Achieving Net Zero: What businesses need to know

17th November 2021

On 19 October 2021, ahead of COP26, the UK government published its Net Zero Strategy.  In this briefing, Walker Morris’ Head of Infrastructure & Energy, Ben Sheppard, summarises key policies across a range of sectors.  For further information or advice on any aspect, please do not hesitate to get in touch with Ben or any member of the Infrastructure & Energy team.

Industry Power

Take action so that, by 2035, all our electricity will come from low carbon sources, subject to security of supply.  This brings forward the government’s commitment to a fully decarbonised power system by 15 years.

Accelerate deployment of low-cost renewable generation, such as wind and solar, through the Contracts for Difference (CfD) scheme by undertaking a review of the frequency of the CfD auctions.

Deliver 40GW of offshore wind, including 1GW of innovative floating offshore wind, by 2030.

Implement the Dispatchable Power Agreement (DPA) to support the deployment of ‘first of a kind’ power carbon capture usage and storage (CCUS) plant[s].

Secure a final investment decision on a large-scale nuclear plant by the end of this Parliament, whilst taking measures to inform investment decisions during the next Parliament on further nuclear projects.

Adopt a new approach to onshore and offshore electricity networks to incorporate new low carbon generation and demand in the most efficient manner, taking account of the environment and local communities.

Deliver the actions in the recent Smart Systems and Flexibility Plan and Energy Digitalisation Strategy to maximise system flexibility.

Provide £380m for the UK’s world-leading offshore wind sector, investing in supply chains, infrastructure and early-coordination of offshore transmission networks.

Reform system governance so that the whole system can achieve net zero ambitions and meet consumers’ needs.

Drive market-wide rollout of smart meters with a new four-year policy framework that introduces fixed minimum annual installation targets for energy suppliers from 1 January 2022.

Consider whether broader reforms to market frameworks are needed to unlock the full potential of low carbon technologies to take the UK all the way to net zero.

Ensure that consumers pay a fair, affordable price for their energy, and can engage with a retail energy market that offers the products and services required to make choices that support net zero.

Ensure the planning system can support the deployment of low carbon energy infrastructure.

Explore the system need and case for further market intervention for long duration storage and hydrogen in power.

Fuel Supply & Hydrogen

An ambition for 5 GW UK low carbon hydrogen production capacity by 2030.

Set up of the Industrial Decarbonisation and Hydrogen Revenue Support (IDHRS) scheme to fund new hydrogen and industrial carbon capture business models.   The UK government will be providing up to £140m to establish the scheme, including up to £100m to award contracts of up to 250MW of electrolytic hydrogen production capacity in 2023, with further allocation in 2024.

Implement the £240 million Net Zero Hydrogen Fund and finalise the Hydrogen Business Model and the Low Carbon Hydrogen Standard in 2022.

The UK government will work with the sector to help develop a low carbon fuel strategy for transport for publication in 2022, as announced in the recent Transport Decarbonisation Plan, and deliver commitments on sustainable aviation fuels.

Work with stakeholders to address barriers to electrification of oil and gas production by Q4 2022 and continue to drive down routine flaring and venting.

Regulate the oil and gas sector in a way that minimises GHG emissions, notably through the revised Oil and Gas Authority (OGA) strategy, which empowers the OGA to assess operators’ plans to reduce their emissions levels against effectively a net zero test, and establish a climate compatibility checkpoint for future licensing on the UK Continental Shelf.

Industry

Ambition to deliver 6 MtCO2 per year of industrial CCUS by 2030, and 9 MtCO2 per year by 2035.

Set up the IDHRS scheme to fund new industrial carbon capture and hydrogen business models (as above).

Support the deployment of CCUS through the £1 billion CCS Infrastructure Fund.

Following Phase 1 of the Cluster Sequencing process, the Hynet and East Coast, clusters have been confirmed as Track 1 clusters.

Support the installation of energy efficiency and on-site decarbonisation measures through the £315 million Industrial Energy Transformation Fund (IETF) (£289 million for England, Wales and Northern Ireland, £26 million for Scotland).

Support the increased requirement for fuel switching to low carbon alternatives, with an ambition to replace around 50 TWh of fossil fuels per year by 2035.

In collaboration with the Steel Council, consider the implications of the recommendation of the Climate Change Committee to set targets for ore-base steelmaking to reach near-zero emissions by 2035, and the business environment necessary to support the transition.

Develop several Resource and Energy Efficiency (REEE) measures with ambition to achieving the anticipated requirement of 11 MtCO2e worth of savings by 2035, including up to 3 MtCO2e of potential abatement in the Iron and Steel sector.

Incentivise cost-effective abatement in industry at the pace and scale required to deliver net zero, through the UK ETS by consulting (in partnership with the devolved administrations) on a net zero consistent cap.

Explore opportunities for faster decarbonisation of dispersed sites in the 2020s.

Heat & Buildings

Levelling up through supporting 175,000 green skilled jobs by 2030 and 240,000 by 2035 – resulting in £6 billion additional GVA by 2030 and with a focus on the areas that need investment most.

Making the transition to low carbon buildings affordable and achievable for all by:

• Aiming to phase out the installation of new and replacement natural gas boilers by 2035 in line with the natural replacement cycle and, once costs of low carbon alternatives have come down, including any hydrogen-ready boilers in areas not converting to hydrogen, to ensure that all heating systems used in 2050 are compatible with net zero.

• Making heat pumps as cheap to buy and run as a gas boiler by growing the heat pump market to support 600,000 installations per year by 2028 and expanding UK manufacturing – with the ambition of working with industry to reduce costs by at least 25-50% by 2025 and to parity with gas boilers by 2030 at the latest.

• Supporting households in making this transition with a new £450 million Boiler Upgrade Scheme providing £5,000 capital grants and a new market-based incentive for heating system manufacturers, whilst investing £60 million in heat pump innovation – making them beautiful, smaller, easier to install.

• Consulting on phasing out the dirtiest and most expensive fossil fuels first – new oil, coal and liquefied petroleum gas heating – and replacing with low carbon alternatives in non-domestic buildings from 2024 and homes from 2026, following natural appliance replacement cycles.
• Committing to action on addressing distortions in fuel prices to ensure that low carbon technologies are no more expensive to run than fossil fuel boilers.

Helping households and businesses reduce their energy bills while making buildings healthier and more comfortable benefiting from warmer, comfier, more valuable buildings through:

• Upgrading fuel poor homes to EPC Band C by 2030 where reasonably practicable and providing additional funding to the Home Upgrade Grant and the Social Housing Decarbonisation Fund – investing £1.75 billion.

• Consulting on phasing in higher minimum performance standards to ensure all homes meet EPC Band C by 2035, where cost-effective, practical and affordable.

• Setting long-term regulatory standards to upgrade Privately Rented Homes to EPC C by 2028 and considering setting a long-term regulatory standard for Social Housing, subject to consultation.

• Reducing the energy consumption in commercial and industrial buildings in England and Wales by 2030, using measures including regulations and a performance-based measurement scheme.

• Investing a further £1.425 billion in the Public Sector Decarbonisation Scheme, with the aim of reducing direct emissions from public sector buildings by 75% by 2037.

• Setting a minimum energy efficiency standard of EPC Band B by 2030 for privately rented commercial buildings in England and Wales.

Establishing large scale trials of hydrogen for heating to take decisions in 2026 on the role of hydrogen in decarbonising heating, and consult on the case for enabling or requiring hydrogen-ready boilers and broader heating system efficiencies.

Continuing to grow and decarbonise the UK Heat Network market through the £338 million Heat Network Transformation Programme of which at least £270m will go towards the Green Heat Network Fund, introducing sector regulation and new heat network zones by 2025.

Launching a new world-class policy framework for energy-related products to ensure products use less energy, reducing emissions and household bills.

Transport

End the sale of new petrol and diesel cars and vans from 2030.  From 2035, all new cars and vans must be zero emission at the tailpipe.

Introduce a zero emission vehicle mandate setting targets for a percentage of manufacturers’ new car and van sales to be zero emission each year from 2024.

Take forward the pledge to end the sale of all new, non-zero emission road vehicles by 2040, from motorcycles to buses and HGVs, subject to consultation.

Ensure the UK’s charging infrastructure network is reliable, accessible, and meets the demands of all motorists. Later this year, the UK government will publish an EV infrastructure strategy, setting out its vision for infrastructure rollout, and roles for the public and private sectors in achieving it.

Building on the £1.9 billion from Spending Review 2020, the government has committed an additional £620 million to support the transition to electric vehicles. The funding will support the rollout of charging infrastructure, with a particular focus on local on-street residential charging, and targeted plug-in vehicle grants.

Build a globally competitive zero emission vehicle supply chain and ensure the UK’s automotive sector is at the forefront of the transition to net zero.

Lead by example with 25% of the government car fleet ultra low emission by December 2022 and all the government car and van fleet zero emission by 2027.

Take action to increase average road vehicle occupancy by 2030 and reduce the barriers to data sharing across the transport sector.

Maximise carbon savings from the use of low carbon fuels, including by increasing the main Renewable Transport Fuel Obligation (RTFO) target.

Increase the share of journeys taken by public transport, cycling and walking.

Support decarbonisation by investing more than £12 billion in local transport systems over the current Parliament.

Invest £2 billion in cycling and walking, building first hundreds, then thousands of miles of segregated cycle lane and more low-traffic neighbourhoods with the aim that half of all journeys in towns and cities will be cycled or walked by 2030. As announced in the Transport Decarbonisation Plan, we will create at least one zero emission transport city.

Invest £3 billion in the National Bus Strategy, creating integrated networks, more frequent services, and bus lanes to speed journeys, and support delivery of 4,000 new zero emission buses and the infrastructure needed to support them.

Electrify more railway lines as part of plans to deliver a net zero rail network by 2050, with the ambition to remove all diesel-only trains by 2040.

Plot a course to net zero for the UK domestic maritime sector, phase out the sale of new non-zero emission domestic shipping vessels and accelerate the development of zero emission technology and infrastructure in the UK. Engage with industry to explore establishing a UK Shipping Office for Reducing Emissions (UKSHORE) to transform the UK into a global leader in the design and manufacturing of clean maritime technology.

Become a leader in zero-emission flight, kick-starting commercialisation of UK sustainable aviation fuels (SAF), and developing a UK SAF mandate, to enable the delivery of 10% SAF by 2030.  Support UK industry with a £180m funding to support the development of SAF plants.

Natural Resource, Waste & F-Gases

75% of farmers in England will be engaged in low carbon practices by 2030, rising to 85% by 2035. The UK government is introducing farming schemes, including the new environmental land management schemes, which will provide a powerful vehicle for achieving net zero, and goals of the 25 Year Environment Plan.

Increase investment in industry-led research and development into solutions to help deliver net zero in agriculture and horticulture, including through the Farming Innovation Programme.

Treble woodland creation rates by the end of this Parliament, reflecting England’s contribution to meeting the UK’s overall target of increasing planting rates to 30,000 hectares per year by the end of this Parliament and maintain new planting at least at this level from 2025 onwards. Explore a long-term statutory tree target in England within the public consultation on Environment Bill targets.

Boost the existing £640 million Nature for Climate Fund with a further £124 million of new money, ensuring total spend of more than £750 million by 2025 on peat restoration, woodland creation and management. This will enable more opportunities for farmers and landowners to support net zero through land use change.

Restore at least 35,000 hectares of peatlands in England by 2025, through the Nature for Climate Fund. Restore approximately 280,000 hectares of peat in England by 2050, including via funding from the new environmental land management schemes.

Mobilise private investment into tree planting, including through the Woodland Carbon Code, with the support of government’s Woodland Carbon Guarantee, and into peat restoration through implementing a package of reforms to the Peatland Code.

Work with key stakeholders to develop a policy roadmap to increase the use of timber in construction in England, and create a cross-government and industry working group tasked with identifying key actions to safely increase timber use and reduce embodied carbon.

To support the commitment to explore options for the near elimination of biodegradable municipal waste to landfill from 2028, the UK government is bringing forward £295 million of capital funding which will allow local authorities in England to prepare to implement free separate food waste collections for all households from 2025.

Complete a review of the F-gas Regulation and assess whether we can go further than the current requirements and international commitments, including by looking at what additional reductions in F-gas use can be made to help the UK meet net zero by 2050.

Through the Environment Act, legislate for Local Nature Recovery Strategies – a new system of spatial strategies that will map proposals for improving or creating habitat for nature and wider environmental benefits, helping to deliver net zero objectives.

Biodiversity co-benefits and other environmental objectives are maximised alongside decarbonisation.

Greenhouse gas removals

Set the ambition of deploying at least 5 MtCO2/year of engineered removals by 2030, in line with CCC85 and National Infrastructure Commission assessments.86

Deliver £100 million innovation funding for Direct Air Carbon Capture and Storage (DACCS) and other greenhouse gas removals (GGRs).

Develop markets and incentives for investment in GGR methods, by consulting on preferred business models to incentivise early investment in GGRs, in 2022.

Working in partnership with the devolved administrations, aim to launch a call for evidence in the coming months exploring the role of the UK ETS as a potential long-term market for GGRs.

Explore options for regulatory oversight to provide robust monitoring, reporting and verification (MRV) of GGRs, following the recommendations of the BEIS-led MRV Task & Finish Group involving experts from industry and academia.

Seek an amendment to the Climate Change Act to enable engineered removals to contribute to UK carbon budgets.

How we can help

The focus on net zero and climate change presents risks for businesses operating in the energy sector and the wider economy. By preparing now and taking a long term perspective, however, businesses can position themselves for the challenges and opportunities of a sustainable future.

As a multi-disciplinary commercial law firm, with specialist lawyers experienced in all aspects of the net zero agenda, Walker Morris can help with specific practical tasks, such as contract reviews and reviewing/improving policies and procedures, as well as carrying out net zero due diligence, assisting clients to secure ‘green finance’ or investments based on climate change criteria, delivering low carbon, sustainability and other green projects, and assisting with measuring and reporting of energy, carbon and climate risks.

Walker Morris can also provide comprehensive, cross-disciplinary advice and transactional assistance, as well as risk management and dispute resolution strategies if/when any strategic litigation queries or concerns arise.

Finally, Walker Morris can provide tailored training to staff at all levels within a business on any net zero-related area or issue.

For further information or advice on any aspect of the UK Government’s Net Zero Strategy and how it will impact your business, please do not hesitate to get in touch with Ben Sheppard or any member of the Infrastructure & Energy team.