UK Net Zero Goal Needs National Transition Plan

Quickening the pace of local and regional investment can deliver on clean energy targets, says Bruno Gardner, Head of Climate and Nature at Phoenix Group.

The first four months of the UK’s Labour government has seen encouraging early action on net zero, including lifting the ban on onshore wind, establishing Great British Energy (GB Energy) and the National Wealth Fund (NWF), and publishing Clean Power 2030.

And the Prime Minister’s announcement during COP29 that the UK will reduce greenhouse gas (GHG) emissions by 81% from 1990 levels by 2035 provided further evidence of the administration’s commitment to tackling the climate crisis and forging ahead with the green transition.

However, the scale of the climate challenge dwarfs all financial pledges and commitments made so far; a staggering £2.4 trillion (US$3.03 trillion) needs to be invested in climate solutions by 2035 for the UK to remain on track to meet its net zero goals. This means that, despite the good early progress, much more needs to be done.

Necessity for a national transition plan

Institutional investors, like Phoenix, crave certainty and in the context of net zero, the best way to deliver this is through an economy-wide national transition plan (NTP). This would provide a clear market signal and substantially reduce uncertainty, paving the way for investors to allocate capital in support of the net zero transition, in a way that supports good customer outcomes.

But what should this plan encompass? A key element must be sector-specific roadmaps, with the initial priorities being the most carbon-intensive sectors, and where the UK can amplify its international competitiveness, such as energy production and distribution, transport, the built environment and industry. Each sector roadmap needs to address the full range of levers that the government has at its disposal, including pricing, regulation and wider support.

As a starting point, the UK government could focus on a sector roadmap for the power sector to achieve the Clean Power 2030 target, utilising guidance set out by the National Energy System Operator.

Crucially, the NTP needs to include a localised approach to capital raising, mapping out the investment required across sectors and regions by different pools of capital (e.g. from venture capital for emerging technologies, through to pension fund investment for proven technologies) and setting out how the government plans to catalyse private sector investment, for example through blended finance solutions offered by the NWF and GB Energy.

An NTP has huge potential to deliver economic growth, which can help pension savers grow their investments and secure a life of possibilities. And by considering skills needs and job-creation opportunities across sectors it can also help to deliver a just transition.

Net zero transition at local and regional levels

The huge investment needed to deliver net zero represents a significant opportunity to catalyse regional growth and jobs. Around 80% of the UK’s overall GHG emissions are within scope or influence of local authorities, and much of the investment in the net zero transition is needed in local infrastructure and services such as the built environment and transport. Local councils are increasingly taking action, with over 300 having already declared a climate emergency.

However, local authorities can lack the capacity or skills to invest in climate solutions at the scale needed and where novel technologies are involved. To address this, we would establish an investor advisory body (IAB) to work with the Department for Energy Security and Net Zero (DESNZ) to collectively build the skills and capacity in local authorities needed to create investible deal pipelines to crowd in the required levels of private sector capital.

The IAB’s remit should include supporting the identification of investment opportunities and helping to ensure they are structured to align with institutional investors’ investment criteria and requirements. The body will also have an important role to play in collaborating with policymakers and bodies such as the NWF to address UK-wide sectoral challenges in areas such as district heating and electric vehicle charging infrastructure.

Place-based local area energy planning

We are also calling for local area energy plan (LAEP) guidance to be endorsed as the national framework for place-based decarbonisation planning. LAEP guidance sets out an integrated approach to developing detailed place-based whole energy systems pathways and delivery plans for net zero, and will help to ensure regions develop robust, consistent, investible local transition plans.

The scale of investment required to deliver LAEPs means local authorities will need to look beyond traditional grant funding and Public Works Loan Board financing. Private finance will be crucial, and the adoption of LAEPs can help local authorities to identify investment opportunities and structure them to align with investors’ criteria and requirements.

Taking a consistent approach could also potentially enable greater aggregation of projects within and across regions, which could help to attract institutional investment in a way that could enable Phoenix’s customers and other long-term savers benefit from more of the regional growth opportunities the transition presents.

By developing an overarching NTP and supporting regional investment in net zero through the establishment of an IAB and endorsement of LAEP guidance, the government can materially help to unlock the private sector investment needed to keep the UK’s net zero transition on track.

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