Should Rishi Sunak’s recent net zero pivot be of concern?

The Prime Minister announced the changes in a speech that signalled a major policy shift.

FacebooktwitterlinkedinmailFacebooktwitterlinkedinmail   by Damien Lardoux, 21st September 2023

On Wednesday (21st) Rishi Sunak announced a series of measures weakening Britain’s efforts to meet its net zero targets. These include pushing back the ban on buying petrol and diesel cars from 2030 to 2035, delaying the transition to heat pumps from gas boilers beyond 2035 as well as scrapping minimum energy efficiency targets for landlords.

Over the summer, the Conservatives’ Uxbridge and South Ruislip by-election win against Labour was influenced by The Ultra Low Emission Zone (ULEZ) debate. So, this week’s backtracking announcements could be seen as putting politics ahead of net zero goals. Interestingly, car makers still face electric vehicle sales targets linked to the old deadline.

UK’s net zero target is legally binding

As you know, the net zero target refers to a commitment to ensure the UK reduces its net greenhouse gas emissions by 100% from 1990 levels by 2050. The UK became the first major economy to make their net zero target legally binding through the Climate Change Act voted in 2019 under Theresa May’s tenure.

Whilst this was supposed to ensure the highest level of accountability and action, the subsequent net zero implementation strategy was considered not ambitious enough by the UK High Court in 2022 in meeting the Climate Change Act. Since this time there has been no evidence that they are working towards a solution, raising concerns that whilst the vision is there, the implementation is seriously lacking. The lack of commitment is further shown by the recent offshore wind auction which failed due to ridiculously low prices offered by the government to renewable energy companies.

Are the recently announced measures ill advised?

Whilst we understand the short-term financial benefits of such announcements for a number of households, the cost of inaction or slow action will hurt even more.

According to the Office for Budget Responsibility delaying action would increase costs, while losing control of climate change would increase them many times over. With an increase in frequency and scale of weather related catastrophes, the total cost of climate change damages is expected to increase threefold by 2050 according to the Grantham Research Institute. Strong action could reduce the impacts of climate change damages to the UK from 7.4% to 2.4% of GDP by 2100.

The energy crisis we have experienced over the last 18-months have shown how fragile and dependent our economies are. Scrapping minimum energy efficiency requirements for homes will affect the lowest income households currently renting poorly insulated homes and who were hoping to bring down their energy bills under the previously proposed regulation. Instead, giving we are already lagging much of Europe, we should be promoting energy efficiency to reduce heat loss in our homes and scaling up our renewable energy to power electric cars in order to improve resilience and reduce the burden on households.

Finally, A recent poll by the Energy and Climate Intelligence Unit (ECIU) think tank showed that around two thirds of all voters support the 2050 deadline, with support among Conservative voters slightly higher at 73 percent. So, the public support is clearly there.

Looking forward

Whilst the headlines can be seen as a worrying signal from our government, we strongly believe it is short-term backtracking and that the decarbonisation plan will have to accelerate post-election. The case for supporting companies supplying solutions to the climate change crisis remain strong and backed by a legally binding commitment. We believe the current inaction will lead to higher demand for these solutions in the years and decades to come.

With the UK having been at the forefront four years ago and the positive momentum leading into COP 26 we now fear that with the likes of China, the US and Europe pushing ahead in their actions, we are at risk of falling behind. It’s time for action.

Contact Damien

    Damien Lardoux

    Head of Impact Investing at EQ Investors, Damien is Portfolio Manager for our Positive Impact and Future Leaders strategies, and co-Chair of our Fund Selection Committee. He is a CFA charter holder, a member of the CFA Institute and CFA UK society.

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