Comment by Tom Luff, Senior Advisor and Elle Butterworth, Energy Policy Advisor – Markets, Policy and Regulation. 

Mission Zero is a timely overview of the Net Zero landscape and provides much needed urgency and focus on getting stuff done.

There are some big and powerful headline recommendations: a push to deploy onshore wind at scale where there is community support (capitalising on the recent policy reversal); bringing forward the ban on new gas boilers in homes by two years to 2033; removing the need for planning permission for solar on rooftops to foster a rooftop revolution; a “Net Zero homes standard” to require high levels of insulation and energy efficiency; and the creation of an Office of Net Zero Delivery to get all parts of government aligned.

Mission Zero also opens the door for follow-up reviews on some of the trickier policy issues. But we would have liked it to go further in the following key areas:

• Putting consumers at the heart of the recommendations. Ultimately, consumers would be paying for all of this, either through their bills, consumption decisions or taxes, so we need to appreciate the consumer perspective – what they actually need; how this will evolve; how they can they engage (or not engage) in an increasingly complex system. The whole systems approach taken in Mission Zero is very welcome, as exemplified by the proposal to establish an Office of Net Zero Delivery. But can be set up in such a way to ensure a consumer-centric perspective to policy-making?
• Bold statements on regulation are ultimately missing in relation to carbon accounting and tracking progress towards Net Zero. The value of all the other useful policy recommendations could be rendered meaningless if we don’t have confidence that we’re tracking and assigning emissions correctly. We wrote about this recently.
• Given the recognition in Mission Zero of the need for better locational signalling in electricity markets, we would have liked to see a recommendation that BEIS makes the big decisions on REMA as soon as possible – eg the introduction of locational marginal pricing as advocated by ESC.

Mission Zero

The government commissioned an independent review of the government’s approach to delivering its Net Zero target, to ensure decarbonisation is delivered in a pro-business and pro-growth way. The review, launched in September 2022, incorporated evidence from a public consultation and a series of roundtables with key stakeholders. ESC submitted a response to the public consultation (see here) and supported a roundtable on chaired by Chris Skidmore focusing on integrating renewables into the grid. We were pleased to be able to input our expertise in smart energy system design and promote the co-benefits of an innovative energy transition on Net Zero, economic growth and energy consumers.

The final report, Mission Zero, was published Friday 13 January 2023. It emphasises the need for momentum to be galvanised with specific thematic “missions” to provide certainty, clarity, continuity, and consistency:

Ten priority “missions” are highlighted: (1) Grid and Infrastructure; (2) Solar; (3) Onshore Wind; (4) Nuclear; (5) Energy Intensives and Industry; (6) Circulate Economy and Waste; (7) Net Zero Local Big Bang; (8) Energy Efficiency for Households; (9) Net Zero Nature; (10) R&D and Innovation.

Mission Zero makes a grand total of 129 recommendations with a significant emphasis on seizing opportunities for a “green economy”. We’ve had a look through and pulled out some areas of interest and discussion.

Masses of new infrastructure is undoubtedly needed but we need to be smart about how it’s built and operated…

Mission Zero rightly recognises the need for a gear change in delivering low carbon energy infrastructure and that a major blockage is electricity network capacity, which is highlighted by the high and rising bill from constraint costs.

The recommendations focus in particular on measures to push through the building of new transmission infrastructure. “Government and Ofgem should work with network companies to facilitate anticipatory investments in grid infrastructure”. Rolling out the Holistic Network Design (HND) is “critical for delivering the ambitious offshore wind targets”. Government should “update Ofgem’s remit to incorporate the Net Zero target as set out in the Climate Change Act”.

This is all very important but it will also be crucial to ensure that new investment is paid for and used in the right way in order to minimise the costs for consumers. The timely delivery of BEIS’s Review of Electricity Market Arrangements (REMA) is emphasised as a priority and there is recognition in Mission Zero of the need for market reform to strengthen locational signals.

A whole chapter is dedicated to system flexibility recommends that government should “set out a strategy for its market for flexible capacity, including pathways for different technologies to 2035” as well as ensuring timely and effective delivery of smart meter rollout and market-wide half-hourly settlement.

It’s also good to see support for rebalancing gas and electricity bills: government should “commit to making significant progress on gas vs. electricity price rebalancing by the end of 2023, or by the end of 2024 if the gas price remains at a clearly elevated threshold.” This should include an enduring solution to levies and will be vital as part of efforts to shift to (low carbon) electric heating.

Local area energy planning gets good coverage

Great to see a big focus on local area Net Zero planning and delivery. Taking a more “locally-led, place-based approach to Net Zero delivery will not just deliver a better tailored, more supported transition, but it can also deliver greater economic and social benefits”.

By way of a big headline, there needs to be a “Net Zero Local Big Bang”, involving reforming the relationships between central and local government on Net Zero and empower local authorities to deliver place-based place sensitive action.

Mission Zero recommends a statutory duty for local authorities to take account of UK’s Net Zero targets and there should be a simplification of the Net Zero funding landscape. It also includes innovative ways to foster faster progress: local Net Zero “missions”; Trailblazer Net Zero cities / Local Authorities / communities.

And there are strong recommendations around unblocking the planning system as well as the need for a clear framework for community benefits (which could help unlock investment in onshore and transmission grids).

ESC have long pioneered an approach to pulling all this together – Local Area Energy Planning – and its great to see this supported here with the recommendations that “central government should give guidance on LAEP – including with regards to governance and implementation – and encourage greater use of spatial planning”.

A more targeted approach to incentives for business is recommended, but this could be enhanced by better signposting of opportunities and areas to develop

In our consultation response, we highlighted current that the incentives arising from UK policies vary wildly across different sectors. In simple terms, this suggests we may be over-rewarding some kinds of emissions-reducing activity while under-rewarding it in other activities or sectors – see chart below:

Mission Zero recognises more could be done to incentivise investment in decarbonisation, including through the tax system and capital allowances, calling for HMT to review by Autumn 2023. However, this emphasised the existing cost pressures on UK industry, so it seems that the review would likely focus on target areas for tax relief/credits. Targeting incentives to address sector specific challenges aligns with ESC’s emphasis on a sector led, economy-wide approach to Carbon Policy.

Specific barriers were recognised for small and medium enterprises (SMEs), identified as a core target area for Net Zero growth. With recommendations to empower SMEs, addressing obstacles (such as tenancy status) and improving signposting to existing support.

Perhaps there could have been a greater emphasis on targeted support for SME innovators, though Mission Zero does recognise Catapult Network’s essential role in promoting innovation and quoted ESC’s response where we said “UK innovators face systemic barriers, preventing products, services and business models getting to market at scale.” We would recommended making greater use of real-world demonstrator environments (such as our Living Lab) and more support for Series B funding to help innovators scale up.

Finally, support for innovators felt limited to large scale innovations (such as in greenhouse gas removal (GGR) technologies) through demonstrator projects and ensuring a regulatory framework that supports infrastructure innovation. Smaller scale innovation – including at the household level – will be vital over the coming decade and beyond.

What about consumers?

There’s a good chapter focusing on “Net Zero and the Individual” which recognises the essential role people have in delivering Net Zero and noting that “almost half of the actions in the Government’s Net Zero Strategy require public action”.

But how to make Net Zero work for people and how to ensure consumer interest is at the heart of Net Zero action? As well as the benefits for business, we need to make sure that markets, systems and policies work efficiently and deliver value back to consumers. The current gas price crisis has shown clearly the big risks ahead if we can’t make Net Zero a proposition that people want and can afford.

A greater focus on consumer need could also help with our Net Zero skills strategy.

Identifying the skills we need for the future will be key to delivery, growth and jobs

Mission Zero recognises a shift in mindset is needed about the mix of skills needed for a green transition across all sectors. ESC made the case for wholes systems approach to skills and training in our consultation response, not only to support businesses but also improve the customer experience. However, Mission Zero suggests there is a lack of on data on green job statistics was preventing targeted training. It calls for Government to develop this database, with local authority level visibility. In the absence of top-down green job statistics, an initial focus on consumer needs could help identify targeted training, such as though ESC’s consumer insights data.

The policy and regulatory framework does need to be more joined-up – but must also provide credible carbon accounting and work for consumers

An effective regulatory and policy framework creates the stable conditions needed for low carbon economic growth in the UK, and helps maintain international competitiveness.

Mission Zero addressed some key areas in need of regulatory reform such as voluntary carbon markets, but also introduced a set of principles as part of its “Mission Approach”. These included a principle on continuity due to the 30-year challenge of Net Zero. Continuity includes an emphasis on parliamentary scrutiny, dedicated delivery agencies for major Net Zero programmes and the establishment of an Office for Net Zero Delivery by spring 2023.

Mission Zero recognises the current delivery of Net Zero is disjointed, with responsibilities spread out over several departments despite highly complicated interactions between programmes. It emphasises the value of a systems approach to manage these interactions, recognising the system as underpinned by common energy infrastructure and influenced by cross cutting enables such as the planning system. The proposed Office for Net Zero Delivery would be responsible for taking ownership of project delivery, working across government departments and identifying lessons learned through engagement with industry and delivery partners.

Perhaps unsurprisingly, ESC is highly supportive of embedding a whole systems approach to carbon policy design and implementation. However, we would caution this top-down, government department orientated approach to systems thinking does not go far enough to encourage innovative and experimental policy design. The needs of various energy consumers within the energy system risk being overlooked if the emphasis remains on central government project delivery or existing programmes.

Missing from the Mission Zero’s emphasis on parliamentary scrutiny and continuity is the need for an effective regulatory framework to ensure carbon and other greenhouse gas emissions are properly disclosed and accounted for to track progress towards Net Zero targets. Our recent report highlighted a complex carbon accounting landscape which prevents a transparent picture of carbon emissions across industry.

We have repeatedly highlighted the opportunities for an independent Carbon Regulator to promote a more consistent and transparent carbon accounting framework that, facilitated by digital tools, could reduce the administrative burden on businesses and identify opportunities for low carbon market growth. The carbon accounting challenges around data transparency and credibility are largely missing from Mission Zero, despite a recognition that carbon markets will be integral to drive low carbon investment.

Conclusions

Overall, Mission Zero reiterates the opportunities for green growth and innovation that are available for the UK from decarbonising economic activity to meet the Net Zero target. At the same time, it highlights just how much there is still to do before we have a policy, regulatory and economic framework that is truly aligned with Net Zero.

Now is the time for Government and industry to redouble their efforts towards Net Zero. This includes reforming electricity markets so they are fit for a zero carbon system; changing the methodology of Energy Performance Certificates to better encourage reduced emissions from buildings; setting carbon standards for sectors across the economy – backed by a Carbon Regulator; and super-charging investment in the kind of radical innovation that’s needed to get us to Net Zero.