UK Net Zero Strategy: Understanding the Impact on Key Sectors

Latham & Watkins LLP

The strategy sets out plans to reduce emissions from key sectors of the UK economy to ensure that the UK remains on track for net zero by 2050.

On 19 October 2021, the UK government published its climate change strategy, “Net Zero Strategy: Build Back Greener” (the Strategy), which outlines plans to support the UK economy’s transition to a greener and more sustainable future. On 31 October, the UK will host the 2021 United Nations Climate Change Conference, COP26, in Glasgow.

Last year, Prime Minister Boris Johnson set out a 10-point plan for a “green industrial revolution”, which laid the foundation for a green economic recovery from the impact of COVID-19. The Strategy builds on that approach to align the UK with its carbon budget and nationally determined contribution to the Paris Agreement, both of which aim to reduce economy-wide greenhouse gas (GHG) emissions by at least 68% by 2030 and 78% by 2035, compared to 1990 levels. Further, the Strategy details the UK’s vision for a decarbonised economy by 2050.

Net Zero Target

The UK was the first major economy to create a legally binding target to bring GHG emissions to net zero by 2050. However, the government acknowledges that emissions will not fall to absolute zero by 2050, as sectors such as industry, agriculture, and aviation are difficult to decarbonise completely. The Strategy therefore emphasises the importance of GHG removal through projects such as planting trees and carbon capture usage and storage (CCUS) technology. Such projects will help compensate for residual emissions arising from the hard-to-decarbonise sectors.

Key Sectors

The Strategy outlines a decarbonisation pathway to net zero for key sectors of the UK economy (including illustrative scenarios), sets out the government’s plans for reducing emissions across these sectors to meet its targets, and introduces specific policies and proposals to reduce emissions for such sectors. The sectors are as follows:

  1. Transport: The Strategy promises a transformation for the UK’s cities and towns with greener, faster, and more efficient transport. The government has committed to a Zero Emissions Vehicle (ZEV) mandate, which will guarantee a greater number of zero emissions vehicles on UK roads. The government will increase the share of journeys taken by public transport, cycling, and walking by electrifying more railway lines, investing £3 billion in bus services, and investing £2 billion in cycling. Another £620 million will be invested for targeted vehicle grants and infrastructure, particularly local on-street residential charge points. Further, the government plans to deliver on its commitment to end the sale of new petrol and diesel cars and vans from 2030. Further, from 2035, all new cars and vans must be zero emissions at the tail pipe. The government is also working to kick-start the commercialisation of sustainable aviation fuel (SAF) — made from materials such as everyday household waste, flue gases from industry, carbon captured from the atmosphere, and excess electricity — which would produce over 70% fewer carbon emissions than traditional jet fuel on a lifecycle basis if achieved. The government’s ambition is to enable the delivery of 10% SAF by 2030. As such, the government will support UK industry with £180 million in funding to spur the development of SAF plants.
  2. Fuel supply and hydrogen: The government acknowledges that many sectors require low-carbon energy, including those where electrification is not a viable option, making the supply of cleaner fuels essential to achieving net zero. The government has established a £140 million Industrial and Hydrogen Revenue Support (IDHRS) scheme to fund new hydrogen and industrial carbon capture models, bridging the gap between industrial energy costs from gas and hydrogen and helping green hydrogen projects get off the ground. As part of its key commitment, the government will help regulate the oil and gas sector, notably through the government’s revised Oil and Gas Authority (OGA) strategy, which empowers the OGA to assess operators’ plans to reduce their emissions levels against a net zero test and establish a climate compatibility checkpoint for future licensing on the UK Continental Shelf.
  3. Industry: The government will look to decarbonise industry in line with its net zero goals, whilst simultaneously transforming industrial heartlands by attracting inward investment, future-proofing businesses, and securing high-wage and high-skill jobs. The government will do this by supporting the switch to cleaner fuels and helping to improve resource and energy efficiency though fair carbon pricing. As part of the Strategy, the government will grow new industries in low-carbon hydrogen alongside four CCUS clusters. accelerating decarbonisation in “clusters”, which account for approximately half of the UK’s industrial emissions. A key policy for the government will be to future-proof industrial sectors and the communities they employ through the government’s £315 million Industrial Energy Transformation Fund. Further, the government will provide incentives for cost-effective abatement in industry through the UK Emissions Trading Scheme (UK ETS) by consulting on a net zero-consistent UK ETS cap.
  4. Power: The government aims to fully decarbonise the UK’s power system by 2035, subject to security of supply. The government envisages that the power system will consist of renewables and nuclear power stations, and will be underpinned by flexibility, including storage, gas with CCUS, and hydrogen. The government will invest £120 million towards the development of nuclear projects through the Future Nuclear Enabling Fund, retaining options for future technologies, including small modular reactors.
  5. Heat and buildings: Heating for homes and workspaces makes up almost a third of all UK carbon emissions. The government will seek to improve the energy efficiency of housing and non-domestic property by committing £3.9 billion of new funding for decarbonising heat and buildings, including the new £450 million, three-year Boiler Upgrade Scheme. The Strategy establishes that by 2035, all new heating appliances installed in homes and workplaces will be low-carbon technologies, such as electric pumps or hydrogen boilers. The Strategy also establishes that by 2025, no new gas boilers will be sold. The government will decide in 2026 on the role of hydrogen heating.
  6. Natural resources, waste, and fluorinated gases: The Strategy aims to restore the UK countryside by reducing emissions, sequestering carbon, and building resilience to climate change. Simultaneously, the government will look to promote the implementation of a range of low-carbon farming practises that can help increase productivity and enable more efficient use of land, such as through agroforestry. The Strategy commits a further £124 million to boost the existing Nature for Climate Fund to restore approximately 280,000 hectares of peat in England by 2050 and treble woodland creation in England, and to meet commitments to create at least 30,000 hectares of woodland per year across the UK by the end of this parliament session. Additionally, to explore options for the near elimination of biodegradable municipal waste to landfill from 2028, the government is bringing forward an additional £295 million of capital funding that will help local authorities in England prepare to implement free separate food-waste collections for all households from 2025.
  7. Greenhouse gas removal (GGR): GGR plays a critical role in balancing residual emissions from hard-to-decarbonise sectors. The Strategy acknowledges that government intervention in the short term will support early commercial deployment of GGR, and has pledged £100 million of investment in GGR innovation, which could further enable deployment of GGR and will leverage private investment and demand for transferrable engineering expertise from the UK’s oil and gas sector. The government will explore options for regulatory oversight to provide robust monitoring, reporting, and verification (MRV) of GGR, following the recommendations of the Department for Business, Energy and Industrial Strategy (BEIS)-led MRV Task & Finish Group.

Supporting the transition with cross-cutting action

The government will invest an extra £500 million towards net zero innovation projects to develop green technologies, bringing the total funding for net zero research and innovation in the UK to at least £1.5 billion. The government will support ideas and technologies to decarbonise homes, industries, land, and power, and will take a place-based approach to net zero, ensuring that local areas have the capability and capacity for net zero delivery. The Strategy highlights the introduction of a new Sustainability Disclosures Regime, including mandatory climate-related financial disclosures and a UK green taxonomy (for more information, see Latham’s blog post UK Government Releases Roadmap to Sustainable Investing). The government also commits to publish an annual progress update against a set of key indicators for achieving its climate goals.

Heat and Buildings

The government also announced a Heat and Buildings strategy, which details the key net zero research and innovation priority areas for the UK over the next five to 10 years. The strategy details plans to decarbonise the UK’s 30 million homes and workplaces and includes the announcement of £3.9 billion of new funding for decarbonising heat and buildings, including the three-year Boiler Upgrade Scheme referred to above.

Moving Forward

The government will submit the Strategy to the United Nations Framework Convention on Climate Change as the UK’s second long-term low GHG emission development strategy under the Paris Agreement.

Latham & Watkins will continue to monitor developments in this area.

This post was written with the assistance of Trivali Anand in the London office of Latham & Watkins.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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