A new report by Cornwall Insight suggested a number of regulation and policy changes that would build a partnership between the Government and UK businesses to support corporate investment in decarbonisation.
The report, titled Business net zero: Making progress in a challenging economy, cautioned that the UK would struggle to reach its net zero targets if investment in businesses’ net zero strategies to reach their environmental, social and governance (ESG) commitments aren’t sustained.
Cornwall Insight’s research confirmed that reaching net zero targets is still prioritised by many businesses but the pressures of rising energy bills have placed substantial strain on their finances.
Earlier this month the UK Government announced that from April, all non-domestic energy users – including businesses – will have a unit discount of up to £19.61/MWh off their electricity bills. This Energy Bills Discount Scheme however, offers less support than the Energy Bill Relief Scheme it replaces, said the report.
“Economic realities are taking their toll, and high energy bills and reduced government support are starting to hit some businesses’ financial standing,” said Dr Dan Atzori, research partner at Cornwall Insight.
“The picture varies by sector and business size. But where investment plans start to be reviewed under the shadow of challenging trading environments, we must wonder whether the decarbonisation of UK business will be one of the first victims as near term, and more existential pressures take precedence.”
To address the potential decrease in corporate investment in renewables caused by falling business earnings, the report suggested a range of policy and long-term regulatory changes. These include:
- Longer-term fiscal measures for decarbonisation progress – including incentivising process electrification through levelling policy costs and implementing deterrents for carbon-intensive practices.
- Build a ‘net zero fit’ market design – Cornwall Insight identified a “clear need” to restructure the existing market design to allow for the efficient distribution of renewables sources of power.
- Reduce energy costs – the higher power prices experienced in the UK due to additional levies on energy bills has created a cost gap with international markets. The report suggested harmonising the levies applied to gas and electricity to help bridge this gap.
- Address grid constraints – devise an efficient and cost-effective strategy to connect generation and storage assets to the grid, as well as ensuring that there is sufficient grid capacity to support industries switching to electrification.
- Tackle labour shortages and accelerate digitalisation – Cornwall Insight reported a severe net zero labour shortage in the UK and called for an increase in net zero upskilling programmes to help businesses reduce costs and accelerate their net zero journeys.
- Encourage direct investment – by promoting the growth of businesses and supply chains which support net zero.
- Bolster energy efficiency and electrification awareness – such campaigns can provide immediate savings.
Alongside these suggestions the report also identified a number of options available to businesses to help the independent progression of their decarbonisation strategies. These range from investing in on-site generation to setting up corporate power purchase agreements.
Despite the effectiveness of these suggestions, the report recognised that these measures may be inaccessible to smaller and medium sized companies. Therefore, the report concluded, a government partnership presents as a “credible” option to ensure that any and all viable businesses can continue to reduce their emissions and reach decarbonisation goals.
“While the government and businesses recognise the challenges of continuing direct bill subsidies, policymakers may want to counterbalance the loss of bill support with other green investment incentives. Whether the policy changes come through tax incentives, energy market design, informing behaviour changes, reducing energy bills or a mix of all of these, businesses clearly would benefit from knowing that the government has a clear road map for supporting their role in delivering our net zero ambitions,” continued Atzori.
“There is a widespread feeling that the current policy landscape does not provide businesses in general with enough clarity to make long-term business and investment decisions. If we are to avoid the period after the pandemic representing a lost era of business progress on decarbonisation, regulatory and policy clarity will be essential. Indeed, this is a prerequisite to allow businesses to address the challenges brought about by the energy crisis, and to seize the opportunity unleashed by the net-zero transition.”
