The Spending Review’s commitment that the UK’s economic recovery ‘must be green’ sends a positive signal

The Aldersgate Group (@AldersgateGrp) is an alliance of leaders from business, politics and civil society that drives action for a sustainable economy. Our members include some of the largest businesses in the UK with a collective global turnover of over £400bn, leading NGOs, professional institutes, public sector bodies, trade associations and politicians from across the political spectrum. Our mission is to trigger the change in policy required to address environmental challenges effectively and secure economic benefits for the UK in doing so.

Reacting to the Chancellor of the Exchequer’s Spending Review, Nick Molho, Executive Director at the Aldersgate Group, said:

“The challenging economic context presented by the Chancellor of the Exchequer today underscores the importance of aligning the UK’s spending commitments with the Prime Minister’s Ten Point Plan and the UK’s climate and environmental goals. The Spending Review’s commitment that the UK’s economic recovery ‘must be green’ sends a positive signal. We welcome the creation of a national infrastructure bank and would urge that the net zero target, the Environment Bill targets and the levelling up agenda are all central to its mandate. To be effective and crowd in private investment at scale, such a bank will also need to be sufficiently well capitalised, with recent analysis commissioned by the Aldersgate Group recommending £20bn paid in capital over 4 years.”

Nick Molho added: “The Government’s confirmation that the UK will have an emissions trading scheme from January 2021 which will be aligned with the UK’s net zero target will send a reassuring signal to investors.  However, a key task for the Government in the near future will be to introduce new regulations and market mechanisms to drive private low carbon investment in critical areas such as buildings, heavy industry and nature restoration. This will be essential to deliver the Chancellor’s objective of accelerating private investment in infrastructure and putting the UK on a credible pathway for net zero emissions and delivering the goals set out in the 25 Year Environment Plan.” 

Skills deficit needs to be urgently tackled to get to net zero

In its 15th October 2020 briefing, Upskilling the UK workforce for the 21st century, the Aldersgate Group calls for urgent action to plug the deficit in skills that currently undermines the growth of low carbon supply chains across the UK economy. The Group calls in particular for a new low carbon skills strategy that embeds sustainability across the national curriculum and teacher training standards, supports higher and further education institutions to better meet the needs of local employers and updates apprenticeship standards and mid-career reskilling qualifications to equip the workforce with the skills needed in a net zero emissions economy.

The UK economy has long faced significant challenges in terms of skill shortages and regional inequalities, with some 91% of businesses recently saying they face a skills deficit [1] and the economies of Yorkshire and the Humber, the North East, and the West Midlands growing at less than half the rate of London’s economy between 1998 and 2016 [2]. The COVID-19 crisis has amplified these challenges and brought with it a huge increase in unemployment and in particular, youth unemployment. Against this backdrop but also recognising the significant job creation potential provided by the transition to a net zero emissions economy [3], the Aldersgate Group argues today that low carbon skills provision must become a national policy priority.

Building on the Government’s recent announcement to expand post-18 education and training, the Group calls for a comprehensive low carbon skills strategy based on five key recommendations:

1. Environmental sustainability and the net zero goal should be fully embedded in the national curriculum across all stages of the education system from primary to tertiary education. This should include a requirement on Further and Higher Education Institutions to put in place skills’ action plans to ensure students are provided with the right practical skills when they leave and to address the lack of gender and ethnic diversity in STEM subjects that will be increasingly key in a net zero emissions economy;

2. This focus on sustainability should be fully reflected in teaching qualifications and the governance of the education system. With 75% of teachers saying they haven’t received adequate training to educate students about climate change [4], the Aldersgate Group calls for teaching standards and the Initial Teacher Training Content Framework to be updated to equip teachers with the right knowledge. The briefing also argues that regulatory bodies such as Ofsted should be required to place greater emphasis on quality of sustainability teaching as part of their assessment of schools and other educational institutions.

3. Higher Education and Further Education Institutions should be supported and encouraged to tailor courses, training and qualifications that more closely match the needs of local employers and low carbon job creation. The employer-led STEM education and training curriculum put in place by the Newcastle College Energy Academy, which is training future engineers and technicians in the renewable energy sector, provides a good example in this regard.

4. Funding, research and development support, and business partnerships need to be increasingly targeted to educational institutions that are not located in the ‘Golden Triangle’ between Oxford, Cambridge and London and which have received less support to date. This is essential to ensure that education institutions across the country are well equipped to provide the low carbon skills required in their area. Businesses in the offshore wind sector which have regularly supported local University Technical Colleges and universities in the areas they operate provide a good precedent for other businesses to follow.

5. To have an effective net zero education system, the UK needs to reform its approach to apprenticeship standards and mid-career reskilling. Apprenticeship standards should require and incentivise businesses to provide their apprentices with core low carbon skills that go beyond a business’ immediate and short-term priorities. Recognising the complexities of mid-career reskilling, government policy should support Higher Education Institutions to develop new, short-term training and qualifications on low carbon skills to make it easier for those already on the job market to transition towards employment opportunities in a net zero emissions economy.  

On 15 July, the Aldersgate Group published Rebuilding to Last, a report from James Rydge an Dimitri Zenghelis at the Grantham Research Institute at the London School of Economics, looking at the key measures needed to put the UK on path to a sustainable, durable and socially inclusive economic recovery.

The report called for the creation of a national investment bank with a paid-up capital of £20bn, with £5bn a year paid for 4 years.

The Greenhouse Gas Emissions Trading Scheme Order 2020 has confirmed that the UK Government will establish a UK ETS, something which the Aldersgate Group has been arguing for. 

Ana Musat, Policy Manager of the Aldersgate Group, said:

“Setting up a robust UK ETS underpinned by a growing carbon price floor and aligned with the net zero target could provide a highly effective investment signal in low carbon technologies across the economy. Whilst they have their merit, carbon taxes tend to be perceived as more sensitive to short-term policy changes, which could undermine investor confidence in the stability of a long-term carbon price at a time when low carbon investment should ramp up significantly.

“However, to guard against any policy gaps until a robust UK ETS is set up and ensure that the whole economy is subject to a form of carbon pricing in the near future, a tax on carbon accompanied by a price floor and a predictable escalator could be used as an interim back-up option.”

On 5 October, the Aldersgate Group launched a major report, Building a net zero emissions economy, looking at the key policy measures needed in this parliamentary term to put the UK economic on a credible pathway to net zero emissions.

Key recommendations include:  

1. Pressing ahead with policy and regulatory measures to cut emissions in buildings, surface transport, power and waste. These are ‘low regret’ areas where the required technological solutions and business models to cut emissions are well known. Building on recent consultations and economic stimulus announcements, government should introduce binding energy efficiency standards for new and existing buildings, continue to support energy efficiency retrofits through the Green Homes Grant and fiscal incentives such as stamp duty rebates and make a decision to phase out the sale of petrol and diesel vehicles by 2030.

Other key recommendations include setting a clear carbon price trajectory for the 2020s that is aligned with the net zero target and ensuring that final decisions on the regulatory framework for the 2021-2026 ‘RIIO-2’ price control period supports the necessary investments that will be required to modernise and complete the decarbonisation of the power sector. 

2. Focusing innovation efforts to support large scale trials of technologies and business models that will be essential to cut emissions in ‘hard to treat’ sectors such as heavy industry, agriculture and aviation. These include at scale trials of Carbon Capture and Storage, hydrogen production and use, battery technology and more resource efficient business models. The report highlights that consolidating recent funding for these technologies will be key in supporting an efficient innovation programme and that trials should work hand in hand with developing new market mechanisms, such as low carbon product standards for industrial goods and CO2 storage incentives. These are essential to grow market demand for low carbon goods and services, provide a level playing field and strengthen the competitiveness of UK businesses.

3. Growing the potential for negative emissions by creating a market for nature-based solutions and supporting scalable trials of potentially promising negative emissions technologies (NETs). The use of nature-based solutions should be supported through a robust carbon price to adequately reflect their contribution to carbon removal and their co-benefits. This will attract more consistent investment from companies looking to offset emissions and deliver against environmental improvement objectives. Nature-based solutions illustrate the importance of ensuring that the net zero delivery agenda works hand in hand with the finalisation of the Environment Bill and the Agriculture Bill.

The Government should use its upcoming £100m competition for greenhouse gas removal technologies as the first step to trial the potential of technologies such as Bioenergy with Carbon Capture and Storage (BECCS) and Direct Air Capture and Carbon Storage (DACCS) [4] and identify some of the market mechanisms that would be needed to support their future deployment.

Given the high cost of NETs and the limited space available for nature-based solutions, the use of negative emission solutions should not undermine the imperative of reducing emissions across all sectors.

4. Strengthening the Government’s Green Finance Strategy by creating a well-capitalised National Investment Bank, with a clear mandate to support investment in complex low carbon projects and direct low carbon investment towards regions in need of economic regeneration.

Other key priorities should include making TCFD-aligned climate risk disclosures mandatory ahead of COP26, continuing to support the British Standards Institute in the development of new green finance management standards, acting on the lessons from the Bank of England’s upcoming climate stress testing of the UK’s largest banks and insurers, and improve the risk profile for green investment through the introduction of a ‘brown penalising factor’ as part of a reform of capital weighting requirements.

5. Tackling the ‘levelling up’ challenge, by managing a just transition towards a durable recovery and a net zero emissions economy. This should include government working closely with businesses, local bodies and educational institutions to help direct low carbon investment and skills funding towards areas of the country worst affected by the pandemic and likely to be impacted by the net zero transition.  Adequate funding and training for Local Authorities and Local Enterprise Partnerships will be essential to ensure that the recovery drives local regeneration and maximises the opportunities afforded by the low carbon transition for businesses and SMEs right across the country. In addition, a new national skills strategy will be essential to help embed sustainability training at all levels of the educational system and through lifelong learning [5].

6. Putting in place a diplomatic and trade policy that is fully consistent with the UK’s net zero and Environment Bill targets. As argued in a recent Aldersgate Group briefing [6], it is essential that future trade agreements promote high standards on the environment and climate change, reduce barriers for trade in low carbon goods and services and protect the UK’s future right to regulate on environmental and climate change policy issues. 

Through its network of climate diplomats and attachés and its position as host of the G7 and COP26 summits in 2021, the UK has a unique opportunity to engineer a global increase in climate ambition. Negotiation priorities for COP26 should include putting forward a strong business case for major emitters to align their economic recovery plans with the need to achieve net zero emissions, agreeing on a mechanism to support developing countries already vulnerable to adverse climate impacts, and finalising a rule book for the market and cooperation mechanisms under Article 6 of the Paris Agreement.