EY responds to changes announced on 20 September 2023
Rob Doepel, EY UK&I Managing Partner for Sustainability: "The Government's announced Net Zero policy changes offered a mix of reversals and fresh incentives, but overall will still likely disappoint many working on the transition towards greener British roads and homes. Specific measures aside, these changes risk sending a broader message to the global investor community at a time when international competition for green investment has never been fiercer.
“The UK remains a well-regarded destination for sustainability investment, but by signalling a slowing of its national Net Zero commitments and generating policy uncertainty, these announcements may affect that image, particularly as the US and EU continue to progress their own initiatives to entice green funding. The UK needs to protect and strengthen its image as an attractive, investible green proposition, or risks sleepwalking out of the race to become a green economic superpower.
“Businesses making investment decisions, whether in EV manufacturing, cleantech products or broader green infrastructure projects, tend to be attracted by policy that is clear, consistent and telegraphed in advance. These companies may now ask whether it's best to delay funding decisions until they see greater stability in UK Net Zero policy or may even direct their investment elsewhere. Either case risks costing the UK jobs, innovation and progress in its transition towards a Net Zero economy.
"An increase to the Boiler Upgrade Scheme, as well as promised reforms to energy infrastructure and grid connectivity speeds, are welcome. However, it's likely the most prominent theme that many will take from today's announcements will be a reversal of previous policy, which may influence how much green capital flows into the UK in the near future."
On EV sector impact and delayed ban on ICE vehicle sales
Maria Bengtsson, EY’s UK Electric Vehicle Lead: “The delay to the 2030 ban on the sale of new Internal Combustion Engine (ICE) vehicles could cause significant disruption for the automotive sector including Original Equipment Manufacturers (OEMs), dealers, businesses and consumers, given the extensive preparations made across the industry for the original deadline.
“It may also risk a loss of momentum just as the industry was preparing for the next phase of the EV transition, moving out of the early adoption phase and into a pursuit of mass market uptake. The recent substantial growth in Electric Vehicle (EV) sales could also be jeopardised if the delay leads to fleet operators and consumers opting to defer plans to adopt EVs. Again, this would have significant implications for OEMs and retailers that have recently invested substantially in the development and sales of EVs.
“Manufacturers had already committed to making the switch in line with the 2030 ban, but a delay adds uncertainty into the market, affecting manufacturers’ ability to further invest, plan, produce, sell and support in the UK with confidence.
“Meanwhile, charge point operators have committed significant investment in a plan to meet the number of EVs on the road, which could likely be much fewer in the short term as a result of this delay. Consumers who were already unsure about the EV switch may also have more reason now to put it off. This may result in an imbalance in the market where the supply of EVs outstrips demand, causing further challenges throughout the automotive sector.
“Widespread EV adoption will be crucial to achieving the UK’s 2050 targets, and while it may appear sensible to align the UK’s ICE sales ban with the EU’s 2035 deadline, the two markets are not like-for-like. The UK does not offer the same demand-side incentives or infrastructure environment as many EU jurisdictions and despite recent substantive inward investment into the UK EV supply chain, consumer uptake may be slower, so the Government may need to clarify whether it intends to address this with future policy.
“In addition, the effect of any Zero Emissions Vehicle (ZEV) Mandate delay that may follow today’s announcement will be closely monitored by the auto sector. A potential delay could buy valuable time for OEMs to prepare for new regulations but this would likely mean frustration for key players who have already made significant investments and changes in anticipation of the original 2024 deadline.”
On proposals for infrastructure planning reform and UK green infrastructure ambitions
Rohan Malik, EY UK&I Government and Infrastructure Leader: "The Prime Minister is right to note that UK is a global leader in Net Zero ambition, and looking ahead the private sector will be eager to see that ambition reflected in stable long-term policy decisions if it's to finance the UK's green economic growth. The Government remains committed to the UK's broader 2050 target, so it should now ask how it can utilise policy to create the conditions that attract private funding, particularly for the much-needed green infrastructure that will power the national Net Zero transition.
“Proposals to improve the planning process are welcome and if executed properly should help accelerate how swiftly projects can move from concept to financing to construction, but these reforms have been promised before. Delivering these reforms, alongside stable policy, will be crucial in offering a welcome environment for investment. Green infrastructure will unlock an enormous economic opportunity to rebuild the UK's manufacturing base, train a new generation of workers in emerging green industries such as clean energy or carbon capture, and drive growth across the regions that most need it. Reaping these benefits and achieving the Government's 2050 targets will require meaningful, long term policy development, with an emphasis on public-private collaboration to finance and deliver projects."
On changes to energy efficiency and home decarbonisation policy
Frances Warburton, Partner in EY’s Economic Advisory Practice comments: “While there were some welcome new policies announced yesterday, there’s a risk that other changes could delay the decarbonisation of British homes and could have consequences for household energy efficiency. While the Future Homes Standard appears to remain in place, this may yet be subject to future change and will be an important area to watch.
“An increase to the Boiler Upgrade Scheme is welcome news and should improve uptake rates, and brings the level of support more in line with other leading countries. However, delaying plans on phasing out coal heating and gas and LPG boilers could reduce demand for heat pumps, one of the main technologies being used to decarbonise domestic heating. Meanwhile, the introduction of a permanent 20% exemption for homes unable to take a heat pump could pose a challenge for the UK’s Net Zero ambitions: UK carbon budgets assume 100% heat decarbonisation.
“As the prime minister acknowledged, Net Zero measures will mean costs for households. As such, a mixture of incentives and motivational measures will be necessary if UK homes are to meet national decarbonisation targets. It remains to be seen whether today’s changes will offer enough motivation for the majority of consumers to adopt efficient and cleaner energy alternatives.”
