GETTING TO ZERO

Green Shoots

How to drive innovation to meet net zero
Alex Luke, Ted Christie-Miller
October 13, 2021
Green Shoots
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An innovation explosion is needed to deliver net zero

This report argues that the Government will not deliver on its commitment to reach net zero emissions by 2050 without taking radical action to speed up the development and diffusion of new technologies required for the future.

Many of these technologies are still far from the commercialisation stage. These sectors in particular represent opportunities for the UK to gain a first-mover advantage and unlock vast amounts of foreign investment. But the UK is already trailing behind other countries in the development of these technologies and these opportunities will not be realised unless ministers take action now.

The analysis finds that:

  • The R&D intensity (R&D spending as a share of turnover) of two of the UK’s most carbon intensive industries – Land Transport and Construction – is just 0.01% and 0.09% respectively. This compares to 1.04% in the chemicals industry and 2.68% in the pharmaceuticals industry. The three carbon-intensive industries with the lowest R&D intensity – Transport, Construction and Agriculture – have decarbonised less than any other since 2010, apart from aviation.
  • Total capital investment in Low Carbon and Renewable Energy Economy sectors (as defined by the ONS) totalled £44 billion between 2014 and 2019, equivalent to around £7.3 billion a year. This represents just 14% of the £50 billion investment estimated to be needed each year to meet the trajectory set by the Climate Change Committee’s Sixth Carbon Budget. Nearly half of capital investment since 2014 (£19.1 billion) has been directed towards offshore and onshore wind. 
  • The UK underperforms in climate-related patenting compared to its competitors. Between 2012 and 2016 (the latest five year period available) Germany and China filed 246% and 114% more patents in environmentally-related technologies, respectively, than the UK. China has increased their level of environmentally related patents by 82% over the period and now manufactures 73% of the global supply of electric vehicle batteries, 80% of solar panels and more than half of newly installed wind power capacity.

Problems with net zero innovation

Detail

Development and innovation

Historic government interventions have distorted the price of carbon, meaning market signals do not effectively incentivise consumers or firms towards sustainable behaviour.

More support is needed to mobilise people and institutions to develop innovations and solve key net zero challenges.

Diffusion

The cost of Carbon Capture, Uptake and Storage (CCUS) is currently not commercially viable.

The current heat pump rollout trajectory is not even close to being on track for the 2050 net zero target.

Regulatory barriers and high capital costs can present difficulties in bringing innovations to market.

In the run-up to the UK’s co-Presidency of COP26 in Glasgow in November, the paper urges the Government to adopt a number of radical policies to kickstart an “explosion” in net zero innovation and diffusion to propel the UK towards net zero by 2050 and to position the UK as an industrial leader in green technology, including:

  1. Set a “gold standard” for carbon offsets, by creating a new Carbon Accounting Regulator to oversee the monitoring, reporting and verification of greenhouse gas emissions, reductions and removals across the economy.
  2. Rebalance carbon prices to reflect emissions, by increasing VAT on carbon-intensive products, and reducing it on low-carbon products. This would incentivise consumers and businesses to use more sustainable products and services, driving innovation in these sectors in the process. 
  3. Establish a National Energy Laboratory to conduct high-risk net zero research to overcome energy system challenges. This should be modelled on the National Energy Laboratories in the US and the Helmholtz Association Research Centres in Germany. 
  4. Introduce subsidies for Carbon Capture and Storage (CCUS) and Carbon Removal technologies, by introducing new Contracts for Difference to CCUS alongside Hydrogen, and introducing a Carbon Credit Tax Relief (CCTR) for Direct Air Capture credits. 
  5. Make heat pumps much more affordable, by making a proportion of the cost tax deductible; re-introducing a boiler scrappage scheme to allow people to trade in their old boiler, and introducing community finance schemes to help neighbourhoods adopt heat networks.

Problems with net zero innovation

Development and innovation

Historic government interventions have distorted the price of carbon, meaning market signals do not effectively incentivise consumers or firms towards sustainable behaviour.

More support is needed to mobilise people and institutions to develop innovations and solve key net zero challenges.

Diffusion

The cost of Carbon Capture, Uptake and Storage (CCUS) is currently not commercially viable.

The current heat pump rollout trajectory is not even close to being on track for the 2050 net zero target.

Regulatory barriers and high capital costs can present difficulties in bringing innovations to market.

Detail

In the run-up to the UK’s co-Presidency of COP26 in Glasgow in November, the paper urges the Government to adopt a number of radical policies to kickstart an “explosion” in net zero innovation and diffusion to propel the UK towards net zero by 2050 and to position the UK as an industrial leader in green technology, including:

  1. Set a “gold standard” for carbon offsets, by creating a new Carbon Accounting Regulator to oversee the monitoring, reporting and verification of greenhouse gas emissions, reductions and removals across the economy.
  2. Rebalance carbon prices to reflect emissions, by increasing VAT on carbon-intensive products, and reducing it on low-carbon products. This would incentivise consumers and businesses to use more sustainable products and services, driving innovation in these sectors in the process. 
  3. Establish a National Energy Laboratory to conduct high-risk net zero research to overcome energy system challenges. This should be modelled on the National Energy Laboratories in the US and the Helmholtz Association Research Centres in Germany. 
  4. Introduce subsidies for Carbon Capture and Storage (CCUS) and Carbon Removal technologies, by introducing new Contracts for Difference to CCUS alongside Hydrogen, and introducing a Carbon Credit Tax Relief (CCTR) for Direct Air Capture credits. 
  5. Make heat pumps much more affordable, by making a proportion of the cost tax deductible; re-introducing a boiler scrappage scheme to allow people to trade in their old boiler, and introducing community finance schemes to help neighbourhoods adopt heat networks.

The research also underlines the urgency of the innovation challenge, by investigating the diffusion trajectories of both electric vehicles (EVs) and heat pumps. Both of these technologies are key components of the Government’s plans to decarbonise transport and buildings. The analysis uncovers that:

  • The Government’s targets for the diffusion of heat pumps are woefully off track. On current trajectories, the target of reaching 600,000 heat pump installations each year by 2028 will not be met until 2057, almost three decades too late. In addition nationwide rollout to 27 million homes will not be completed until 2187 – almost a century and a half too late for net zero.
  • There are currently also only 1,200 plumbers capable of installing heat pumps in the whole of the UK. If the 1.67 million annual sales of gas boilers were entirely replaced with sales of heat pumps, these plumbers would need to install four a day, 365 days a year to achieve this.
  • The rollout of EVs is more promising, and on the current trajectory there will be 23.6 million battery electric vehicles (BEVs) on the road by 2050. However, a forecast 37 million vehicles are likely to be on the UK’s roads by that point in time, leaving a shortfall of up to 13.4 million. Therefore, there needs to be a step change in levels of production and demand.

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