What to expect from the new Labour government’s net zero and green agenda

The national election on 4 July 2024 ushered in a new Labour government in a landslide vote after 14 years of a Conservative government and on 17 July the King’s Speech set out the new government’s legislative programme. So what does the new Labour government’s net zero and green agenda have in store for us?

Labour has five national missions: the first mission is to kickstart growth and the second mission is to ‘make Britain a clean energy superpower to cut bills, create jobs and deliver security with cheaper, zero-carbon electricity by 2030, accelerating to net zero.’

Clean energy transition and clean power by 2030

The Labour government believes the clean energy transition represents a huge opportunity to generate growth, tackle the cost-of-living crisis and make Britain energy independent.

Labour want to decarbonise the UK power system (ie have a zero carbon electricity system) by 2030. That is five years faster than the previous government, who were aiming for 2035.

Labour want to work with the private sector to double onshore wind, triple solar power, and quadruple offshore wind by 2030. They also want to invest in carbon capture and storage, hydrogen, and marine energy. They are also committed to nuclear power and want to extend the lifetime of existing plants and deliver on new nuclear power stations.

On fossil fuels, the new government says it recognises the ongoing role of oil and gas in the UK’s energy mix. It wants to maintain a strategic reserve of gas power stations to guarantee security of supply and ensure a phased and responsible transition in the North Sea. The government has said it that it will not revoke existing oil and gas licences. However, it has also said that it will not issue new licences to explore new oil and gas fields and will not grant new coal licences and will ban fracking.

Labour intend to extend the sunset clause in the windfall tax on oil and gas companies (Energy Profits Levy) until 2029 and increase the rate of the levy by 3% (from 75% to 78%), as well as removing the ‘unjustifiably generous investment allowances’.

The new government also want to reinstate a plan to ban the sale of internal combustion engine cars from 2030, after the previous government had pushed that date to 2035.

On 9 July, the new government announced that it has launched a first-of-its-kind Mission Control for Clean Power (see here). The former chief executive of the Climate Change Committee, Chris Stark, has been appointed to lead the Mission Control centre, tasked with helping to deliver the clean power mission by 2030.

Green Prosperity Plan

The Green Prosperity Plan (GPP) is at the heart of the government’s growth agenda.

The GPP aims to use public investment to crowd in private funding. It is essentially a combination of the National Wealth Fund, Great British Energy, and the Warm Homes Plan. Around £15bn/year of public investment has been allocated for the GPP – with £8.3bn for Great British Energy and £7.3bn for the National Wealth Fund.

National Wealth Fund

The purpose of the National Wealth Fund (NWF) to make ‘transformative investments’ in key infrastructure and clean energy, in partnership with the private sector. The NWF is intended to provide ‘catalytic capital’ to take on risks that are unattractive to the private sector.

On 17 July, the King’s Speech announced that the government will be introducing a National Wealth Fund Bill to put the NWF on a statutory footing and align the UKIB and British Business Bank under the NWF

The NWF (along with the GBE, discussed below) is central to the government’s mission to deliver growth and clean energy by 2030. It will also play a key role in the government’s forthcoming industrial strategy.

To ensure investments can start immediately, the NWF will deploy funding through the UKIB. It will aim to generate £3 of private sector investment for every £1 it invests. The intention is to use £7.3bn in public capital to catalyse more than £20bn in private sector investment, initially expected to focus on ports, gigafactories, clean steel, industrial clusters, and green hydrogen. Further detail about the NWF is expected to be set out ahead of the government’s international investment summit in October.

The NWF is supported by a National Wealth Fund Taskforce, which is chaired by the CEO of the Green Finance Institute Rhian-Mari Thomas, and includes former Bank of England Governor Mark Carney, Barclays CEO C.S Venkatakrishnan, Aviva CEO Dame Amanda Blanc and large institutional investors.

According to the NFW Taskforce’s Chair, Rhian-Mari Thomas: ‘The Taskforce recommendations set out how a combination of catalytic capital, deployed in partnership with a government delivering policy certainty, can make the UK the destination of choice for global investment. The National Wealth Fund will reshape the way we approach public, private risk-sharing, providing private investors with the confidence needed to fund the technologies and infrastructure needed to drive growth and create new jobs across the UK.’

An estimated five-fold increase in investment is required in the UK by 2030 to achieve net zero, with sustained annual investment of £50bn per year from 2030 through to 2050. This investment need cannot be met by the public or private sector alone. The NWF is intended to address the current funding gap for green investment projects that are not being funded by private investors.

Great British Energy

This is the flagship of Labour’s net zero and clean energy plans.

On 25 July, the government introduced the Great British Energy Bill in Parliament, which will set up Great British Energy (GBE) – a new publicly-owned energy production company headquartered in Scotland – which will develop, own and operate clean power projects, investing in partnership with the private sector. The Bill will require the Secretary of State to prepare a strategic priorities statement.

The GBE is the flagship of the Labour government’s net zero agenda – intended to help deliver energy security, cheaper energy, and create new jobs, as well as deliver on the government’s mission to have clean power by 2030.

The intention is that GBE will partner with industry to deliver clean power by:

• co-investing in leading technologies;
• help support capital-intensive projects; and
• deploy local energy production.

£8.3bn has been allocated for the GBE, which will be funded mainly through an enhanced windfall tax on North Sea oil and gas.

The Labour government have described the GBE as a ‘green investment vehicle’ which will aim is to crowd in private investment (see GBE policy paper and GBE website).

Planning and Infrastructure Bill

The government recognises that the current planning regime is a major obstacle to economic growth and clean energy and so it plans to introduce a Planning and Infrastructure Bill to overhaul the planning regime to ‘get Britain building again’.

The new Bill will:

• streamline the delivery process for critical infrastructure, including accelerating upgrades to the national grid and boosting renewable energy;
• simplify the consenting process for major infrastructure projects and enable new National Policy Statements to come forward, which will be reviewed every five years;
• reform compulsory purchase compensation rules to unlock more sites for development;
• modernise planning committees;
• increase local planning authorities’ capacity; and
• use development to fund nature recovery – the government has said it will work with nature delivery organisations, stakeholders and the sector over the summer to determine the best way forward on this.

A number of key announcements had already been made (see here) prior to the King’s Speech.

Green finance capital of the world, transition plans and UK Green Taxonomy

The new government wants to make the UK the ‘green finance capital of the world’.

It also wants to mandate UK-regulated financial institutions (including banks, asset managers, pension funds, and insurers) and FTSE 100 companies to publish and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement. Labour want to be ‘world leading’ on this and are expected to move fast on this policy, although no dates have been announced yet for a public consultation.

We also expect the new government to move faster on a UK Green Taxonomy. Our understanding is that Labour want to focus on greater interoperability with the EU Green Taxonomy and avoid divergence with the EU for the sake of divergence. Government officials have already done a lot of the groundwork on a UK Green Taxonomy so the new government could move fast on a consultation, although no dates have been announced for this yet.

Labour is also said to be exploring how to align the UK’s carbon market with the EU – both in terms of Emissions Trading Systems (ETSs) and carbon border adjustment mechanisms (CBAMs). Labour supports the introduction of a UK CBAM. The previous government had already consulted on introducing a UK CBAM by 2027 (see here and here).

Water industry

The King’s Speech also included a Water (Special Measures) Bill to give the water regular Ofwat increased regulatory powers by:

• ensuring water bosses face personal criminal liability for breaches of the law;
• giving Ofwat new powers to ban the payment of bonuses if environmental standards are not met;
• providing for a new code of conduct for water companies ‘so customers can summon board members and hold executives to account’;
• introducing new powers to bring ‘automatic and severe fines’; and
• requiring water companies to install real-time monitors at every sewage outlet with data independently scrutinised by the water regulators.

The government has said that this Bill is just a first step and that it plans to introduce separate legislation at a later stage ‘to fundamentally transform our water industry and restore our rivers, lakes and seas to good health’.

The new Environment Secretary of State, Steve Reed, had already announced (see here) a series of first steps to reform the water sector prior to the King’s Speech.