The Chris Skidmore MP report “Mission Zero” has been well received throughout the industry but at 340 pages long, it takes time to review and understand both the recommendations and implications for policy makers, businesses, consumers and the construction industry in general.
I’ve taken the time to go through the report and dissected what I feel are the most pertinent points for the HVAC sector and our customers and here, I look at the third and fourth pillar within the report which cover Net Zero and the Economy and Net Zero and the Community.
If you would like an overview of the whole report, you can read about it in my previous blog.
My second piece focused on Pillars One and Two, Securing Net Zero and Powering Net Zero.
You can also download and read the full report here.
The industry already talks about reaching EPC B by 2030 as if it is already policy
Pillar 3 – Net Zero and the Economy
This chapter focuses on the potential economic benefit, challenges and policy that could/should drive the transition to net zero.
I’m not an economist, but the business case for net zero seems fairly straightforward and providing a legislative/tax playing field where spending money to decarbonise is incentivised/rewarded and not reducing emissions in line with the already defined targets or spending money which maintains the status quo (or even increases emissions!) should be penalised.
Obviously like most things, the devil is in the detail!
Climate change is a global problem and net zero presents an opportunity on a global scale – summarized with the following quotes:
“There is a new global race to maximise the growth potential from net zero at a time of wider geopolitical uncertainty. We are now at a crunch point where the UK could get left behind”.
“If the UK wants to be part of this race and reap the benefits, it must act now to seize this opportunity”.
“Bold business leadership supports bold policy action. The right policy action can in turn accelerate further business action and trigger the ‘ambition loop’ for businesses big and small”.
“A tax policy to incentivise growth and decarbonisation is needed. The Government should use a balanced approach of tax incentives and disincentives to encourage economic activity that meets the dual objective of growth and decarbonisation”.
“The Government should] target easy to access, high leverage financial incentives: For example, tax relief for businesses using low carbon technologies in operations. Unlike R&D tax reliefs, the focus would be on the application of low carbon technologies that advance the net zero transition.” – University of Derby Business School”.
The US approach
Reference is made to the new USA Inflation Reduction Act which tried to achieve this:
The USA Inflation Reduction Act Offer for Business
Cutting energy costs for businesses …
- Small businesses can receive a tax credit that covers 30% of the cost of switching over to low cost solar power
- There is a tax credit for up to $5 per square foot to support energy efficiency improvements that deliver lower utility bills
- Small businesses that use large vehicles like trucks and vans will benefit from a tax credit to cover 30% of the purchase costs for clean commercial vehicles, like electric and fuel cell models
… and expanding their economic opportunities
- Creating a level playing field via an increase in refundable R&D tax credit for small businesses from $250,000 to $500,000. This can be used to reduce payroll taxes and other business expenses via investment in innovation and commercialisation of those new solutions
- Targeted tax incentives for the manufacturing of materials for batteries, solar and wind energy but also for deep decarbonisation technologies such as carbon capture systems and electrolysers for hydrogen
The chapter also discusses Capital Allowances & Business Rates as important areas to drive change, as these can provide incentive and reward to invest.
The skills gap
The Pillar Three chapter also looks at the need for a skilled workforce and the changes required to encourage this which is summarized by this recommendation:
“Government to publish an action plan for Net Zero skills that includes a comprehensive roadmap of when, where, and in which sectors there will be skills needs specific to net zero.”
This skills gap and re-training opportunity is even considered by region and begins to open up the conversation around levelling up and the opportunities in the North of the UK, Scotland and Wales, as the following quotes highlight:
“The UK can seize opportunities for levelling up as part of place-based impacts of the transition. For example, there are growth opportunities in CCUS and low carbon hydrogen which can create jobs in Merseyside, Humberside, Scotland and South Wales.”
“To ensure that future green jobs are created here, we must ensure that the UK has the right pipeline and mix of skills to deliver the transition.”
“Skills challenges were raised in engagement with almost all sectors.”
In a direct link back to Pillar One, this chapter of the report highlights that a clear consistent policy would help to encourage businesses and individuals to upskill in the required areas:
“The solution relies on clear long-term policy (see Pillar 1).”
“Stakeholders also pointed out that long-term policy certainty could benefit net zero skills development. Long-term commitment to support for priority net zero technologies will give employers the confidence to invest in skills development.”
Energy and efficiency
All of this and I haven’t even started on an area covered under pillar 3 very close to our everyday experience as an equipment supplier into the HVAC sector – Energy Efficiency!
Let’s get the obvious one on the table to start with, which is also covered in the opening statement in this section of the review.
“Government should legislate by 2025 for the minimum energy efficiency rating for all non-domestic buildings, both rented and owned, to be EPC B by 2030. Government should legislate for all new non-domestic buildings from 2025 to have an EPC B rating.”
This consultation has been ongoing since 2021 and we still haven’t had a decision taken or a policy introduced – in fact, from my experience, the industry already talks about reaching EPC B by 2030 as if it is already policy when it is still only a consultation yet to be legislated against!
It’s not just the building as a whole which need to driven to increase efficiency, but the individual components that go in to the building – summed up by this quote;
“By putting commercial minimum energy efficiency product standards in place by 2028, this will ensure that our market is seen as serious about energy efficiency, attracting more investment. This could be bolstered by new Enhanced Capital Allowances (ECAs) or super-deductions for energy efficiency products, including heat pumps and manufacturing equipment.”
Public sector decarbonisation is mentioned, and we have already seen how much of an impact that can have and the next wave of funding has already been announced so this is an area the government are trying to deliver on and putting significant funding in to
There is a section on SME’s and how they can often be disincentivised from investing in net zero technologies for reasons such as; time and cost barriers, that they are only tenants in a building and are not in control of its emissions (referred to as the prisoner effect) or simply that they are often sub-contractors to larger businesses and policy aimed at large businesses can sometimes have unintended effects on SME’s
There is a section about how the finance industry can both provide funds to de-carbonise and also do more to de-carbonise themselves
I think this is a very interesting stat from this report: ”In non-domestic buildings, the highest 6% of electricity consumers are responsible for 80% of electricity consumption, while the highest 4% of gas consumers are responsible for 80% of gas consumption. We should seek to prioritise action where we can make the biggest impact on emissions via energy consumption”
Barriers to decarbonisation
Regarding the construction industry, the barriers to de-carbonise are summed up pretty succinctly by the report;
“Barriers to action. The sector is being constrained by three key areas in its attempts to grow and decarbonise.
- Continued changes to government net zero policy and measures to undermine business confidence:
- The availability of skills to complete the retrofits and other work required
- Questions over the availability of zero carbon materials, products, and vehicles
- As well as these three specific areas, the overall business environment for construction impacts on the ability for industry to change and adapt
There is a whole section on transport, the circular economy, the retail sector, food/agriculture/nature/land use and digitisation, but I must move on to Pillar 4 before I run out of your attention!
There is plenty of will, to act on net zero, but too often government gets in the way
Pillar 4 – Net Zero & the Community
This section of the review opens with a rather damning statement “There is plenty of regional, local and community will, to act on net zero, but too often government gets in the way”.
The follow key recommendations are highlighted;
1. Government should simplify the net zero funding landscape by the next Spending Review
2. Government should fully back at least one Trailblazer Net Zero City, Local Authority and Community, with the aim for these places to reach net zero by 2030
3. Government should reform local planning and the National Planning Policy Framework now
As a business, we have toured the country over the past year holding ‘Road to Net Zero’ Roadshows and, to make it relevant to businesses in each area, we have had to look at the differences within each region.
I’ve written previously about the six major ones we held last year which covered London, Manchester, Scotland, West Yorkshire, Bristol and the Midlands and it is striking just how much difference there can be in quite tight local areas.
Local is best
What is quite clear though is that there is a real drive for local authorities to play their part and support their local communities as this quote shows:
“More than 300 local authorities have set a net zero target and/or declared a climate emergency, including 182 with targets of 2030 or sooner”
And this one is probably the most succinct in the whole document:
“There is clearly a role for national coordination and direction-setting on net zero, as the Review has already shown. But to achieve a place-based, place-sensitive, locally-led transition to net zero, Government must place its trust in local leaders and communities to deliver.”
The Skidmore Report places a lot of faith in local authorities and believes that communities really are key to the delivery of net zero:
“30% of the greenhouse gas emissions reductions needed to deliver the Net Zero Strategy rely on local authority involvement, while 82% of emissions are within local authorities’ scope of influence”
As more local areas received devolved powers, there is an interesting caveat that the report suggests should be included within a devolution settlement:
“Central government should establish core principles for future net zero devolution and ensure that all devolution deals agreed between now and 2030 have a strong net zero element.”
There are also comments in the report that we as equipment suppliers have directly experienced regarding funding streams:
“Complicated net zero funding landscape … Numerous funding pots with different application criteria and restrictions … Actively discourages systems thinking and join-up … Resource intensive funding application processes … Competitions in which smaller authorities struggle … Short-term funding and delays in transfer of funds leads to inefficiency and inability to spend the funds provided”.
The report recommends the following to overcome these problems:
“Central government should simplify the net zero funding landscape for all local authorities by the next Spending Review. This should include consolidating different funding pots, reducing competitive bidding processes, giving longer lead-in times where bidding remains and providing funding over the medium rather than the short-term.”
At Mitsubishi Electric, we have long said that you can’t reduce what you don’t measure
Pillar 4 of the report goes into more detail about the trailblazer city which I mentioned in my last article saying that: “Government should fully back at least one Trailblazer Net Zero city, local authority and community, with the aim for these places to reach net zero by 2030.”
There is also a section around planning and how local planning policy can help to deliver net zero projects faster:
“Central government should reform the local planning system and the National Planning Policy Framework (NPFF) now. The reformed system should have a clearer vision on net zero with the intention to introduce a net zero test, give clarity on when local areas can exceed national standards, give guidance on LAEP, encourage greater use of spatial planning and the creation of ‘Net Zero Neighbourhood’ plans, and set out a framework for community benefits”
“While the National Planning Policy Framework (NPPF) references climate change, it does not reference net zero specifically and the Review heard that the vision of the planning system on net zero is not clear. Too often there are conflicting or unclear messages, with important points relegated to footnotes.”
Measure, monitor, share
The final section of Pillar 4 talks about community engagement and a big part of that is monitoring, reporting, sharing and accountability:
“Central government should provide guidance, reporting mechanisms and additional capacity and capability support to enable local authorities to better monitor and report their net zero progress”
At Mitsubishi Electric, we have long said that you can’t reduce what you don’t measure, and it is equally important for people to be willing to share this data.
This element of transparency is vital so that all involved in the consumption of energy in a building or community can easily see progress, celebrate success and support regions/sectors/areas that are off track.
Pillar 4 of the review concludes by talking about local energy projects, district heating schemes, community engagement and even celebrating “local net zero heroes”.
Next time I will be looking at Pillars 5 & 6
Chris Newman is Net Zero Carbon Design Team Manager