- For many households, this winter will be even tougher than last. This has been driven by the UK’s high exposure to volatile international fossil fuel markets.
- The Autumn Statement is an opportunity to address twin challenges: providing support for vulnerable households this winter, while investing in the long-term solutions to permanently reduce bills – with a focus on energy efficiency, clean heat and renewables.
- This is the Autumn Statement in which the Chancellor has promised to set out the UK’s response to the US Inflation Reduction Act. The UK risks missing out on a historic investment opportunity if it fails to catalyse the policies needed to boost low carbon industry, skills and supply chains.
- This advisory sets out four areas and priority recommendations from E3G where the Chancellor needs to take urgent action to boost the clean economy – Warm Homes, Clean Energy, Trade & Investment.
Warmer homes that cost less to run
The government has recently taken steps to boost heat pump deployment, including increasing the Boiler Upgrade Scheme from £5,000 to £7,500 which has significantly increased consumer interest. However, pledging to “never” increase minimum energy efficiency standards in the private sector could cost renters £8bn in energy costs over the next decade. The government must address this policy gap at the Autumn Budget.
- Incentives to spur investment: Introduce landlord tax incentives for efficiency measures, allowing improvements to be offset against income tax to make investment more attractive and save renters money. An Energy Saving Stamp Duty is needed to spur investment at the point of purchase, a key time when people consider retrofit.
- Provide long-term certainty by setting out how the £6bn committed for 2025-28 will be spent, with a focus on ensuring the deliverability of retrofit schemes.
- Reducing heat pump running costs: Energy bill levies are disproportionately placed on electricity bills, which increases the running costs. A targeted exemption of levy payments for electric heating users – including heat pumps – is needed to remove the “heat pump tax”.
Clean energy security
Boosting renewables can help reduce inflationary pressures. While historically, the UK has done well on deployment of offshore wind, we risk losing our leadership position – and missing out on financing opportunities – without further interventions from the government. We are yet to see new investment incentive regimes that can meet the scale of global competition seen in the US, EU and elsewhere. The last Contracts for Difference (CfD) auction secured just 3.7 gigawatts of new renewable capacity – a third of the total last year – and failed to contract any new offshore wind. The government has announced new strike prices for the next clean energy auction (AR6) which more accurately reflect supply chain costs and have been welcomed by industry. The Government must now confirm that the pot will be significantly increased for offshore wind to ensure that at least 5GW of offshore wind is contracted at the next auction.
The UK’s old and creaky electricity grid must be made fit for purpose and ready for new domestic renewables generation, alongside increasing demand for electric vehicles and electric heating. The government should use the Autumn Statement to set out their response to the recent report from Nick Winser, the UK’s Electricity Networks Commissioner, taking forward recommendations to boost grid capacity and connections.
Trade
Ahead of the Autumn Statement, the UK Treasury is considering introducing a carbon border adjustment mechanism (CBAM). This is a tax on certain imports like steel and cement that produce a large volume of carbon emissions when they are produced. The EU introduced its own carbon border tax earlier in October 2023. A UK CBAM should be accompanied by increasing the ambition of the UK ETS: in particular, phasing-out the free allocation of credits under the ETS as a CBAM is phased-in.
There is also pressure on the government to decide to withdraw from the Energy Charter Treaty ahead of its own deadline of the end of November. The Energy Charter Treaty (ECT) remains a tall barrier to climate action, not compatible with the Paris Agreement. The Climate Change Committee (CCC) has warned that the ECT “represents risks to both a timely climate transition and to the taxpayer” and that the UK should announce intent to withdraw.
Investing in the UK’s net zero future
With growing concerns about the cost of living and economic stagnation, it is critical that the UK offers a clear and coherent plan to deliver green growth for businesses and communities across the country. The Prime-Minister’s net zero row-backs this October have bruised investor and private sector confidence, despite the clear economic opportunity that net zero presents. The government’s own impact assessments indicate that meeting net zero targets could boost the UK economy by £266 billion over the next 30 years. At a time when the US IRA, and EU Green New Deal have caught the eye of international investors, the UK cannot afford to fall behind.
The Chancellor should use the Autumn Statement to announce a UK Net Zero Investment Plan. This includes committing to empower an independent institution like the CCC to track green financial flows across the UK and maximise the effectiveness of strategically targeted public investment to unlock private investment at scale; and develop clear sectoral investment roadmaps which mobilise the investment needed for the whole of economy transition. Only through data-led policy, a clear understanding of market barriers and a coherent long term policy framework will the UK be able to outsmart the competition.
Quote
Heather McKay, E3G Senior Policy Advisor in sustainable finance, said:
Net zero is agreed to be the “economic opportunity of the century”. However, kickstarting the UK’s economic growth engine requires vision and ambition. A government laser-focused on reducing household costs must look to maximise the opportunity for private investment. Without a UK Net Zero Investment Plan, the UK will fail to do either.
With leading investors and businesses representing over £10 trillion AUM united in their call for a clear plan to get green investment flowing, all eyes are on the Autumn Statement and what the Chancellor will do to set off the green big bang.
Available for comment
Heather McKay – UK sustainable finance, UK Net Zero Investment Plan
+44 7955 597676, heather.mckay@e3g.org
Juliet Phillips – green homes, PRS, energy efficiency, heat pumps
+44 (0) 7548 097 061, juliet.phillips@e3g.org
Susanna Elks – power and renewable energy
Jonny Peters – trade, CBAM, Energy Charter Treaty
m: +44 (0) 7954 201 039, jonny.peters@e3g.org
Ed Matthew – UK politics and policy
+44 7827 157 906, ed.matthew@e3g.org
Notes to Editors
- E3G is an independent climate change think tank with a global outlook. We work on the frontier of the climate landscape, tackling the barriers and advancing the solutions to a safe climate. Our goal is to translate climate politics, economics and policies into action. About – E3G
- For further enquiries email press@e3g.org or phone +44 (0)7783 787 863
- Read E3G’s latest blog with further detail on our expectations for the Autumn Budget here.
