What does the UK’s new government mean for net zero?
Labour has committed to stronger transition plan rules and a revival of the UK green taxonomy
The Labour Party has won the UK elections, in a move that’s expected to give a new lease of life to the country’s flagging net-zero agenda.
“We saw the previous government take its foot off the gas in implementing its green finance strategy,” explains Harrison Coldray, a senior sustainable finance associate at London-based consultancy Global Counsel, which has strong ties with New Labour.
The Conservatives had abandoned or delayed many of the big climate promises they made at COP26, and Coldray believes Labour will be under pressure to demonstrate a stronger commitment to the agenda.
“We should expect Labour to move hard and fast to establish their approach to financing net zero, as a point of divergence from the previous government,” he says.
Despite scaling back its initial £28bn green spending pledge and not mentioning the 2050 deadline in its election manifesto, Labour has been clear that it wants to prioritise decarbonisation, and make London a centre for green finance.
It has promised huge increases in renewable energy capacity to achieve a net-zero electricity system by the end of the decade, and has will invest £8bn in setting up a national green energy company.
The new government has also promised £6.6bn for residential insulation, and says it will restore the 2030 phase-out date for internal combustion engine sales, which was delayed under the Conservative government.
It won’t, however, revoke the controversial oil and gas licenses recently awarded to companies, saying Labour will “partner with business and workers to manage our existing [oil] fields for the entirety of their lifespan”. Linked to this, perhaps, it will put £1bn into accelerating the use of carbon capture.
The private sector
While there is public money being earmarked for the climate transition, the government still expects the private sector to do most of the heavy lifting.
Heather McKay, a senior policy specialist at environmental think-tank E3G, says she’s “hopeful” Labour will enable this by producing a net-zero investment plan, outlining how it will use regulation, policy and public finance to create the right incentives, as well as sectoral roadmaps.
“That would be a bold statement of intent on green growth by the new Chancellor,” she says, and could restore confidence after years of flip-flopping, during which time the US has published its Inflation Reduction Act and the EU has produced a Green Deal.
“The really big thing for Labour now will be addressing barriers in the real economy,” continues McKay. “Because there is a big pool of private capital waiting to be deployed into the climate transition in the UK, but if you’re not providing support and technical assistance to companies, they won’t be able to provide an investment pipeline.”
Labour has said it will monitor the flow of finance into the green economy so that it can better understand where capital is already being allocated, and where the government needs to intervene to help with investment gaps.
It has also thrown its weight behind a UK green taxonomy to define which business activities support the country’s environmental and climate objectives.
That taxonomy has already been largely developed, but was kicked into the long grass when the Conservative government cooled off on green finance, so it’s there for Labour to pick up as soon as its term starts.
Transition Plans
The UK has fallen behind many jurisdictions on climate in recent years, but it has developed a leadership position in one area: transition plans.
The outgoing government had committed to mandate the disclosure of net-zero transition plans on a comply-or-explain basis across the UK economy.
Since that promise was made by Rishi Sunak at COP26, the government-appointed Transition Plan Taskforce (TPT) has developed guidance on what those disclosures should look like.
National lawmakers haven’t done anything with that guidance yet, but elsewhere it’s been brought under the same umbrella as the International Sustainability Standards Board (ISSB), meaning it will form the basis of future global expectations on transition plans.
In order to make sure it isn’t overtaken by other countries looking at transition plan legislation, the new government could insert the TPT guidance into its existing climate disclosure rules – based on the TCFD – instead of waiting until it formally endorses ISSB next year.
“It depends how quickly Labour wants to move on this agenda,” says McKay.
Importantly, it has already said it will “mandate UK-regulated financial institutions, including banks, asset managers, pension funds and insurers, and FTSE100 companies, to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement”.
This is a stronger position than the former government, both in terms of climate ambition – moving from net zero to 1.5°C-aligned plans – and the nature of the rule – moving from comply-or-explain disclosures to mandatory implementation.
Coldray points out that “Labour suggests this will apply to FTSE 100 companies and financial institutions,” which is a smaller set of firms than the large listed and unlisted ones the Conservatives said would be captured by transition plan requirements.
“The reach and scope is something Labour will need to look very closely at,” notes Coldray.
Generally, observers expect the commitment to be widened and fine-tuned over time, so that it applies beyond FTSE100 companies.
“More than anything, companies and investors need clarity on these issues,” says McKay. “The UK has gone from being really progressive on net zero to turning it into a fairly un-pumped political football.
“The new government has a big opportunity to right those wrongs.”