In 2021, the UK government published its Net Zero Strategy, which laid out a roadmap for achieving net zero greenhouse gas emissions by 2050.
Unfortunately, that road had some unexpected obstacles. The Russian invasion of Ukraine, high energy prices, inflationary pressures, and tumultuous politics dramatically altered the landscape of climate action across the globe. The UK was no exception.
Rather than abandon the goal of a net zero future, the government commissioned a review led by Chris Skidmore MP to better understand the impact of different approaches to delivering a net zero pathway that maximises the economic opportunities of the transition.
In January, the commission delivered the UK Net Zero Review, and now the government has until 31 March to respond to its proposals. With that as the backdrop, Patch hosted Chris Skidmore alongside Liz Harrowell, Director of Climate Risk and Strategy at KPMG, Lydia Sheldrake, Director of Policy & Partnerships at VCMI, and James Davis, Partner, Financial Services, Climate and Sustainability at Oliver Wyman to talk about what the review could mean for the future of net zero in the UK and climate action at large.
You can watch the full recording of the event, but here are two opportunities and two risks the UK faces according to this panel of experts.
Opportunity: A net zero future unlocks tremendous economic potential for the UK
According to Skidmore, other countries such as the U.S. and Germany have started to take a long-term view on the transition to clean with price-signalling on CO2 and hydrogen, but the UK has mostly been approaching it project-by-project.
“The UK has two divergent pathways,” said Skidmore, “the net zero pathway that would allow it to access potentially up to a trillion pounds worth of capital by 2030, creating 480,000 new jobs by 2035, or the pathway of not zero.”
Mission Zero, the Net Zero Review, offered 129 recommendations for the UK to unlock that economic potential alongside 10 decade-long missions to create consensus across government and industry. In the webinar, Skidmore outlined the “four C’s” that are key to accomplishing those missions:
- Continuity of people and policy over time
- Certainty of funding for the business environment and regulations
- Consistency of the playing field that’s well-understood by businesses and investors
- Clarity of data to inform future decision making.
As the webinar panel added, it won’t be government alone delivering on those four C’s. Lydia Sheldrake, Director of Policy & Partnerships at VCMI, called out the forthcoming Claims Code of Practice — which will be finalised this year — should help create consistency and clarity around the voluntary carbon market (VCM).
Furthermore, as James Davis, Partner, Financial Services, Climate and Sustainability at Oliver Wyman, pointed out, the UK is home to a major global financial hub in London, which he sees as a huge advantage for it.
“We're seeing a lot of innovation around market infrastructure that will support all of this,” he said. “So I think that's all a big positive force for the market. And there's a lot of appetite to invest in the space which should be helpful for the development.”
Takeaway: If the UK government adopts the policies that will deliver a net zero future, it could unlock trillions in capital by 2030, with the standards and financial infrastructure in place to ensure that money is invested quickly and according to science-based best practices.
Risk: A fragmented, ambiguous carbon market creates fears of greenwashing
One risk that was expressed consistently among the panel concerned greenhushing. If greenwashing is the practice of covering up unsustainable practices by signalling dubious climate action, greenhushing is the other side of the coin: covering up one’s climate action for fear of being accused of greenwashing — or worse, not taking action at all.
“We’re all well aware of the issues around greenwashing, or now, greenhushing,” said Skidmore, “where companies are now entering a corrosive environment of not being able to commit to even looking at what a voluntary carbon market might look like for the fear of being shunned by a wider investor community.”
Specifically, participants in the VCM told Oliver Wyman in a review last year the causes of their hesitation. They don’t know if they’re using credits in the right way — or even if they ought to use credits at all. How much should they rely on them? How much should they spend?
“And then the other big source of uncertainty is,” said Davis, “are the credits themselves good enough? Do they do what they say they do?”
The result is an investor community whose billions sit on the sidelines.
The solution could be manifold, with standard-setting organisations such as VCMI providing orthodox guidance to companies, policy such as the recommendations of the Net Zero Review, and better data and technology improving the trust and transparency of both projects and markets.
“The overriding message is one of urgency,” said Sheldrake. “We need all hands on deck and tools in the box in order to accelerate the net zero transition. And governments in the UK must act decisively.”
Takeaway: Without swift action from regulatory bodies and standard-setters, companies and investors may be paralyzed by greenhushing — and the investment needed to get climate solutions to commercial scale could come too late to be maximally effective.
Opportunity: Localised investments can drive results at home and in emerging markets
A primary pillar of the Net Zero Review is to catalyse local action, to drive new jobs, homes, and infrastructure for the UK.
“Where is the domestic opportunity to sell the transition to net zero through the voluntary carbon market?” asked Skidmore. “Not just in order for emissions reductions to take place, but actually to mobilise future forms of investment in areas where there has been a lack of investment in the past.”
Liz Harrowell, Director, Climate Risk & Strategy at KPMG, echoed those concerns. She sees emerging demand for opportunities to engage in the VCM that are closer to home. UK companies may see locally-produced carbon credits as more future-proof than those produced abroad, but the supply in the UK is outpaced by that demand.
“It’s more difficult to navigate the market at the moment,” Harrowell explained, “and so a lot of companies are looking for national opportunities in the UK but not seeing an easy way to access those today.”
A tonne of carbon removed on the other side of the globe is identical in terms of chemistry to one removed at home, but the approach and the benefits can be vastly different. Davis took a measured approach to the tradeoffs.
“There is a benefit from having a local supply,” he said, “as well as a benefit in carbon credits being able to channel capital to some of the economies where it’s most needed. There’s space for both certainly, but room to expand the supply in the UK based on where it is.”
Takeaway: There’s increasing demand in the UK for local approaches to carbon credits, but so far the supply hasn’t kept up. More investment in production could be lucrative for project developers and also deliver economic benefits to the UK and to companies searching for future-proof climate action opportunities.
Risk: The UK must act soon to secure its place as a climate leader
One thing each speaker emphasised was a need for urgency. The climate itself is a ticking clock, with each new year taking us closer to the brink of the 1.5°C threshold the IPCC says we must avoid.
But for the UK specifically, there’s a risk of losing out on the economic benefits of a sustainable economy as other global powers such as the US and Germany race forward. And when it comes to regulatory and policy standards for the VCM, there’s a lot of international competition in this space (UAE, Singapore). The VCM is going to feature heavily during COP28, so the opportunity is now for the UK to step up and take leadership on the VCM before other countries beat it to the punchline.
“We are now in a net zero race, and the UK risks falling behind,” said Skidmore. “But in many ways, we are still way out front when it comes to the ability to regulate and create standards and export those to other countries.”
Corporate climate actors around the world are clamouring for leadership, and Skidmore hopes the UK can provide it. But not all the time pressure is climate or competition related. The government must respond to the Net Zero Review by March 31st.
“Why are we — with 1% of global emissions — making all this effort?” asked Skidmore. “We can make this effort because we can shift the dial in ways that we wouldn't have expected. What we have done on net zero, we can now do on the voluntary carbon market for the future.”
Takeaway: Time is running out for the UK to respond to the Net Zero review, but more broadly, for it to be a global leader when it comes to standards and policy for the VCM — and for climate action in general.
How corporate climate action can de-risk government action
While the immediate next steps in Mission Zero are the governments to take, corporate actors need not sit on their hands waiting. The crisis is too urgent and the opportunity too ripe. In fact, action at the company level can play an important role to walk ahead of government spending and de-risk the investment. By helping to guarantee forward revenue for emerging approaches, they can scale faster and prove their methodology in advance of much-needed state investment. That’s the value we designed Patch Offtake to deliver to suppliers while simultaneously helping buyers secure in-demand carbon credits at a consistent price for years to come. Find out more here.