UK net zero: tinkering with targets will deter clean energy investors

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Countries that set legally binding targets for net zero emissions face a conundrum. Meeting 2050 goals requires onerous targets. But phaseout dates for polluting technologies stimulate investment in replacements. Meddling with these dates risks the opposite.

Until this week, the UK’s car, heating and electricity industries had been investing to meet near-term phaseout targets for new petrol and diesel cars, and gas boilers.

Privately, there were doubts these could be achieved. Ministers had proposed a hard ban on the installation of new gas devices in all existing homes from 2035, for example. But the installation of electric heat pump alternatives is lagging far behind a government ambition of 600,000 a year. Last year’s tally was a mere 72,000.

Even so, companies from Ford UK to Octopus Energy have ploughed ahead with investments in UK manufacturing facilities in the hopes that markets will scale up.

Rishi Sunak’s decision to dilute the government’s plans will slow down sales. His assertion that most households will only have to change their heating when their boiler expires, a rule that will not apply before 2035, sends mixed messages to consumers. About a fifth will be exempt.

PwC estimated the value of the UK’s heat pump market could reach £11bn by 2030 if annual installations hit 600,000. Those rates now look unachievable.

The prime minister’s dithering is unlikely to unwind funds already committed. Other incentives should continue. Sunak sweetened a boiler upgrade scheme in England and Wales. Homeowners will be able to access grants of up to £7,500 to switch to electric heat pumps. Incentives were previously between £5,000-£6,000.

Car companies will also still be subject to new rules requiring them to ensure a certain percentage of new cars they sell in the UK are emission-free. That should ensure EV models are still promoted in showrooms.

But the UK’s standing among clean energy investors is being damaged. This was tarnished after January’s introduction of a windfall levy on renewable electricity generators. The levy will apply until March 2028. In the EU, similar levies have expired. 

The UK is in competition for capital with the EU and US. Companies often have a choice over which projects to support. Sunak’s decision will make it harder for them to argue the investment case for backing Britain.