated the attractiveness and the public health and climate benefits of city centres free of cars. However, encouraging people to forego their cars over the long term will require major infrastructure and town-planning changes as well as discouraging private car use in cities. Added to these issues, COVID-19 has reduced the attractiveness of public transport, and enticing passengers back may prove difficult.
6) Aviation and shipping: Research projects for zero-emission planes and ships will be conducted to support airlines, airports and shipping firms.
Comment: This is a notoriously difficult sector to decarbonise, along with the heavy haulage road transport sector. Concepts under consideration are ammonia-based fuels for shipping and a frequent-flier passenger levy for airlines.
7) Domestic and public buildings: A £1 billion spending commitment starting next year will aim to make homes, schools and hospitals become more energy efficient. The UK will install 600,000 domestic heat pumps annually by 2028 and the Green Homes Grant voucher scheme will be extended to install insulation in homes. By 2023 no new homes may be heated by gas boilers.
Comment: Additional measures will be needed to force the switchover of existing housing stock from oil and gas-fired heating to electric central heating. Given the cost of heat-pump boilers and of installing new electric heating, the government will either need a stick (to force existing houses to move away from gas for domestic heating), or a carrot (to create an incentive to install new electrical central-heating) to encourage that massive switchover. Given the UK’s poorly insulated housing, the GHG voucher scheme may need to be further extended beyond the middle of next year.
8) Clean hydrogen, carbon capture and storage (CCS): The UK will target the removal of 10MT of carbon dioxide by 2030 through CCS and create two carbon capture clusters by the mid-2020s, with another two set to be created by 2030.
Comment: the £200 million for CCS comes on top of the £800 million already pledged in the Spring budget. It would make the UK a global CCS leader, enabling export of the know-how to countries such as India and China which will need massive CCS rollouts to reduce their emissions from coal-fired power stations. But the technology has drawn criticism from green campaigners who argue it extends the lifespan of hydrocarbon assets. And CCS is expensive and brings an efficiency penalty if it is attached to an existing gas power station. The UK has a history of beginning CCS projects and then abandoning them when the cost and time implications become apparent—most recently the Peterhead Project.
9) Nature: The UK will plant 30,000 hectares of trees every year to restore the natural environment and invest to improve new flood and coastal defences in England by 2027.
Comment: the flood-and coastal defence improvement will cost £5 billion of the total £12 billion committed to support this suite of measures.
10) Innovation and finance: The UK will make the City of London the global centre of green finance.
Comment: Green finance, prioritising low-carbon technologies, is already a growing sector, and investors such as pension funds are increasingly looking to green their portfolios. Tax incentives could help encourage more investors down the same route. Proposals for a publicly funded green infrastructure bank do not appear to have made it into this plan; likewise a proposal for the British government to withdraw funding and support for hydrocarbon projects overseas.
If you have any questions concerning the material discussed in this client alert, please contact the following members of our Public Policy and Energy practices.
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