Net zero dubbed ‘growth opportunity of the 21st century’ in UK Skidmore review

Chris Skidmore MP was commissioned to lead a review the UK government’s approach to delivering its net zero target – of reducing UK greenhouse gas emissions to 1990 levels by 2050 – in September last year. He published his report (340-page / 6.6MB PDF) following the end of the review on Friday.

In his report, Skidmore said that net zero is “the growth opportunity of the 21^st century” but warned that while “the benefits of net zero will outweigh the costs”, work is needed to secure the benefits and minimise costs associated with the transition to a net zero economy – and that speedy action is required.

“We must quickly take the decisions we know we have to. This is how we will achieve net zero in a more affordable and efficient way, at the same time as providing certainty for inward investment in the UK,” according to the report.

Experts at Pinsent Masons described the review as impressive, comprehensive and ambitious, and welcomed the pro-business and pro-investment tone that runs through the report.

Hayden Morgan of Pinsent Masons, a specialist sustainability adviser, said: “The previous work of the Financial Stability Board and Network for Greening the Financial System has highlighted the significant systemic risks presented from a disorderly transition. If bold action is taken, and the recommendations are implemented, this review goes some way to mitigating against a disorderly transition, at least in the UK.”

“To thrive in this changing landscape, businesses of all sizes, will need to evolve and adapt business models and strategies to respond to the transition, at a pace and scale previously not experienced. It is critical that business adopt a strategy and plan to respond to this transition considering both the risks and opportunities presented,” he said.

Michael Watson, climate and sustainability expert at Pinsent Masons, said: “The Skidmore review reflects a long-standing agenda that has been pushed for years by John Kerry, the US special presidential envoy for climate, and which is also reflected in the approach taken by the US government’s landmark Inflation Reduction Act. The US legislation recognises and incentivises, and the Skidmore review highlights, the practical steps towards delivering on the climate-related action that was agreed is required at COP26 in Glasgow.”

“Measures such as carbon pricing, the carbon border adjustment mechanism and regulation to-date could perhaps be considered often as a ‘stick’ approach to driving decarbonisation, but they have been slow and difficult to deliver, requiring multilateral agreement. On the other hand, the US Inflation Reduction Act and UK Skidmore recommendations perhaps signal that policymakers are now aligning more behind the ‘carrot’ approach as governments focus on industrial policy and bilateral intervention and financial support to accelerate change” he said.

The Skidmore review sets out 129 recommendations for how the UK can seize the opportunities of net zero, alongside 10 “priority missions” designed to give direction to the action taken between now and 2035.

Substantial investment in new energy infrastructure, the electricity grid, and the UK’s energy system more generally is envisaged in many of the missions and recommendations. Planning reform to facilitate the delivery of renewable energy projects, the development of cross-sector infrastructure strategy by 2025, and the establishment of a new Future System Operator to oversee Britain’s energy system and integrate existing networks with emerging technologies such as hydrogen, are among the specific recommendations.

Further specific recommendations are targeted at bolstering solar, nuclear and wind generation, as well as supporting the development of carbon capture, use and storage technology. The review said the UK needs to “normalise” the use of engineered greenhouse gas removal methods.

Other recommendations recognise that much of the drive to decarbonise the global economy will depend on new technologies that are in the early stages of development, or which have yet to be conceived, and that businesses will require certainty in relation to government policy and regulation to have the confidence to invest in those technologies and in decarbonisation more generally.

For example, the review calls on the government to conduct and publish, by autumn 2023, “a review of how we should change regulation for emerging net zero technologies to enable their rapid and safe introduction, to support the net zero transition and boost growth”. Further to that is a recommendation that the government publish “a roadmap which details decision points for developing and deploying R&D and technologies that are critical for enabling the net zero pathway to 2050” by this autumn.

Public finance is also considered by Skidmore as an important catalyst for wider investment in new technologies. He has urged the government to develop an overarching financing strategy this year “covering how existing and future government spending, policies, and regulation will scale up private finance to deliver the UK’s net zero enabled growth and energy security ambitions”, and the role public financial institutions, such as the UK Investment Bank and UK Business Bank, will play.

The government has also been urged to consider the role that the UK’s regulatory, tax and capital allowances regimes can play in incentivising investment in decarbonisation.

In relation to regulation, specific recommendations include for the government to “endorse and implement” standards set by the International Sustainability Standards Board (ISSB) as soon as possible. Related sustainability reporting aligned with those standards should begin to apply in 2024/25, though companies should be encouraged to apply the standards to their reporting in the 2023/24 reporting cycle, it said.

The government was also urged to develop existing work done around net zero transition plans, with a view to new disclosure standards being developed in this area and mandated for both listed and private firms. The review also recommended the government consider the appropriateness of a transition taxonomy, alongside a green taxonomy, that is simple and proportionate, and that it works with international partners to ensure the UK approach is interoperable and harmonised with others’ approaches.

Hayden Morgan said: “Based on our experience and feedback from financial sector clients, the requirements for clear standards, credible transition plans, reporting requirements, classification systems, and labelling of financial products are very welcome. This reflects our own experience and will provide investors and businesses with the insight, information and tools to act. It also reflects feedback and demand from clients in the financial sector.”

The Skidmore review has also stressed the importance of greater energy efficiency to delivering net zero. Recommendations include accelerating existing proposals for phasing out gas boilers in homes, bolstering minimum energy efficiency rating requirements in commercial and residential property, and mandating the Future Homes Standard by 2025. Among other radical measures, the review also urged the government to consult on whether solar panels should be installed on new homes built in future.

Real estate expert Siobhan Cross of Pinsent Masons said: “It is to be hoped that the report will lead to more certainty for businesses and speedier action from across the public and private sector towards addressing the challenges of transitioning to net zero.”

“The proposals regarding making the UK’s buildings more energy efficient and decarbonising them reflect largely what the Climate Change Committee has been recommending for some time, some of which were set out in the October 2021 UK heat and building strategy. There has been limited progress since then. The real estate sector has been waiting several years for consultations to result in clear regulation to provide the certainty and signals the industry needs to stimulate supply chains and skills,” she said.

Cross welcomed the recommendation to bring forward to 2033, from 2035, the date for phase out of new gas boilers, as well as the proposed requirement for an EPC C rating on the sale of homes. She said the report’s recognition of the need for innovative green finance to help fund residential owner occupier retrofits is also welcome and described the call for a taskforce report on this by the end of this year as critical. 

“It is critical that this report’s recommendations are quickly turned into action if UK real estate is to achieve net zero within the required timescales and capitalises on the economic opportunities the journey to net zero brings,” Cross said.

The wide-ranging report also acknowledged the role for nature-based solutions in delivering net zero, and of the need for related investment, and highlighted that a skills drive will be necessary to underpin the transition to, and successful operation of, the net zero economy.

Pinsent Masons is currently running a survey for organisations operating in the global infrastructure sector, seeking views on the opportunities and challenges associated with transitioning to and operating in the ‘green’ economy. The Pinsent Masons 2023 global infrastructure survey is open until 31 January 2023.

Experts at Pinsent Masons also recently set out how they think businesses can benefit from integrating climate risk and opportunities into organisational strategy. Pinsent Masons has produced a guide to help asset owners, project consultants, contractors and suppliers in the infrastructure sector to embrace recommendations made by the Taskforce for Climate-related Financial Disclosures (TCFD) and help turn efforts towards associated compliance obligations into a competitive advantage.