Green finance and innovation – point 10 of the UK Government’s Ten Point Plan

In the final limb of its Ten Point Plan (the Plan), the Government acknowledges the significant investment required to achieve net zero through the developments and innovations elsewhere in the Plan. It seeks to leverage public and private sources of financing, increasing investment in research and development (R&D) while cultivating a green finance sector, including through the issue of UK Sovereign Green Bonds from 2021. This builds on the Government’s 2019 Green Finance Strategy and the establishment last year of the Green Finance Institute.

Net Zero Innovation Portfolio

The Government has committed to raising total R&D investment to 2.4% of GDP by 2027 and the first contributor to this is the £1 billion Net Zero Innovation Portfolio, which aims to accelerate the commercialisation of low-carbon technologies, systems and processes in the power, buildings and industrial sectors. The portfolio is designed to focus on priority areas that align with those emphasised in the Plan, including:

  • floating offshore wind;
  • nuclear advanced modular reactors;
  • energy storage and flexibility;
  • bioenergy;
  • hydrogen;
  • homes;
  • direct air capture and advanced carbon capture and storage;
  • industrial fuel switching; and
  • disruptive technologies, including AI for energy.

This builds on recent investments, such as the first phase in November of a £100 million injection in new greenhouse gas removal technologies, including direct air capture, a method of capturing CO2 from the air for storage in geological formations or use in industrial processes. In the Plan, the Government has pledged a further £100 million for energy storage and flexibility innovations, noting the increasing importance of such technologies as the UK more heavily relies on renewable sources of electricity generation and has to counteract their inevitably less predictable generation.

Nuclear fusion

Further to the commitments it makes to large-scale nuclear projects and advanced nuclear technologies in Point 3 of the Plan, the Government has emphasised its continued focus on commercialising nuclear fusion technology. It notes its ongoing £222 million investment in the STEP programme, which aims to build the world’s first commercially viable nuclear fusion power plant in the UK by 2040, as well as £184 million for new fusion facilities, infrastructure and apprenticeships to establish relevant expertise in the UK, creating a so-called “global hub for fusion innovation”.

Transport

In the transport sector, the Government has pledged to invest £3 million in the Tees Valley Hydrogen Transport Hub, which will lead research, development and testing of new hydrogen transport technologies across all modes of transport. This will sit alongside the world’s biggest hydrogen refuelling station in Teesside, plans for which have already been backed by Government. Aiming to address one of the more challenging aspects of decarbonising road transport, the Government has also committed £20 million to trials of zero emission heavy goods vehicles.

Financing – the public and private sectors

In terms of public funding, the Government has indicated that it intends to issue Sovereign Green Bonds in 2021, subject to market conditions, to be followed by subsequent issuances, the proceeds of which will finance sustainable projects and infrastructure. The Government will hope to tap into the exponentially increasing market for environment, social or governance-oriented investments, with around £190 billion of green bonds having been sold last year – 3.5% of global bond issuance.

In the private sector, the Government is continuing to encourage greater private investment in green innovation, building on 2019’s Green Finance Strategy and the corresponding launch of the Green Finance Institute. This organisation, chaired by Sir Roger Gifford, was established to promote collaboration between the public and private sectors, bringing together global experts and practitioners to design new ways of channelling capital into sustainable initiatives. It has since established a Coalition for the Energy Efficiency of Buildings and a Zero Carbon Heating Taskforce, as well as launching a Green Finance Education Charter.

The Plan sets out the Government’s next steps to encourage greener private investment, including introducing mandatory reporting of climate-related financial information across the economy by 2025, with a significant portion of mandatory requirements in place by 2023, aligned to the recommendations of the Taskforce on Climate-related Financial Disclosures. Measures will first be applied to entities such as premium listed companies, with their reach broadening over time, and will allow investors to better understand the impacts of their exposure to climate change, price climate-related risks more accurately and support the greening of the UK economy.

The UK and City of London will also be promoted as a leader in the global voluntary carbon markets, including in response to the recommendations of the Taskforce on Scaling Voluntary Carbon Markets. In relation to compliance markets, the Government wants to formulate a clear carbon price as the UK leaves the EU Emissions Trading System, and has since begun implementation of a replacement, domestic Emissions Trading System.

In order to facilitate informed investment, the Government will implement a green taxonomy that defines which economic activities are environmentally sustainable. The UK taxonomy will take the scientific measures in the EU taxonomy as its basis and a UK Green Technical Advisory Group will be established to review these to ensure their suitability for the UK market.

Together, the Government feels that these measures will provide investors a clear framework in which to deliver the low-carbon finance needed to achieve net zero by 2050. The Government predicts that enhancing green finance overall could attract £1 billion of matched funding and potentially £2.5 billion of follow-on private sector funding to supplement the Government’s own £1 billion investment.

Further measures directed at consumers and taxpayers, including on tax and regulations, are expected as part of HM Treasury’s Net Zero Review.

Matthew Job

Matthew Job
Partner, London
+44 20 7466 2137

Amy Geddes

Amy Geddes
Partner, London
+44 20 7466 2541

Jake Jackaman

Jake Jackaman
Partner, London
+44 20 7466 2883

Protecting our natural environment – point 9 of the UK Government’s Ten Point Plan

Recognising that the natural environment plays a key role in capturing and sequestering carbon, and with the objective of reversing environmental harm and enhancing biodiversity, the government has committed to “safeguard our cherished landscapes, restore habitats for wildlife…and adapt to climate change, all whilst creating green jobs” through plans that include the planting of 30,000 hectares of trees.

What is proposed?

National Parks, AONBs and Landscape Recovery networks

The government proposes to create new National Parks and Areas of Outstanding Natural Beauty (AONB) by designating and safeguarding “beautiful and iconic” landscapes across England from 2021. In addition, ten long-term “Landscape Recovery projects” will be established between 2022 and 2024, which are intended to restore wild landscapes in England, potentially creating “over 30,000 football pitches of wildlife rich habitat”. This is to help sequester carbon and establish the Nature Recovery Network (NRN), which was announced as part of the government’s 25 Year Environment Plan and launched on 5 November 2020. The new National Parks, AONBs and Landscape Recovery projects are intended to protect up to an additional 1.5% of natural land in England, playing a “key role in meeting the Government’s commitment to protect and improve 30% of UK land by 2030”.

Green Recovery Challenge Fund

The government has committed to inject a further £40 million (already having committed £40 million) into the Green Recovery Challenge Fund in 2021, aiding the immediate creation of green jobs to work on conservation and restoration projects across England. This increase to the Fund is expected to deliver over 100 nature projects over the next two years.

Environmental Land Management Scheme

As the UK leaves the EU, the government’s Environmental Land Management Scheme published earlier this year, (the Scheme) is an important part of the UK’s efforts to combat climate change, deliver clean air and water, protect the natural environment and protect from environmental hazards. The pilots under this Scheme are expected to be rolled out next year, with a full roll-out before 2024. The Scheme runs alongside the already existing Productivity Grants available to farmers, to encourage investment in technology to reduce emissions, while making their businesses efficient and profitable.

Flood defences

The government has also committed to invest £5.2 billion over six years from 2021 to protect homes, businesses and communities from flood risks, while also protecting the environment. Such improvement in flood defences is expected to deliver up to 20,000 jobs and protect over 336,000 properties from risk of flooding.

What will the impact be?

Environment

Businesses which require environmental permits for their operations may find more stringent conditions imposed on them or permits refused where their operations have the potential to negatively impact one of the newly protected areas.  They may be more likely to face local objection to the issue of a permit and a greater likelihood of challenge of the decision to grant a permit.

Planning

In planning terms, National Parks and AONBs are protected areas, subject to strict development controls respecting the sensitivity of the landscape. The recent Planning White Paper proposes to preserve such controls, noting that, for example, AONBs would be designated as “Protected” areas within the proposed new local plan system and subject to a presumption against development. Whilst beneficial for environmental protection, existing development controls in National Parks have created an imbalance between housing need and supply. This is acknowledged in the Planning White Paper, noting that the proposed new standard method for establishing housing requirement figures would have to take this into account to avoid undermining the purpose of National Parks. However, if the number and area of National Parks and AONBs significantly increases, the area of land subject to stricter development controls, and therefore not available for housing development, will also increase. The potential impact of this on the government’s ability to meet its ambitious housing target of 300,000 new homes per year (1 million by the end of this Parliament) is not clear. Designation of land as a National Park or AONB will certainly help those objecting to new homes in such areas.

The Environment Bill, which has resumed its passage through Parliament, includes a requirement that “responsible authorities”, including National Park authorities in England, must prepare and publish local nature recovery strategies. This will support the creation of the NRN. These proposals to protect the natural environment, safeguard landscapes and restore habitats also repeat existing commitments in the 25 Year Environment Plan to conserve and enhance the beauty of the natural environment, meaning that they will be capable of scrutiny by the Office for Environmental Protection (OEP) to be created pursuant to the Environment Bill.

Commentary

The government’s plans are a welcome step towards protecting natural landscapes and restoring wildlife habitats. However, they are effectively only a partial implementation of the much wider ranging commitments made in the 25 Year Environment Plan issued in 2018, which covers additional aspects of environmental protection such as waste, water and clean air in a much more comprehensive fashion than those aspects showcased in the latest Ten Point Plan.

Progress against the 25 Year Environment Plan to March 2020 was reported on by Government earlier this year and scrutinised by the Natural Capital Committee (NCC) which advises government on the natural environment and implementation of the 25 Year Environment Plan. The NCC highlighted in their October response to the progress report that the majority of England’s natural assets (air quality, marine environment, soils and land) examined by the NCC, five out of seven were still “deteriorating”, while no natural asset group was making progress in meeting existing targets and commitments. However, the NCC’s role with regard to progress under the 25 Year Environment Plan ends this year, and will pass to the new OEP once it is established in 2021. Of key importance therefore will be the new body’s confidence and enthusiasm for continuing to hold the government strictly to account.

Catherine Howard

Catherine Howard
Partner, London
+44 20 7466 2858

Julie Vaughan

Julie Vaughan
Senior Associate, London
+44 20 7466 2745

Carbon capture, usage and storage – point 8 of the UK Government’s Ten Point Plan

Becoming a world-leader in carbon capture, usage and storage (CCUS) technology is at the heart of the UK Government’s new plan for a “green industrial revolution” released on 18 November 2020 (Ten Point Plan).

The Ten Point Plan makes it clear that by capturing carbon from power generation, low carbon hydrogen production and industrial processes, and storing it underground so that it cannot enter the atmosphere, CCUS technology will play a critical role in addressing the UK’s ambition to become a net zero economy. The Government aims to use CCUS technology to revitalise industrial regions and capture and store 10 Mt of Co2 per year by 2030. Recognising that no one country has yet captured the CCUS technology market, the Ten Point Plan emphasises the UK’s unique position to lead in this respect, with the unrivalled asset of having the North Sea that can be used to store captured carbon under the seabed.

The government sees in CCUS technology a means to contribute to the economic transformation of the UK’s industrial regions, enhancing the long-term competitiveness of the UK industry. In fact, the Ten Point Plan reveals a £1 billion CCUS Infrastructure Fund that will be used to establish CCUS technology in two industrial clusters by mid 2020s, and aim for four of these clusters by 2030, saving the equivalent of 9% of the 2018 UK emissions between 2023 and 2032. The Ten Point Plan concludes that CCUS technology would support up to 50,000 jobs in the UK by 2030, with a sizeable export potential.

There is also a cross-over between CCUS and other elements of the Government’s Ten Point Plan. The Ten Point Plan recognises the link between low carbon hydrogen production growth and the expansion and increase of CCUS infrastructure, and the combination of CCUS technology and hydrogen will render the creation of various CCUS clusters possible in what the Government describes as industrial “SuperPlaces”. To set this plan in motion, the UK government is expecting to execute in 2021 a process for CCUS development, working in collaboration with industry and set out further details of a revenue mechanism for industrial carbon capture and hydrogen projects.

With plans for more than 30 new integrated CCUS facilities announced globally since 2017[1] and increased action by governments worldwide to incentivise technologies that capture carbon emissions, the Ten Point Plan is part of the UK’s plan to becoming a global leader in CCUS technology.

HSF will follow new UK policy papers on CCUS closely – follow our Energy Notes blog for more information as the policies evolve.

[1] www.iea.org/reports/ccus-in-clean-energy-transitions/a-new-era-for-ccus#growing-ccus-momentum

Steven Dalton

Steven Dalton
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Silke Goldberg

Silke Goldberg
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Reza Dadbakhsh

Reza Dadbakhsh
Partner, London
+44 20 7466 2679