As the US and EU ramp up subsidies for clean technologies, the UK needs to strengthen its net zero policy programme, Peter Aldous writes for BusinessGreen.
Net zero by 2050 is not only about ending our contribution to climate change - it is the economic opportunity of the 21st Century.
With over 90 per cent of the world's economy covered by net zero targets, the countries which lead efforts to decarbonise will reap the rewards. Meanwhile, slower countries will be stuck importing clean technologies, goods and services later. We had an early lead as the first major economy to legislate for carbon neutrality, but competition is intensifying - we need bold action now to avoid falling behind.
There can be no doubting the importance of the UK's growing net zero economy to our future prosperity. A recent CBI Economic and Data City report found that our country is home to almost 20,000 net zero businesses, adding £71bn to the UK economy and supporting 840,000 jobs.
It also revealed that net zero could be an antidote to the twin ailments of wage stagnation and low productivity, which have long impacted the UK's economic health. The report showed that the net zero sector is 1.7 times more productive than the rest of the economy, with jobs paid on average £42,600 - over £9,000 more than the national average. The latest Office for National Statistics data shows the UK's low carbon economy has grown by over 30 per cent between 2020 and 2021.
However, some still argue that net zero is holding our country back, blaming the fossil fuel crisis on our net zero ambition, often arguing for greater reliance on expensive and insecure gas instead of renewables.
But even before the gas crisis, wind and solar power were four times cheaper than gas-generated electricity. If it weren't for the UK's success in scaling up renewables from seven per cent of its electricity supply in 2010 to over 40 per cent today, British families would have been even more exposed to volatile international markets and the impacts of Vladimir Putin's war.
The reality is - as the latest economic figures show - net zero is propelling us forward to a more prosperous and resilient economy.
Indeed, the greatest economic risk today isn't just delaying net zero; it's hesitating our foot over the accelerator instead of flooring it. President Biden's Inflation Reduction Act offers $370bn of federal spending in tax credits, loan guarantees, and grants to turbocharge the United States' clean energy sector and wider net zero economy. This could leverage hundreds of billions more in private investment, enticing many net zero companies to move across the Atlantic. In response, the European Union is looking to ease its state aid rules and remove bureaucratic hurdles with a Net Zero Industry Act to stay in the race for green industries.
Sat behind an aggressive American net zero policy and a retaliating EU, even our already ambitious plans to build renewables and win clean industry won't keep us at the front of the pack.
There's no net zero industry where we are more clearly ahead of the pack than offshore wind. But even in this sector, where we are second only to China, we could fall behind unless ministers take action in three areas: planning, tax, and infrastructure.
Firstly, the UK must remove the planning obstacles to new offshore projects. The UK energy security target is to grow offshore wind capacity from 13.7GW to 50GW by 2030 - enough to power every home in the UK and help us reach net zero. The good news is over 80GW more capacity is in the pipeline at various stages. But of this enormous potential, we're only constructing 1.6GW currently, with over 8GW locked up in planning, where projects typically spend seven to 11 years. Ministers must look at ways to speed up the planning process so we can build many more offshore wind farms, creating jobs and lowering people's bills.
Secondly, the Treasury needs to offer renewable firms an investment allowance under the windfall tax, like oil and gas firms are offered. Taxing windfall profits is reasonable when the state is stepping in to help households and businesses cover their sky-high energy bills. However, the system must still encourage investment in new clean energy, which is the long-term solution to the energy crisis. The UK's approach starkly contrasts with the USA's, which offers enormous tax credits for clean energy. We are at risk of seeing massive capital flight to the US. Ministers must act.
Finally, the Energy Bill currently going through Parliament is an opportunity to reform Ofgem's remit and upgrade the National Grid for net zero. Like all nations, we built our electricity grid around fossil fuels, building power stations near where we needed the electricity. But with wind and solar power, we need to build new connections to bring power from where it's sunniest and windiest. That means building a lot of new grid infrastructure. Unless Ofgem allows the network to be developed ahead of need and in a more strategic fashion, we risk delaying new power projects and undermining investment in our energy security.
Like the USA, the UK needs to strengthen our net zero policies to get the economy back on track, with lower inflation and higher growth. We must ensure the UK remains an attractive place to set up a net zero company and create jobs. The three measures I propose will help keep us ahead in our world-leading offshore wind sector, but that's only one part of our growing net zero economy. A broader plan will be needed to ensure we maximise the economic benefits of net zero.