The UK Chancellor of the Exchequer delivered the 2021 Budget to the UK Parliament on 3 March 2021. The budget delivered includes a package of related policy documents, some of which relate to planned commitments to tackle climate change and achieve the Government’s net zero by 2050 ambition.
Two of the more interesting aspects of this budget in relation to the tackling of the negative effects of climate change are the introduction of a sovereign green bond framework, and the setting up of a new UK Infrastructure Bank (UKIB), which will provide financing to help meet climate change objectives, amongst other things.
The Government also announced a number of other plans, including investment in offshore wind and hydrogen related projects geared towards a low-carbon future for the UK.
One of the core objectives of the UKIB on inception is to help tackle climate change. As noted in our recent post, the bank’s primary focus will be the economic infrastructure sectors covered in the National Infrastructure Strategy and it will have £22 billion of financial capacity to focus on intervening where there may be a shortfall in private finance.
The UKIB appears to be a replacement for the European Investment Bank (EIB), which previously supported infrastructure projects in the UK. The UK Government acknowledges the positive role played by the EIB in supporting new green technologies through low-cost lending and sees the UKIB as having potential for bringing in private sector investment through a number of different financial products, which are aimed at helping reduce the risk to private sector investors.
The Government has also expressly noted its hope that well-financed areas that the EIB had supported, mainly the energy, telecom, and water and sewage sectors in the UK, will be supported by the private sector without public sector support. The UKIB will start operating in an interim form later this spring 2021, and its full mandate is awaited, including any specifics on the sectors and projects it will be investing in.
Following an announcement in 2020 that the Government will issue its first green gilt in 2021, the Chancellor of the Exchequer announced that the first green gilt will be issued in summer 2021, with a further issuance later in the year. The planned total amount for 2021-2022 is £15 billion. While the framework of the gilt is not yet clear, the Government has committed to reporting on the contribution of gilt-financed spending towards social co-benefits like job creating and levelling-up.
The international sovereign green bond market is still relatively small, with only 16 sovereign green bonds having been issued as at September 2020, according to an OECD report. The gilt framework and structure for the UK’s green gilt will be published in June 2021.
Other policies and investments
In relation to decarbonisation and low carbon futures of various regions of the UK, the Government has set out plans to invest in upgrading the ports infrastructure in Yorkshire and Humberside to attract offshore wind manufacturing investment, and increase the number of green jobs. It has also committed £4.8 million investment for a hydrogen hub in Holyhead, as part of its net zero ambition.
The Government’s other commitments include investment in the Aberdeen Energy Transition Zone, Global Underwater Hub and the North Sea Transition Deal (see more on the deal in our recent post), all of which are aimed at supporting initiatives like the Aberdeen transition to a low carbon future.
The Government also intends to set out additional proposals for expanding the UK Emissions Trading Scheme in the course of 2021 to drive decarbonisation, and a carbon markets working group will be set up by Dame Clara Furse that will focus on setting up the UK and the City of London as a leading global market for voluntary carbon offsets.
The Government will offer a green retail National Savings & Investments product in summer 2021, which will be linked to the green bond framework and give savers the opportunity to partake in these efforts to tackle climate change.
A £20 million programme to support the development of floating offshore wind technology, a £68 million UK-wide competition to implement energy storage prototypes, and a £4 million UK-wide competition for the first phase of a biomass feedstocks programme are some of the several initiatives included in the Government’s commitments to energy innovation.
Leading up to COP26
It will interesting to see further updates on these policies and investments in the coming months and the Government’s efforts and messaging on climate change and decarbonisation in the lead-up to COP26 in Scotland later this year.