From green tax breaks to SME mentoring: What will the Net-Zero Review mean for British businesses?

The Mission Zero report was published on Friday (13 January) by MP Chris Skidmore, based on the 1,800 responses from businesses and climate experts.

It had been commissioned last October, during Liz Truss’s short tenure as Prime Minister, with Truss keen to assess the best way for the UK to reach its legally binding 2050 climate target while maximising opportunities for economic growth, business prosperity, innovation and social sustainability. The Climate Change Committee (CCC) has already concluded that the transition can be delivered with 0.5-1% of GDP if properly managed.

Late last year, the Department for Business, Energy and Industrial Strategy’s (BEIS) net-zero engagement lead Dan Altman told edie readers that the Review would produce some “very business-focussed” recommendations, including several relating to the energy price crisis response in the near-term.

Altman was right – the Review includes a section (section three) dedicated to “the prize on offer to UK industry” and the policy levers that could be pulled to help businesses win that prize. These include changes to business rates that reward sustainable practices; the provision of free practical advice and mentoring; new eco-labelling schemes and more clarity on ensuring a strong green skills pipeline.

You can read edie’s full news story on the Review here.

Here, edie explores the key interventions recommended in the Review that would hopefully support businesses of a variety of sizes and sectors to accelerate their low-carbon transition and reap extra economic and social benefits along the way.

A thorough review of taxes and incentives

The Review details how inconsistent policies, including mixed messages from the tax regime and the array of incentives for low-carbon technologies on offer, are hampering the private sector’s confidence and ability to invest.

Many previous reports have called for longer-term and more consistent clarity on interventions such as carbon taxing and grants for electric vehicles, and the Review highlights that these are sensible recommendations for delivering a cost-effective net-zero transition.

As the Review heard many different opinions on how best to balance changes to tax credits, capital allowances, energy levies and business rates, it calls on the Government to weigh up its options for a “balanced approach of incentives and disincentives” in more depth.

By this autumn, the Review recommends, the Treasury could conduct a full assessment of how current policies incentivise or block investment in decarbonisation across the private sector.

More support for SMEs

More than 90% of businesses in the UK are SMEs and these organisations employ the majority of the UK’s workforce. SMEs are also accountable for around half of the nation’s non-domestic emissions. This means they have a crucial role to play in the net-zero transition, but they face challenges including resource, funding and skills constraints. Moreover, SMEs are excluded from some collective business net-zero initiatives; for example, the Science Based Targets initiative (SBTi) does not verify businesses under a certain size.

The Skidmore Review recommends the launch of a ‘Help to Grow Green’ campaign for SMEs by 2024. The campaign should be a one-stop-shop for support in accessing Government grant and loan schemes and practical information on key topics.

Additionally recommended is the creation of a new mentoring scheme for micro-businesses and the self-employed this year. This could be expanded in time, but there is a recognition that the smallest businesses will struggle the most with resources and finance – especially amid the current cost-of-living crisis. A recent poll of more than 1,000 decision-makers at British SMEs found that four In ten believe they do not have sufficient financial resources to decarbonise, with the proportion being higher among the smallest firms.

A new ‘Net Zero Charter Mark‘

“As firms are stepping up to the mark and decarbonising their own operations, their supply chains and proactively pushing forward the transition, it is important to recognise those efforts and allow firms to benefit from their green credentials,” the report states. “At the same time, investors and businesses need to be able to be confident that those green credentials are based on hard metrics”.

A proposed solution to the array of different net-zero certifications available to businesses at present is the creation of a new ‘Charter Mark’ awarded by a body associated with the UK Government. The Mark would confirm that a business is working credibly towards and ambitious net-zero plan, regarded as the best in class in its respective sector.

There are not timelines on when such a Mark could become available. However, the Review does include recommendations on requirements for achieving the Mark. These include the development of verified science-based targets, the publication of a net-zero transition plan and regular reporting on progress. Requirements, it argues, should tighten over time, as regulation improves and as new scientific evidence is published.

The Review also comes out in favour of mandatory ecolabelling on food products, detailing metrics such as carbon. It states that introduction by 2025 is possible.

Energy transition interventions

The Review emphasises how, by improving energy efficiency and self-generating renewable energy, businesses of a variety of sizes and sectors can save on operating costs now and future-proof themselves for the coming decades.

“In 2022, businesses’ (industry and other non-domestic buildings) gas and electricity expenditure totalled around 12% or £46bn of profits, up from around 6% or £23bn in 2019,” the Review document states.

It floats the idea of lower or zero business rates for firms installing rooftop solar or wind turbines, co-located battery energy storage and low-carbon heating systems. It welcomes interventions already made here, but notes that there may be “inadvertent disincentives” for businesses. Further specific incentives will also be needed for energy-intensive sectors such as manufacturing, the Review argues.

Business rates relief could also be offered to businesses committed to improving the energy efficiency of their firms through building fabric improvements or technology installations. The Review notably calls for legislation for all new non-domestic buildings to achieve Energy Performance Certificate ‘B’ or above from 2025, plus measures to accelerate the improvement of efficiency in existing commercial buildings.

It calls on the Government to convene a taskforce to map out a way to reduce energy use in rented commercial premises this year. The taskforce would represent suppliers, SMEs, business landlords, large businesses and groups specialising in building energy use.

Also raised is the creation of a framework for a new model whereby communities – businesses and residents – could share the benefits of renewable energy installations.

More detail on creating green jobs and improving skills

The UK Government is targeting two million full-time equivalent green jobs by 2030 but it has repeatedly been told that it is not on track to achieve this. There has been no significant change in employment in the green economy, or the level of turnover generated by low-carbon sectors between 2015 and 2020, it was confirmed last February. The Government maintains that an additional 68,000 green jobs have been created or supported since 2020.

Skidmore’s Review calls on the Government to deliver a “comprehensive” action plan for creating green jobs and ensuring there are enough skilled workers to fill them – whether through upskilling, reskilling, or initial education. It recommends that the action plan includes timelines for delivery plus a breakdown of skills by industry and geographical location. On location, there is already evidence that green jobs provide a levelling up opportunity, but that this is not guaranteed. PwC’s recent green jobs barometer revealed that almost three times as many green jobs were advertised in the UK in 2022 than 2021, but that they were concentrated in regions outside of the North East.

The Review notes that the Government’s decision to convene a Green Jobs Taskforce in 2020 was a positive step, but lists evidence that the Government has not heeded the recommendations it has put forward. It explains that many organisaitons giving evidence to the Review reported some of the same key challenges raised by the Taskforce, including a lack of clarity on accessing retraining programmes and the affordability of such programmes, plus the quality of jobs available after traning.

An action plan should be drawn up as soon as possible, the Review recommends, enabling an initial progress report to be published in 2023. The Review summarises how many respondents were concerned about the Government’s lack of transparency on green jobs and skills progress and that it does not even have a formal definition of a “green job”. Should the Government take note, businesses can expect more clarity.

Specific interventions recommended beyond this top-level action plan include assessing the Apprenticeship Levy to create more apprentice places in environmental sectors; exploring shorter and more intensive training courses in topics related to the energy transition and considering the potential of new T Level courses.

Carbon taxes on imported goods

“The UK can take a share of the global economic prize from the transition, but it must act now… quickly and decisively,” the report states.

There are several recommendations relating to ensuring that the UK remains competitive globally with the manufacture and export of goods that enable the net-zero transition. One is ensuring that, as UK manufacturers decarbonise their operations and products, there is a strong market for their goods that is not over-saturated with imports that have far greater carbon footprints but may be lower in cost.

The EU is poised to implement the world’s first carbon border adjustment mechanism (CBAM) to support domestic markets for low-carbon iron and steel, cement, fertilisers, electricity and hydrogen.

Skidmore’s Review compels the UK to follow suit. The UK Government did consult on a post-Brexit CBAM in 2022, but progress was delayed amid two consecutive changes in Prime Minister. Skidmore recommends that the consultations are wrapped up this year and that its CBAM is in place before 2026, enabling more detail on preventing emissions ‘leakage’ to be provided then.

At the same time, the UK Government should draw up a public procurement plan for low-carbon construction and industrial materials this year, the Review states. It highlights how public procurement can catalyse changes in procurement across the private sector.

A new circular economy task force

While much of the report focuses on the need to decarbonise energy systems and related industries such as heating and transport, there is an acknowledgment of the carbon-saving benefits that reducing waste and improving reuse and recycling rates could bring. Circle Economy has stated that 39% of the world’s annual emissions could be avoided by ending the over-exploitation of natural resources and keeping them in recirculation.

Circular business models such as refill, rental and repair are scaling up, the Review states, but concludes that the UK’s private sector is not yet prepared to scale it sufficiently – either in terms of environmental benefits or potential economic opportunity. It recommends the creation of a new taskforce, convening industry and policymakers, to develop and scale circular economy business models.

The taskforce should include representatives from the UK Government specialising in business, energy, the environment, levelling up and international trade, plus representatives from the Treasury. It should also include business representatives from a range of key industries and business sizes.

The report also calls on WRAP to work with the Government to develop a report setting out the role of the Government in enabling ‘resource matching’ across the private sector, ensuring smoother sharing of commercially sensitive information relating to the circular economy.

What do you make of the recommendations in the Review? Is there anything else you would need to reap the net-zero opportunities for your business? Let us know in the comments.

You can read edie’s roundup of reactions to the rRview from key green economy figures and groups here.