THE BLOG
30/06/2015 06:28 BST | Updated 29/06/2016 06:59 BST

UK Must Step Up a Gear in the Low-Carbon Race

Today's Progress Report from the Committee on Climate Change highlights that we are entering a critical phase in the UK's transition to a low-carbon economy. A lot has been achieved in recent years, from increased innovation in low-emission vehicles to the significant deployment and cost reductions of renewable energy technologies.

Today's Progress Report from the Committee on Climate Change highlights that we are entering a critical phase in the UK's transition to a low-carbon economy. A lot has been achieved in recent years, from increased innovation in low-emission vehicles to the significant deployment and cost reductions of renewable energy technologies.

Offshore wind, for instance, has seen its deployment in the UK increase fourfold since 2009 and its lifetime costs reduced by around 11% in just four years. More generally, the UK's low-carbon sector saw its annual turnover increase by around 25% between 2010 and 2013, reaching £122bn, already twice that of the auto-manufacturing industry.

But we have now come to a critical period. On energy efficiency, the UK has not made anywhere near as much progress as it should have done. Buildings are responsible for around 37% of the UK's emissions and yet the building insulation market contracted by around 22% in 2014, making it clear that a reboot of the UK's energy efficiency policies is urgently needed. Progress in energy efficiency is not just important in its own right, it is also fundamental to the proper functioning of low-carbon heat technologies that will rapidly be needed to reduce emissions from heat.

When it comes to other low-carbon infrastructure, the time lag between an investment decision and a project being built can be significant. For example, an offshore wind or carbon capture and storage project can take eight to ten years to build. If you are a supply chain manufacturer, supplying parts for wind farms for example, it can take several years to build your factory followed by several years of regular orders to make an adequate return on investment. In both cases, you will want to know what the market for low-carbon technologies is going to be like well into the mid-2020s before going ahead with any major investment.

In this light, the lack of clarity both in terms of ambition and funding available to low-carbon technologies beyond 2020 acts as a real brake for the development of new projects, the pace at which the cost of these technologies can continue to be cut and the broader positive impacts that this investment can have on the economy as a whole.

But there is a broader issue of investment confidence and international credibility at stake here. In the wake of retrospective policy decisions on onshore wind farms and the announcement of a part privatisation of the UK's Green Investment Bank, it is crucial that the government makes rapid decisions as to what the future policy framework will be like beyond 2020 in order to retain investor confidence, keep investment flowing and keep the cost of finance as low as possible.

This issue is just as important for the UK's work on the international climate negotiations. The UK, through the work of the Prime Minister, the Department of Energy and Climate Change and the Foreign and Commonwealth Office, has done some very positive work for some years on helping support the development of an ambitious international climate change agreement in Paris this December. The government must avoid its international leadership becoming undermined by a perception abroad that the UK is failing to implement its low-carbon commitments at home.

As a major report from the Aldersgate Group will show next week, action is now needed on numerous fronts. On energy efficiency, it is now time for this patchwork area of policy to become an infrastructure priority, backed up by greater levels of cross-government co-ordination and sufficient levels of funding. The benefits in terms of lower energy bills, better health, lower costs for the NHS and more modern buildings make it worth it. A focus on developing different policies tailored to low-cost and higher cost energy efficiency measures will be needed as well.

Providing clarity on the level of funding available through the Levy Control Framework for the deployment of low-carbon technologies well into the mid-2020s is also urgently needed. To be effective, it will need to be complemented with some clarity as to what the government expects the minimum levels of deployment of different low-carbon technologies to be beyond 2020.

The way the government handles the part-privatisation of the Green Investment Bank will be critical too. The Bank has played a key role in helping mobilise private finance at reasonable cost to invest in low-carbon projects that private investors would previously have considered too risky, a mission which it must continue to deliver and expand on. The key going forward will be to ensure that the Bank retains a binding public mission and that the government keeps a shareholding in the Bank that is sufficiently significant so as to demonstrate to investors its continued commitment to the Bank's future success.

Some of the policies above are by no means easy political decisions to make, most notably because they require important levels of upfront investments for a longer term return. But whether or not such decisions are taken during the initial stages of this Parliament will determine the UK's ability to meet its emission reduction commitments on time, on budget and in a way that's economically beneficial to the UK.