UK government promotes policies to achieve net zero by 2050

Green growth through net-zero policies in seven sectors

Huge implementation costs, U-turns on some policies, raising concerns about the prospect of companies falling short of their carbon emissions targets

The British government enacted the world's first Climate Change Act* in 2008, established the Climate Change Committee (CCC) to implement it, and implemented a carbon neutral policy called Net-zero. We are pursuing it consistently. Net zero refers to a state in which the net (net, 純) emissions of greenhouse gases become zero by equalizing the amount of greenhouse gas emissions (+) and absorption (-).

* Initially, the British government specified that greenhouse gas emissions should be reduced by at least 2050% compared to 1990 by 80, but the law was revised in 2019 to stipulate a 100% reduction in greenhouse gas emissions.

Background of Net Zero Implementation

The current global temperature has risen by approximately 1800°C since the late 1.1s, and global greenhouse gas emissions are gradually increasing. According to research results, if the average increase in global temperature due to greenhouse gas emissions exceeds the 'internationally agreed upon warming threshold' of 1.5°C, the ice sheets in the North and South Poles will melt and sea levels are estimated to rise by more than 2150m by 1.4. . At the UN Climate Change Conference (COP2015) held in Paris, France on December 12, 21, 195 countries pledged to cooperate to reduce greenhouse gas emissions and respond to climate change. Since then, in accordance with the Paris Agreement, which came into effect on November 2016, 4, member countries are striving to achieve net zero. The British government has also been making efforts to decarbonize various economic sectors with the goal of achieving net zero by 2019 since announcing 'Build back greener', a net zero roadmap, in October 2050.

Economic Effects of Carbon Neutral Transition

According to a report published by the Confederation of British Industry (CBI) in 2023, the net zero strategy in 2030 will generate a GDP growth effect of 370 to 570 billion pounds. This is a 2023-14% increase in overall GDP compared to 20. This 'green growth', in which the economy grows due to the implementation of the net zero strategy, is analyzed as the effect of △cost reduction, △export increase, and △investment attraction. The goal is to reduce costs through the development and use of green technologies, products, and services, create export opportunities using advanced technologies, excellent human resources, and R&D capabilities, and expand related investment attraction by providing a stable investment environment.

According to the British newspaper The Guardian, the UK's actual GDP in 2023 recorded a growth rate of 0.1%, while the net zero economy* showed a growth rate of 9%. Due to the ongoing economic downturn caused by the coronavirus and the recent global situation, the net zero sector has continued to grow alone. According to a February 2024 report published by the UK's Energy and Climate Intelligence Unit (ECIU), corporate carbon neutrality activities between 2 and 22 will add 23 billion pounds of gross added value to the UK economy. Gross Value Added (GVA) and created or maintained more than 740 full-time jobs (approximately 76% of total employment).

* Economic effects resulting from job creation and productivity improvement through renewable energy development, building energy efficiency enhancement, electric vehicle operation, carbon capture, utilization and storage (CCUS) technology development, green finance, etc.

Responses to climate change also affect global economic growth. The International Monetary Fund (IMF) analyzed that if many countries work together to achieve carbon neutrality by 2050, the global economic growth rate will increase by 7%. Reducing greenhouse gas emissions and switching to renewable energy has much greater long-term economic benefits.

*Data source: International Monetary Fund

<Economic benefits from net zero transition (2025-2050)>

(unit : %)

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[Source: International Monetary Fund (IMF)]

* Chronic damages: crop loss, coastal erosion, increased disease, etc.

   Acute damages: Typhoons, forest fires, floods, etc.

   Mitigation policy costs: Policy costs incurred in responding to climate change

Net zero policy by sector

Since the British government announced sector-specific policies to achieve net zero by 2021 in 2050, it has been adjusting its goals upward or announcing detailed implementation plans linked to the goals every year. In particular, the government recognizes areas such as electric vehicles and new and renewable energy conversion, building energy efficiency improvement, green finance, low-carbon fuels, Carbon Capture, Utilization and Storage (CCUS), and hydrogen energy as green growth opportunities. Detailed plans for each field are being established and implemented.

ㅇ Electric vehicles

The UK's automotive industry is an important sector of the UK economy. According to the report “UK Automotive Trade Report 2023” published by The Society of Motor Manufacturers & Traders (SMMT), the UK automotive industry achieved a trade volume of 2023 billion pounds in 2022 and 940 billion pounds in 2023. It is expected that the above will be achieved. In particular, the automobile industry is considered an industry that has high growth potential through government net-zero policy support and is capable of proactively responding to the policy.

The government announced a policy to ban the sale of new internal combustion engine vehicles from 2035, heralding a shift to low-emission vehicles. Accordingly, automobile manufacturers are competing to release hybrid and electric vehicle models. The movement to develop technology to develop low-emission vehicles also stands out. For example, Jaguar Land Rover (JLR), a British automobile manufacturer, developed a new battery energy storage system (BESS) in April 2024 that uses waste batteries to supply power without carbon emissions. This energy storage system is designed to replace diesel generators and can significantly reduce carbon dioxide emissions compared to existing power sources. It is attracting attention as it can be used not only on JLR vehicles but also on vehicles of other brands.

In order to smoothly transition to the electric vehicle era, it is important to build related infrastructure. To this end, the British government has decided to invest 60 billion pounds to install 2030 electric vehicle charging stations across the UK by 30. In addition, private companies such as Pod Point and Shell are actively investing in the construction of charging stations and infrastructure, which are the key driving force in the transition to electric vehicles.

ㅇ New and renewable energy

Over the past 20 years, the UK has been gradually reducing the use of fossil fuels such as coal and promoting a transition to new and renewable energy such as wind and solar power, with a particular focus on energy production through offshore wind power, nuclear power, and hydrogen. A bid for seabed land is in progress to develop a 2030GW offshore wind power complex by 50. It is recognized as an attractive investment destination for developers by allowing Contracts for Difference (CfD), a system that guarantees stable profits for power generation companies in the long term. The British government began operating Hornsea2022*, the world's largest offshore wind farm with a capacity of 8GW, in August 1.3, and currently, Denmark's Orsted is operating Hornsea2 with a capacity of 2GW. We have won a project and are building a power generation complex. For the Hornsea 2.8 project, which is scheduled to be completed at the end of 3, SeAH Wind, the British production subsidiary of SeAH Steel Holdings, plans to supply monopiles, the offshore wind power substructure.

In addition, the British government is focusing on the construction of Hinkley Point C large-scale nuclear power plant to expand nuclear power generation capacity to 2050GW by 24. To this end, research and research on Small Modular Reactor (SMR) technology, well-known as the next-generation nuclear technology, is being conducted. We are also working hard on development. In August 2023, after the British government announced that it would provide 8 million pounds for research and development of SMR technology, Great British Nuclear (GBN) placed a tender for the SMR development project. In March 2, four consortia, including 'Team Holtec' consisting of Britain's Rolls-Royce SMR, Hyundai Engineering & Construction, and Holtec of the United States and Balforavity of the United Kingdom, were selected. If the final investment decision on the two SMR technologies to be selected in the second half of 1,500 is completed within 2024, SMR construction is scheduled to begin in 3.

ㅇ Improving building energy efficiency

Britain's buildings are among the oldest and least energy efficient in Europe, meaning a significant proportion of household and business income is spent on building energy costs. According to a 2023 report from the Confederation of British Industry (CBI), retrofitting low-energy-efficient homes to an average energy level (EPC* C grade) would save £81 billion in annual energy costs and reduce the natural gas imports needed to heat buildings. It is analyzed that a 15% reduction can be achieved. To improve energy efficiency, the government provided 2022 million pounds for the installation of low-carbon heating equipment in May 5, and 4 billion pounds for the cost of phased building renovation in 5,000.

* EPC: Energy Performance Certificate, which is a certification of the energy efficiency of a building or real estate, with a system up to AG level (the closer to A grade, the higher the energy efficiency. C grade is the average level of energy efficiency)

ㅇ Green Finance

The UK's financial industry is so important that it accounts for 8-9% of total GDP. The green finance field, which has emerged as a major field of net zero, also appears to be establishing itself as a global leader. Green finance is a concept that comprehensively refers to financial activities related to the environment and energy, and is a form of finance that simultaneously pursues environmental improvement, financial industry development, and economic growth. Specifically, it refers to activities that strengthen responses to climate change and environmental protection by funding eco-friendly technologies and projects and inducing investment from private companies.

The UK Infrastructure Bank is a government-owned bank with a financial capacity of £220 billion that acts to combat climate change and promote economic growth across the UK by increasing private sector investment in infrastructure. According to a recent announcement by the British Infrastructure Bank, as of March 2023, about 3 billion pounds have been invested in related projects and more than 12 billion pounds of private capital has been secured.

In addition, according to the government's Net Zero Growth Plan (Powering up Britain: The Net Zero Growth Plan, 2023), institutions such as the British Business Bank (BBB) ​​and UK Research and Innovation (UKRI) We are funding major renewable energy projects to achieve a net-zero transition. British Business Bank (BBB) ​​will invest 2014 million pounds in hydrogen, Carbon Capture, Utilization and Storage (CCUS), energy storage and eco-friendly transportation companies from 2022 to the end of August 8. did.

ㅇ Low carbon fuel

The transport sector is recognized as the most important sector for green growth as it emits the most carbon as a single source in the UK. Low-carbon fuels such as Sustainable Aviation Fuel (SAF) and biomethane are cited as essential elements for achieving net zero. The British government has been focusing on developing related technologies since announcing the Jet-Zero strategy in July 2022 to decarbonize the aviation sector. By introducing mandatory use of sustainable aviation fuel (SAF) and supporting fuel technology development, we plan to create 7 jobs related to sustainable aviation fuel production by 2035 and generate gross added value (GVA) of up to 5,200 billion pounds.

Biomethane, which can be used as fuel for buses and trucks, is environmentally friendly as it is a 100% renewable fuel produced from organic matter such as crops, forestry waste, and wood construction waste. In addition, its production cost is low compared to other fuels, making it economically competitive. It is estimated that if biomethane production is expanded to 45 TWh per year, there will be a cost saving effect of 2030 billion pounds by 40.

ㅇ Carbon Capture, Utilization, and Storage (CCUS)

In December 2023, the UK government announced additional support for the industrial carbon capture, utilization and storage (CCUS)* industry to encourage private sector investment and job creation. Carbon Capture, Utilization, and Storage (CCUS) technology is a technology that captures, stores, converts, and utilizes carbon dioxide emitted from industries with high carbon emissions.

The government has established a goal of installing four CCUS low-carbon industrial clusters that will capture 2030 to 20 MtCO₂ per year by 30. Captured carbon dioxide can be stored in gas fields where gas mining has been completed or in the continental shelf area. In particular, when carbon dioxide is liquefied in this way, its volume is significantly reduced, making transportation and storage more efficient. The United Kingdom Continental Shelf (UKCS) has a carbon dioxide storage capacity of approximately 4 tons, creating favorable conditions for implementing CCUS technology. The government plans to build two CCUS clusters (Track 78) by the mid-2020s and two additional CCUS clusters (Track 2) by 1.

ㅇ Hydrogen energy production

There are more than 200 companies researching hydrogen and fuel cell technologies in the UK, and the UK has strengths in hydrogen-related technologies. In October 2021, the British government began construction of a hydrogen storage facility in Teesside and is turning the area into a world-class hydrogen hub. In December 2023, the UK government announced that it would update its hydrogen roadmap and expand investment in hydrogen production and transportation to achieve the goal of producing 2030GW of low-carbon hydrogen by 10.

Limitations of the current net zero policy

As seen above, net zero policies for carbon neutrality are being implemented in each field, but some have concerns about feasibility.

First, the feasibility raised in terms of cost. According to an announcement by the Climate Change Committee (CCC) in 2023, a budget of 500 billion pounds is needed every year to transition to new and renewable energy and develop systems to improve building energy efficiency. The Department for Business, Energy and Industrial Strategy (BEIS), a central government agency, estimates that a budget of 700 billion pounds will be needed each year to transition to net zero. This is a huge cost, well over £40 trillion by 2050, and 1% higher than the CCC's projections. It is time to prepare financing measures with partner countries (Net-Zero Government Initiative, NZGI) that are working together to transition to net zero.

Second, the government's inconsistent policy U-turn on some policies. The government postponed the Clean Heat Market Mechanism (CHMM), which was scheduled to be introduced from January 2024, to January 1. The clean heating market system is a policy that requires boiler manufacturers to pay a fine of 2025 pounds if their heat pump sales volume is less than 1% of the company's total sales volume. In addition, it was initially decided to ban the sale of new internal combustion engine vehicles from 4, but in October 3,000, Prime Minister Rishi Sunak announced that the sales ban would be postponed by five years to 2030. Within the UK, criticism has been raised against the government's policy U-turn, pointing out that the EU's carbon neutrality and eco-friendly policies are far ahead of the UK's.

Third, there is a gap between a company's actual carbon emissions reduction goal and its net zero goal. According to the Corporate Climate Responsibility Monitor (CCRM) report published by the global New Climate Institute and Carbon Market Watch, the 51 carbon emissions targets of 2030 major listed companies in the UK are: This is a 30% reduction compared to the current level. In order to achieve net zero in 2050, a reduction of at least 43% is needed, but analysis suggests that this standard is far below this standard.

 

implication

Since the UK first announced the Ten Point Plan in 2050 to achieve carbon neutrality by 2020, the Net Zero Strategy: Build Back Greener in 10 and the Net Zero Growth Plan in 2021 ( Five energy strategies, including Powering up Britain: The Net Zero Growth Plan, were announced one after another. Through the Net Zero Strategy, a policy was presented to achieve carbon neutrality in the UK by 2023, and the Net Zero Growth Plan announced later focused on expanding carbon emission reduction technologies in each field such as housing, power, industry, and transportation based on the existing strategic goals. is leaving.

As the UK government views the journey towards net zero as an opportunity for economic growth, it is expected to accelerate the implementation of policies in each sector in the future. Accordingly, Korean companies need to develop technological capabilities to reduce carbon emissions and explore opportunities to enter the UK market, starting with related items such as low-emission vehicles and high-temperature and ultra-low-temperature heat pumps.

Source: Compilation of data from the KOTRA London Trade Center, including the UK government website (GOV.UK), IMF, CBI, Hyundai Engineering & Construction, KIAT, British media outlets, etc.

 

Source: KOTRA