Chapter 2: Decarbonisation of Business
Published March 27, 2020
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The business community has had influence over the UK’s climate policy. In May 2019, 128 business leaders co-signed a letter to the UK government urging it to adopt a net zero target. Following the legislation in June, a September 2019 YouGov poll found that 59% of business people thought that business and industry can be an effective force for decarbonisation. However, the same poll also found that only 46% of businesses had considered the UK’s 2050 net zero target in their long-term planning with their own net zero targets, and that 31% had no net zero targets at all.
The private sector has a huge role to play in decarbonisation. Public finance is increasingly constrained. While climate change is an issue that requires urgent attention, the limited resources of governments mean that other issues often take priority. However, this hasn’t prevented governments from setting long-term net zero targets. Today, nearly 50% of global GDP is produced in areas where governments have set a net zero target, have one in a policy proposal, or are discussing one.
A net zero target set by a government does not send a signal to business that all is in hand. Rather, the target is met through new legislation. In the UK, this legislation does not yet exist. The UK’s sixth carbon budget, which will be announced in 2020, will be the first new carbon budget designed since the UK legislated its net zero target. Future meaningful legislation may take years to come.
Compliance costs with a net zero economy
Future legislation will have compliance costs that will be greater for businesses that have not prepared to adapt to a net zero economy. This is called regulatory risk. For example, consider the Humber Industrial Cluster. It is a zone in the Humber Estuary that represents 55,000 jobs, 12% of the UK’s employment in the chemicals sector, and two of the UK’s six oil refineries. The Cluster currently produces £18 billion per year in gross value added. It is the UK’s most carbon-intensive region.
Projections for future carbon taxation based on HM Treasury forecasts could mean this region is exposed to nearly £4 billion in carbon taxes alone by 2040. This sends a clear signal to the region that failure to decarbonise poses an existential threat.
What is the footprint of the private sector?
In 2018, businesses and industrial processes accounted for 17% of direct UK GHG emissions. This is to say nothing of the emissions associated with their electricity use (which are accounted for in the emissions of the power sector), the emissions they are indirectly responsible for in the activities of other sectors (such as transportation), and the emissions associated with international business trade.
What do businesses need to do in response to the UK’s net zero target?
While the government develops legislation to meet the target, businesses can take the lead the same way they did to get the target legislated and reduce their exposure to regulatory risk. Businesses must reduce emissions within their own organisations, in areas in which they have operational control and in areas in which they can indirectly influence climate impacts.
UK business opportunities in decarbonisation
The transition to a low-carbon economy presents opportunities to UK businesses. The UK currently produces world-class environmental research and exports low-carbon services globally. Ricardo Energy and Environment, in research it conducted that was commissioned by the UK government, estimated that the UK low-carbon economy could grow from 2% in 2015 to 8% by 2030 and 13% by 2050. Note that this does not represent the amount of the UK economy that is net zero, but the amount of the economy that contributes to net zero transitions in the UK and abroad.
Download these additional guides for reference to support your understanding and net-zero emissions strategy development:
Tags Carbon Footprint Decarbonisation Humber Industrial Cluster Net Zero Net Zero Target YouGov
