Transitioning to net zero, green skills and employer investment in training

Transitioning to net zero is an economic challenge and it must work for the whole of society. Central to transitioning to net zero will be government working closer with businesses to increase investment in much needed infrastructure and technology.

Department for energy security and net zero

In February 2023, the Prime Minister announced the creation of a new and separate Department for Energy Security and Net Zero (DESNZ). The new department sits alongside a new Department for Science, Innovation and Technology, and the Department for Business and Trade.

The race for capital

DESNZ has been cautiously welcomed. But as Chris Skidmore MP, a former science minister and head of Mission Zero (The Independent Review of Net Zero) has said, the UK is now in a race for capital and to seize the opportunities of net zero. This has been made all the more apparent with the passage of the American Inflation Reduction Act to subsidise green industry, and the EU’s recent response.

Joining-up net zero capital and skills investment

Yet, there is another critical challenge which must be faced. Linking policies to increase capital investment for net zero is no longer seen as sufficient for progress on net zero. Policies to increase skills investment for net zero must also be part of a comprehensive industrial strategy.

The Mission Zero review of net zero not only majors on investment in skills, but makes the case for public policy to see capital and skills investment for net zero as two sides of the same coin.

Failing to see the skills agenda as a fundamental part of a net zero driven industrial strategy will ultimately slow down our ability to reduce emissions. And these skills shortages, alongside inconsistency in policy, are holding the UK back.

Net zero jobs

But job openings need to be filled. Since the pandemic, UK economic activity has increased by 560,000. Meanwhile there is double that figure in unfilled job vacancies – 1.2 million from October to November 2022. Skills shortages are proving a major impediment to growth.

Transitioning to a net zero is going to make that even more challenging. What is one person’s job creation is another’s skill shortage. These jobs will not be shared equally across the economy. Research by Green Alliance shows that those sectors with the highest emissions have some of the largest potential skills gaps.

The construction industry

Take construction, responsible for 16% of UK emissions. It is estimated we’ll need 300,000 more skilled workers in the sector, yet we could also see up to 750,000 retired by 2035 – the year when government hopes for all homes to reach energy performance certificate level C. This is compounded by construction being hit strongly by falling EU migration. Half of the members of the Federation of Master Builders are reporting difficulties in hiring.

Government has recognised this challenge, transitioning from its green jobs taskforce to the green jobs delivery group, intending to move from diagnosis of the problem to solving it. Though as with many policy areas in 2022, and a succession of responsible ministers, progress has been slow.

Key questions

This leaves two key questions. Firstly, in a tight labour market facing potential skills shortages, how do we develop the workforce required for net zero? And second, what is the balance between skilling up the existing employed workforce, training and retraining the unemployed and inactive workforce, and increasing ‘green migration’?

Building a skilled workforce for net zero

Building a well-skilled workforce, adept in the challenges of climate change and the technologies and solutions to deal with it, is one of the major challenges for decarbonising the UK economy. Yet, whilst skills are now proving a barrier to emissions reductions, net zero is not unique and is instead emblematic of longstanding UK labour market challenges.

Employer investment in green skills

There are several reasons why employers are not investing in green skills. UK employer investment is half the EU average. A recurrent challenge, one that the Mission Zero report identifies, is that policies to increase employer investment in skills are distinct from policies to increase investment in plant, machinery and buildings.

The UK is bad at employer investment in capital and employer investment in skills. And our flexible labour market has traditionally incentivised hiring over investment in staff or automation.

Commentators including the TUC have pointed to short-termism undermining investment in both machinery and people. There are few tax incentives for employers to reduce the cost of investment in skills, and in a tight labour market, employers are increasingly worried that staff will leave or be poached.

Offshore wind industry

There is also scepticism over the volume of green jobs numbers, something shared by the public and labour unions. Green Alliance research found that the offshore wind industry needs at least 25,000 additional workers by 2035, 14,600 of them skilled. If industry thinks that the number is smaller, the pressure to secure workers is lowered. There are also barriers to moving staff between parts of businesses – for example from oil and gas to offshore wind – though energy firms alongside unions like Prospect have begun to address this.

Recommendation 1

Employers should have the same tax incentives to invest in skills as they do for plant and machinery. Offering SMEs a tax credit to support the transition to net zero should be combined with a SME tax credit to support investment in green skills.

Recommendation 2

Employers should be supported to enable existing employees and new recruits to train and retrain for net zero jobs where the training itself is based on short modular courses rather than expensive longer courses.

Recommendation 3

The content of apprenticeships must accurately reflect the needs of net zero, particularly in relation to novel technologies that net zero will require.

By Sam Alvis, Head of Economy, Green Alliance

This article is part of Campaign for Learning’s series: ‘Driving-up employer investment in training – pressing the right buttons’.

Part One: Employer investment in context

1. Louise Murphy, Economist, Resolution Foundation: Investment in the round
2. Dr Vicki Belt, Deputy Director, Enterprise Research Centre, Warwick Business School: UK enterprises and investment in capital and training
3. Becci Newton, Director, Public Policy Research, Institute of Employment Studies: Employer investment in training in England

Part Two: Drivers of employer investment in training

4. Neil Carberry, Chief Executive, Recruitment and Employment Confederation: Derived demand, British management and employer investment in training
5. Ewart Keep, Professor Emeritus, Education Department, University of Oxford: Strategies to drive-up employer investment in training
6. Sam Alvis, Head of Economy, Green Alliance: Transitioning to net zero, green skills and employer investment in training
7. Dan Lucy, Director of HR, Institute of Employment Studies: Job quality, job design and driving-up employer investment in training
8. Natasha Waller, Policy Manager, LEP Network: Local inward investment, business support and employer demand for training
9. Jovan Luzajic, Acting Assistant Director of Policy, Universities UK: Universities, R&D, business innovation and meeting employer skills needs
10. David Hughes, Chief Executive, Association of Colleges: FE colleges, business innovation and meeting employer skills needs

Part Three: Increasing employer investment in training

11. Paul Bivand, Labour Market Consultant: Why should employers invest in training in a flexible labour market?
12. Aidan Relf, Skills Consultant: Why should employers invest in training with large net worker migration into the UK?
13. Stephen Evans, Chief Executive, Learning and Work Institute: Raising employer investment in training
14. Robert West, Head of Education and Skills, CBI: Increasing employer investment in training
15. Lizzie Crowley, Skills Policy Adviser, CIPD: Encouraging employer demand for training
16. Anthony Painter, Director and Daisy Hooper, Head of Policy and Innovation Chartered Management Institute: Increasing employer demand for management training

Part Four: Raising employer demand for publicly funded post-16 education and skills

17. Jane Hickie, Chief Executive, AELP: Increasing employer demand for post-16 apprenticeships in England
18. Mandy Crawford-Lee, Chief Executive, UVAC: Increasing employer demand for level 4-5 technical education in England
19. Ian Pryce, Principal, The Bedford College Group: Increasing employer demand for higher technical education in England

Part Five: Raising employer demand for work placements

20. John Widdowson, Board Member, NCG: Increasing employer demand for work placements for level 3-5 vocational courses in England
21. Stephen Isherwood, Joint Chief Executive, Institute of Student Employers: Increasing employer demand for undergraduate work placements in England