Innovation Zero
An Opinion article by ENODA’s Head of Government & Regulatory Affairs, and former Head of Electricity Networks Strategy at the Department for Business, Energy & Industrial Strategy, Anna Bazley, exploring the policy landscape that will enable the innovation to achieve Net Zero.
In her protest-hit keynote speech at the Innovation Zero conference on Tuesday, DESNZ Secretary of State, Claire Coutinho warned against the government taking a strict, top-down approach to driving decarbonisation in the UK, arguing it is better for firms to "live with some uncertainty" as a "net zero leviathan of central planning crushes our brilliant enterprise economy”. But in doing so the Energy Secretary set up a false dichotomy; the choice is not between rigid targets and government planning or uncertainty for businesses. A well-constructed policy and regulatory environment, where innovation is supported through stable policy and access to funding and markets to flourish, is the best environment for achieving Net Zero and enabling “our brilliant enterprise economy” to flourish.
Policy uncertainty create risks for business. When Rishi Sunak announced his decision to delay the phase-out date for internal combustion engine vehicles in the UK by five years, it was met with consternation by car makers. “Our business needs three things from the UK government: ambition, commitment, and consistency. A relaxation of 2030 would undermine all three,” Ford UK chair Lisa Brankin said in a statement. However, carmakers were not necessarily in favour of the 2030 target when it was first consulted on in 2019. In the Government’s round-up of consultation responses, they write: “Respondents noted that the supply chain transition required globally to accommodate an earlier phase out of new petrol and diesel vehicles will require significant investment by vehicle manufacturers…[that] may not supply the required level of Zero Emission Vehicles.” Yet once the target was in place, manufacturers revised their production timescales, supply chains and business plans to accommodate this. The 2023 delay by Sunak added risk and uncertainty into car manufacturers business, as well as signalling to consumers that they ought to delay purchasing an EV because it remained too expensive and risky.
Because politicians can be driven by deeply held convictions and principles, they often assume that the positions businesses take are equally deeply held. As such, many in the Conservative Party were shocked that the auto industry was as disappointed to have the targets that it originally opposed in 2019 relaxed in 2023. Politicians mistook the auto industry’s desire to maintain the current rules of the game for a principled defence of the internal combustion engine.
The UK should not, and cannot, be looking to compete with the subsidies on offer in the US under the Inflation Reduction Act, or even the measures of the EU Green Deal and Net Zero Industries Act. When it comes to attracting new technologies and investment to the UK market, a regulatory environment that allows a wide range of innovations, whilst providing a high degree of certainty of the direction of the travel, could enable the UK to attract innovation and private capital and thereby compete effectively with US and EU incentive regimes. For example, the move to give Ofgem a Net Zero duty shows the UK will be pursuing Net Zero seriously within its regulatory framework without being prescriptive. Future governments can build on this legacy through the completion of the Review of Electricity arket Arrangements process, and adopting a whole-systems approach through the creation and development of the National Energy System Operator (NESO).
To develop good regulation and policy, regulators and policymakers should take a functional approach to definition. Objectives should be defined in terms of outcomes - ideally outcomes rooted in the physics and practicalities of getting to Net Zero; not particular technologies that can achieve these outcomes. Focusing on objectives enables innovation, whereas picking winners locks in the technologies of today.Definitions of actors, products and services, should be defined in terms of benefits they provide, rather than their technology or the technology they are seeking to replace. This means an energy market that allows distributed flexibility and new battery technologies to compete on a level-playing field with incumbent technologies. Flagship policies around electric vehicle charging and clean heat that set clear expectations on manufacturers and are not further delayed. A realistic Low Carbon Hydrogen Standard that allows for green hydrogen to come to the fore by not ignoring the risk of blue hydrogen.
Coutinho closed her speech by arguing that the impact of the UK on the climate should be considered in the broader context of global emissions. "Our bigger contribution to tackling climate change will come from innovation," she said, adding that the UK could then help catalyse global decarbonisation efforts by exporting its technologies around the world. However, without a welcoming domestic environment that provides certainty, UK innovators are unlikely to reach the point of export. This doesn’t have to mean a centrally planned economy, with government dictating the exact path of key industries. It can simply mean government setting clear, practical targets, and creating the frameworks and regulatory environment to allow innovations to flourish.
