What is the mandate for ‘net zero’?

Countries across the world are in the process of making huge commitments to the attainment of ‘net zero’ emissions. These changes are in response to the increasing challenge of climate change, however, experts are concerned that simply reducing carbon emissions will not be enough to stop climate change, but that the only way forward is reducing them to zero. 

‘Net zero’, is a term used to describe the balance between the volume of greenhouse gas produced and the volume removed from the atmosphere is kept equal, and this is the goal that many countries are taking on.

The main topics we will address in this guide include:

1. Why Do We Need To Reach ‘Net Zero’?
2. The UK
3. How Will This Affect Your Business?
4. Other notable Countries and their Strategy
5. Key Market Influence
6. How Planet Zero Can Help

Why Do We Need To Reach ‘Net Zero’?

Climate change is becoming an ever-increasing concern amongst government bodies and people across the world. If left unchecked, and if we continue to produce emissions at the current rate, global temperatures will continue to rise well beyond 1.5°C, by the middle of this century. Reaching such levels threatens the health and safety of people all over the world, and the planet itself. This is one of the core reasons behind the target of reaching ‘net zero’ by 2050.

The Global Mandate for ‘Net Zero’

The Paris Agreement, signed by 196 countries in December 2015, sets out a number of climate change targets, one of which is to meet a 1.5 – 2°C limit in global warming. It also stipulates that global carbon emissions should reach ‘net zero’ before 2050. On this basis, if every country, government and business attains ‘net zero’ by 2050, increases in global temperatures will be limited to 1.5 – 2°C. 

An increasing number of countries are making commitments to reach the shared goal of ‘net zero’ emissions which is promising. However, carbon neutrality isn’t going to happen overnight and in the coming decades, further action will be needed if countries are actively going to change their habits; burning fewer fossil fuels, reducing the sale of petrol,  making the switch to renewable energy, and more. It’s an immense and incredibly important endeavour, but one that needs to be addressed immediately by countries, governments and businesses all over the world, if we are to see significant, positive change.

The UK

Taking stock of the current situation and pollution levels in the UK, progress has been made and in some respects, the UK is leading the way forward with regards to working towards targets set. Nevertheless, further progress is required if we are to experience significant changes and meet targets along the way to achieving the goal of ‘net zero’. To further this, some considerations have not been taken into account at all.

What follows is a summary of the primary considerations for the UK, both in terms of government policy and business, covering the following questions:

• What level of greenhouse gas emissions is the UK currently at?
• What are the UK’s commitments in achieving ‘net zero’ and what progress has been made in recent years?
• What policies have been made to help achieve the stated targets?
• How does all of this affect UK businesses?

What Are The UK’s Greenhouse Gas Emissions?

In 2008, The Climate Change Act identified 6 major greenhouse gases: carbon dioxide methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride. Carbon dioxide produces most greenhouse gas emissions and is produced primarily by the burning of fossil fuels. 

The other greenhouse gases are produced mainly by industrial processes and waste management; for example, agriculture and landfill sites, and accounted for the remaining 19% of all UK emissions in 2016.

The UK’s Mandate For ‘Net Zero’?

Though levels of greenhouse gases have risen globally, the UK’s emissions have been declining steadily for the past 30 years. As a proportion of global emissions, the UK produces less than 1%. Nevertheless, despite comprising such a small proportion of the overall climate change challenge, it is believed that by demonstrating a path to ‘net zero’, the UK can set an example for others to follow. 

The government also acknowledged that the UK has a moral obligation to set such an example since it played such a huge role in the industrial revolution. The government also believes the UK may also benefit from ‘first-mover advantages’, such as leading the way in the development of specific technical innovations and increasing our energy security.

In 2018, greenhouse gases in the UK were at 57% of levels in the 1990s. While progress had been made, the UK was not on course to achieve its previous target of an 80% reduction in emissions by 2050.

UK Climate Policy And Targets

In June 2019, parliament passed legislation requiring that the UK’s net emissions be reduced by 100% by 2050, when compared with levels set out in 1990. Recently, emissions in the UK have reduced by 42%; and simultaneously, the economy has grown by 72%. Indeed, at the core of the government’s modern Industrial Strategy for developing the economy has been the concept of ‘clean growth’. This policy could see the value of UK exports from the decarbonised economy grow to £170 billion per annum by 2030. We could also experience growth in “green-collar jobs” (i.e. jobs in the environmental sector) to a projected 2 million. 

Further policy changes have been implemented, including a ban on the sale of new petrol, diesel and hybrid cars as early as 2032 and that all vehicles are required to be fossil-fuel-free by 2050. However, these plans are not enough.

In order to reach the UK’s targets, policy needs to cover not only the UK’s consumption-based emissions, the target of which is currently set at a reduction of 55%, but also targets concerning the remaining 45% of emissions relating to UK imports which are currently increasing. UK government representatives have expressed concern that – with imports at their current levels – the UK lacks sufficient control to reduce emissions to achieve its current targets, therefore future policies need to take import levels into consideration.

What Are ‘Carbon Budgets’?

To help ensure that the UK meets its emissions reductions commitments, the government has introduced the idea of ‘carbon budgets’. Stated in the Climate Change Act 2008, five-yearly carbon budgets are to be set by the government, in five-year stints, putting a cap on the total greenhouse gas emissions allowed to enter the atmosphere. These budgets are currently in place until 2032.

The UK is currently on target to meet its third carbon budget (from 2018–22), but the targets set for the fourth (2023–27) and fifth (2028–32) stints are currently not on track to be met. The sixth carbon budget (2033–37) was set in September 2020 and is the first of its kind to take into account the 2050 net-zero target.

Another consideration is that the current carbon budgets do not account for emissions generated from international aviation and shipping – emissions produced by ships and planes whilst in UK waters and airspace. This is despite the fact that these final ’net zero’ targets were meant to include these types of emissions.

How Will This Affect Your Business?

While many UK companies are setting their own targets, further progress needs to be made. Currently, only 19% of FTSE 100 firms have published a detailed action plan to reduce their emissions, and since there is still no legal requirement for companies to make a commitment, over 25% of companies still have not made a plan at all.

If the UK is to meet its greenhouse gas emissions targets, UK businesses need to make a strong commitment to address their emissions and those produced by their business partners. Clearly, some industries will be affected more than others.

Which Industries Are Likely To Be Affected The Most?

In 2016, six industries contributed to 46% of the entire UK carbon footprint: heating homes (9.7%), car fuel (8.6%), electricity (8%), construction (6.7%), agriculture (6.6%) and air travel (5.9%).

The largest three of these, comprising over a quarter (26%) of all UK emissions, are linked to sectors which are expected to fully decarbonise domestically by 2050. This was set out under the UK Committee on Climate Change’s pathway to decarbonisation.

Air travel saw the greatest percentage increase in carbon footprint between 1990 and 2016. Since International aviation does not form part of UK net-zero targets under the Climate Change Act, this means the UK government has not formally recognised that we need to take responsibility for our aviation footprint.

Who Is Getting Regulated/Taxed?

Environmental taxes encourage your business to operate in a more environmentally friendly way. There are taxes and schemes for different types and sizes of business. These include:

• Climate Change Levy: this is paid at either the main rates (electricity, gas, solid fuels such as coal) or carbon price support rates. It applies to businesses in the industrial, commercial, agricultural and public service sectors.
• CRC Energy Efficiency Scheme: this covers large, non-energy-intensive organisations such as supermarkets, hotels, water companies, banks, local authorities and central government departments.
• Emissions trading: this affects businesses from energy-intensive sectors – like the energy industry and manufacturers.

• Capital allowances on energy-efficient items: this allows you to claim capital allowances when buying energy efficient or low/zero carbon technology for your business, reducing the amount of tax you pay.

• Landfill Tax: this tax is paid on top of your normal landfill fees if your business disposes of waste using landfill sites.

• Aggregates Levy: this is a tax on sand, gravel and rock that’s either been mined from the ground, dredged from the sea in UK waters, or imported.

Which Areas Are Expected To Increase, Decrease, Or Stay The Same?

The UK has been deindustrialising and increasing the proportion of food it imports which has offshored the production and associated emissions for many goods we rely on. The change in these processes has helped to unpack the dynamics of such offshoring and displays that nearly half of the UK’s carbon footprint is from emissions released overseas. Emissions of this type are not covered by national emission reporting and are therefore not targeted by domestic climate policy. The following policies and measures have been introduced to help UK businesses review and report on their carbon footprint:

• Compliance – UK ETS, A UK Emissions Trading Scheme (UK ETS) replaced the UK’s participation in the EU ETS on the 1st January 2021. The UK government has established this scheme to increase the climate ambition of the UK’s carbon pricing policy, whilst protecting the competitiveness of UK businesses. The UK ETS scheme will be applied to energy intensive industries, the power generation sector and aviation.
• SECR reporting: This reporting has been designed to aid companies and limited liability partnerships in complying with the Companies Act 2006, Regulations 2013 and the Companies and Limited Liability Partnerships Regulations 2018. This will support all organisations with their voluntary reporting on a range of environmental matters through the application and review of key performance indicators, including voluntary energy and GHG emissions reporting.
  
• ‘Net Zero’ strategy required for applying for government contracts over £5m: Businesses that bid for government contracts worth £5 million or more per annum, are expected to commit to achieving ‘net zero’ emissions by 2050. The UK is the first country in the world to put such a measure in place.
• Stakeholder/consumer pressure on businesses: As well as policy drivers, a number of stakeholders are increasing the pressure on businesses to make an active change towards their impact on the planet. These stakeholders play a crucial part in the success of any business, and include: employees, B2B customers, consumers, investors and civil society groups. Recognising these pressures is fundamental when making decisions on the approach taken towards climate change.

Notable Countries And Their ‘Net Zero’ Strategy

According to the United Nations, the top 3 greenhouse gas emitters – China, US and the EU – contribute 16 times the emissions of the bottom 100 countries, and in terms of global net zero targets, these countries are certainly the priority.

Some larger nations, such as Finland, Iceland and Austria, are leading the way when it comes to achieving their ‘net zero’ targets. Meanwhile, Suriname and Bhutan were the only two countries that had already achieved ‘net zero’ by early November 2021. At COP26, they were joined by a number of countries presenting similar results, including Benin, Gabon, Guinea-Bissau, Guyana, Cambodia, Liberia and Madagascar. 

While it’s true that some of these smaller states are relatively undeveloped and in some cases have dense forest cover, they do, nevertheless, provide an inspiring example to the larger, more developed countries to follow.

Key Market Influences

COP26

At COP26 in November 2021, ministers from all over the world came together to review their commitments and achievement of milestones towards their overall targets. A number of the outcomes from COP26 included: 

• There was some commitment to deep 2030 emissions cuts, but not nearly enough. Nevertheless, the countries involved agreed to a process that could keep the goal of ‘limiting rising temperatures to 1.5°C’ alive.
• Rich nations had still not met their target of £100 billion a year by 2020, to provide financial support to developing countries. Countries also agreed to the creation of a robust process to develop a new, larger climate finance goal that is expected to be in effect after 2025. 
• COP26 encouraged the creation of new dialogue discussing possible arrangements for loss and damage funding, opening up opportunities for the development of solutions that will lead to an increase in financing. 
• The last remaining rules underpinning how the Paris Agreement will be implemented were resolved, mostly for the better.
• Some other developments were announced at the summit, including 109 countries signing up to the Global Methane Pledge to slash emissions by 30% by 2030.

Recent Budget Announcement Regarding Green Future

Just prior to COP26, the government delivered a spending review in the budget, setting out the government’s tax and spending plans for the year ahead. Key announcements included:

• Plans for £30bn in public investment across government departments, most of which has been set out in a series of sectoral plans and the recent net zero strategy.
• The rate of “air passenger duty” on domestic flights will be cut and fuel duty will be frozen for a twelfth consecutive year.
• The UK will continue to breach its domestic legal obligation on giving overseas aid worth 0.7% of gross national income until 2024-25.
• Up to £1.7bn in direct government support was pledged for a new nuclear plant and follows a decision to go ahead with the “regulated asset base” model to pay for the technology.

Growth In Corporate Carbon Neutral And ‘Net Zero’ Claims In The Last 5 Years

Since world leaders met in Paris in 2015 and committed to try and limit global warming, ‘net zero’ has turned into a rally on climate change. 5 years later 70% more businesses are disclosing their greenhouse gas emissions. Corporate emissions decrease steadily each year, yet, the biggest change came in 2020 as a result of the lockdowns and the reduction in business activity, when CO2 emissions fell by 9%. This brings the total reduction to 29% over the past decade, even as the economy grew by a fifth.

While large corporations lead the change, a national survey found that only 11% of small businesses measure their carbon footprint, but over the next year, 54% of businesses surveyed are planning to reduce their consumption. We’ve seen remarkable corporate achievements and strong commitments since 2015, and we are expecting to go above and beyond in the near future.

How Plannet Zero Can Help

At Plannet Zero, we work with businesses across every sector to develop a long-term strategy that identifies, reduces and offsets the carbon that is produced both within their internal processes and operations, as well as that of their stakeholders.

Our OneTwo Zero programme can help to measure and reduce your business’s operational footprint by identifying your Scope one, Scope two and Scope three emissions. 

Our programme is also comprised of:

1. Empowering an in-house sustainability champion – Our team will guide you through education around sustainability, providing you with numerous documents, templates and tools to help support you. The aim of this is to empower a culture of sustainability throughout your staff, processes and day-to-day operations. This process is critical to the identification of opportunities and the encouragement of reductions across your business. 
2. Engaging your supply chain – another key action is to educate and introduce emission-reducing initiatives amongst your supply chain, both upstream and downstream. This is essential to address your business’s scope three emissions, and also encourages the shared goal of environmental action; resulting in the acceleration of reductions and a shared financial cost.
3. A ‘net zero’ target – Once you’ve established your carbon footprint and accomplished carbon neutrality through investing in offsetting initiatives, the next step is net zero. The government has instructed that by 2050 all organisations must reach a target of ‘net zero’. Our team will empower you with the knowledge, guidance and support needed to succeed through the setting of realistic and achievable targets along your journey. Every achievement will bring you one step closer to the end goal of ‘net zero’.
4. Switching to renewable and sustainable energy alternatives – one of the most impactful ways to significantly decrease your carbon footprint is to invest in renewable energy alternatives. There are a number of different solutions available to your business including green tariffs, Renewable Energy Certificates, Power Purchase Agreements and installing on-site renewable power.

For more information on how Plannet Zero can help you on your journey towards ‘net zero’,  please get in touch with a member of our friendly team to discuss your energy goals. Alternatively, you can give us a call on +44 20 3637 1055 or email us at info@redshawadvisors.com. We look forward to hearing from you.