Introduction

The next UK Government will inherit a track record of strong leadership on net-zero targets. The UK was the first country to set ambitious net-zero targets and is the first major economy to halve its emissions, driven largely by power sector decarbonisation. But it has banked most of the easy wins and the road ahead looks much rougher.  

The UK is substantially off-track to meet future carbon budgets unless it massively accelerates the pace and breadth of its decarbonisation. We are at a critical juncture: the choices the next Government makes this decade will permanently shape the UK’s trajectory to net zero from here to 2040 – and beyond, to its own 2050 goal, shaping the landscape of the country. 

The immediate priorities are undisputed: to decarbonise the production of electricity; make sure there’s enough electricity and it’s accessible; to stop using fossil fuels to heat homes (and use electricity instead); to reform how energy markets work so electricity is affordable; to capture the potential economic value of green industries; and to make sure the UK has the political and social institutions and contracts to make it all work as smoothly and efficiently as possible. At the same time, the UK will need to reduce emissions from transport, industry, agriculture and land use. 

But clear priorities do not make for easy implementation. There are big calls to be made by the next Government and it matters how the UK gets to that net-zero goal.

To understand the challenges and choices that lie ahead, we did three things. 

1. We distilled the fundamental facts and trends, to provide the landscape (and the data) on the UK’s journey to net zero.
2. We conducted a two-stage Delphi exercise (see Annex B), surveying 65 of the UK’s leading policymakers, academics and practitioners working on net zero to understand the priorities the next Government should tackle and possible interventions to drive progress.
3. We convened a group of leading experts to discuss the key choices the next UK Government will face as it seeks to deliver on the UK’s net-zero trajectory. 

The choices in this report relate to the incoming UK Government specifically, but many of the policy areas that intersect with net zero are devolved. These are therefore choices facing the Scottish, Welsh and Northern Irish Governments too, to varying degrees: the sharp end of net-zero implementation remains that decisions directly affect people in the places they live.

What we learnt 

Planning the net-zero transition: managed or market led?

The UK Government faces a choice between taking a more centralised, state-led approach to planning and delivering the net-zero transition, or taking a more market-driven approach to enable innovation and flexibility. To date, the UK has been inclined towards the latter, with home heating a case in point. There are subsidies for households to install heat pumps, and the ban on new gas boilers after 2025 provides a market incentive for manufacturers and suppliers of low-carbon alternatives, but there is no mandated electrification or state-led delivery. 

But when it comes to the pace and scale at which the UK needs to decarbonise heat (to say nothing of the amount of energy infrastructure it needs to build for electrification), this approach to planning is insufficient. 

A degree of top-down direction is necessary to accelerate planning and make system-level decisions about infrastructure such as nuclear sites, grid expansion and green hydrogen, but there are still choices to be made within each sector. 

On home heating, coordination is necessary for households to switch to heat networks or communal heating, and coordination will be needed for the phase-down of the gas grid. There is less agreement, however, about whether coordination should be limited to these aspects, or whether it could be expanded to other forms of low-carbon heat and potentially deliver pace and cost savings through efficiencies of scale.  One way to test whether it pays off in consumer take-up and decreased costs is to test it using coordinated ‘street-by-street’ approaches. Equally, the government could choose to build on the existing model, setting tighter standards and sharpening incentives to help the market grow organically.

This approach might be more politically palatable, but there are risks that it could be slower, piecemeal and inequitable: letting decarbonisation be led by wealthier households and leaving lower-income households behind. Spatial energy planning is a key part of both managed and market-led delivery models. It gives a strong indication of what tech is suitable in which areas but doesn’t dictate it.

In all cases the delivery model should go with the grain of consumer behaviour and support individual household choices, but the gradual phase-down of the gas grid will become an ever stronger forcing factor. Ideally, through a combination of spatial energy planning and policy, the Government will be able to coordinate this process, avoiding the need to become more directive about the ‘last few’. 

Another mechanism to move from a market-led approach to a more planned delivery of net zero would be to reform the energy retail market. In a recent Nesta report on the future of energy retail, we highlighted a range of options. On one side, you could deregulate to encourage more innovation from suppliers in tariffs and business models (such as ‘energy as a service’). On the other end of the spectrum, you could give a national operator responsibility for managing a decarbonised electricity network and supplying customers, creating incentives to optimise and coordinate upgrades to homes (such as heat pumps and insulation) with the capacity and upgrade schedule of the local electricity network. The current review of electricity market arrangements could also see more fundamental reforms to energy pricing, such as locational pricing, which would allow the wholesale price of electricity to reflect the local conditions of supply, demand and network capacity.

There was consensus among our experts that the UK needs a mixed economy of monopoly infrastructure, market competition over technologies and individual choice about where and how to act. An extreme of either central planning or market direction is unrealistic.

They were clear that the Government needs to be directive about the big infrastructure decisions, and about timelines (for example, for switching off the gas grid). It needs to then set standards and incentives to support technology competition and innovation, and enable business and consumer choice. Market shaping could take more robust forms too, with subsidies and financing models such as ‘pay-as-you-save’ – which enables consumers to install energy upgrades and pay over time from savings on energy bills – to ensure the transition is accessible. 

Powering the net-zero transition: going nuclear? 

Another key choice will be how the UK powers the transition to net zero beyond renewables. It’s possible that the UK could have sufficient renewables, green hydrogen, storage and demand-side reductions to mean more than 90% of our energy supply would be decarbonised by the 2040s. That final <10% will likely need to come from fossil fuel processes, accompanied by carbon capture and storage (CCS). But given the scale of renewable power generation needed to supply an electrified UK, and the associated challenges with build as well as intermittency, it’s highly likely that the UK will need some ‘firm’ power – likely nuclear – to fill the gap.

The choice will be to accept that nuclear power and CCS will play a role in future energy supply and invest accordingly; take them off the table altogether and double down on renewables; or continue the current approach of ‘retaining optionality’ by experimentation.

Our experts were in agreement that if we want either nuclear or CCS to be a meaningful option by 2040, the UK needs to stop deliberating and build. But we don’t need to yet commit to how much and how big: they were clear that acting on an imperfect plan is better than waiting. 

And while ‘retaining optionality’ might be the appealing choice given uncertainties about the viability of CCS and contentions about the size and scale of new nuclear projects, it means the market doesn’t have enough clarity to act decisively to ensure there’s enough energy to supply the UK into the 2040s. In short, time is running out. 

Accepting nuclear and CCS will be part of the mix and planning accordingly has risks too. It may be that the timelines for nuclear reactors are already so long – as demonstrated with Hinkley Point C’s delays – that nuclear energy won’t come online until it’s too late to meet targets. It may also be that the UK invests in earnest in CCS technologies and infrastructure only to realise how complex it is to make it work at scale and how challenging it is to build a competitive market. But these risks – and costs – are outweighed by the potential for these technologies to provide energy security, and for the global value to other countries if the UK can prove or de-risk CCS. 

Taking nuclear and CCS options fully off the table is another choice, but a risky one. If there’s a supply gap, and no nuclear or CCS to fill it, the UK ends up relying on imported energy or backup and unabated gas. The former – buying electricity on the spot market – is incredibly expensive and the latter is totally at odds with the net-zero agenda. 

There are no easy decisions, but putting it off is likely to be costlier than committing. 

Paying for the net-zero transition: who foots the bill? 

A just transition is at the forefront of everyone’s minds. The next Government must determine the appropriate financing model for this transition using a blend of public spending, consumer bills, general taxation, carbon taxation and private investment. The net-zero transition requires massive capital investment but will result in lower costs to consumers in the long term. 

The Government has choices about what mechanisms to use and how to smooth short-term costs. It will need to make trade offs around distributional aspects, efficiency and political feasibility. The scale of electrification needed to keep net zero on track, for example, means the transition has to be affordable and accessible for everyone, not just those who can afford to make the change. Programmes such as the boiler upgrade scheme provide subsidies for low-carbon heating but will inevitably be taken up by those who already have the capital and time to make the changes enabled by the subsidies.

To date, the costs of decarbonisation initiatives have largely been transferred to consumers through their energy bills, via the levy charged on electricity. This approach is pragmatic as it leverages existing billing mechanisms, but it is regressive in that it disproportionately affects lower-income households who spend a larger share of their income on energy. ‘Stealth’ levies and incremental increases in consumer bills have covered the costs of some renewables to date, but with consumers highly attuned to their energy bills post-energy crisis, it is unclear whether future increases of this sort would be tolerated. 

The more principled approach – and potentially the more pragmatic one, according to our experts – is to use general taxation and set clear carbon taxes and transparent levies. This will require political consensus, both cross-party as well as with the public, but is unlikely on the scale required. 

An obvious example would be rebalancing levies on energy bills, applying the same levy per unit of electricity and gas and/or increasing the levy on gas over time as more homes switch to electric heating and as wholesale electricity prices fall due to increased renewables capacity. This would make electricity bills cheaper and incentivise electrification while making gas consumption pay for green initiatives. But as more households switch away from gas over time, the cost for homes remaining on gas could rise.

The UK Government has options about how to support those fuel-poor households at risk of higher energy bills, from fully funding heat and efficiency upgrades to Government-backed loans, coordinated delivery models and market reforms. 

General taxation is an even more equitable solution as it spreads the cost across all taxpayers, but to date it has been politically unpopular and difficult under fiscal rules. Lastly, carbon taxes have already been implemented across some parts of the economy through the Emissions Trading Scheme (ETS) which is effective in targeting polluting practices and generating income to fund the transition. However, as the UK decarbonises it will lose some of those direct carbon revenue streams such as fuel duty, meaning a strong carbon pricing mechanism, potentially through the Emissions Trading Scheme, would be needed to replace this income.

When it comes to private sector investment, the Government will also have choices about how to adapt the economic regulatory model to encourage long-horizon investment, including in nuclear, with higher returns for investors in exchange for higher risk. The Government could also choose to play a direct role in owning assets such as wind farms, given the state has access to lower cost capital than the private sector, and it could then capture the revenue streams those assets generate.

Regardless of the precise configuration of choices the next Government makes, the amount of capital needed, and the gear shift it represents, suggests state intervention is necessary and it is worth being explicit about public spending priorities with citizens and business alike. 

Industrial strategy for the net-zero transition: should the UK have one and if so, what?

The next Government can decide how deliberately it wants to structure the UK’s economy around the net-zero transition. It could see the net-zero transition as an opportunity for economic prosperity with a more strategic role for the state – as the UK did with oil and gas and as the USA has done with the Inflation Reduction Act – or as a cost to be minimised. 

In seeing the transition as an opportunity, the Government could choose to pull forward certain industries, such as green hydrogen and energy storage, with subsidies and power sector decarbonisation, or to invest to give the UK a global edge in particular innovations such as CCS. This approach would capitalise on the growth in the UK’s green economy, but there is a limited window for the UK to be a strong player before it is outstripped by global competitors. It also cannot be a global leader in everything, and so needs to be clear-sighted about its advantages and prioritise accordingly. This might be around information, as with Scotland’s niche in health and safety in the oil and gas industry, or it might be around design or procurement. 

The Government could also choose to cultivate particular industries that are already internationalised. A case in point here is renewable generation from wind. The supply chain is global, but the scale of manufacturing needed to deliver the UK’s targets is such that bringing some elements in house could pay off in terms of regional growth, jobs, programmatic coherence and security of supply chain. This isn’t the case with solar power, where the ship has sailed on the technology and manufacturing front and the priority is to install as much as feasible to deliver as much cheap electricity as possible.  

In any scenario, the scale and pace of the green transition will shape the UK’s economic future, and the choice for the next Government is about how to leverage it and prioritise the right areas of competitive edge to drive growth and public value. 

Engaging the public on the net-zero transition 

The next Government must also decide to what extent it will prioritise public engagement to facilitate the net-zero transition. Government is well-placed to be directive on some of the major infrastructural steps that need to happen, but public understanding of these measures and what they mean in practice is critical for buy-in, and to avoid active blow-back. 

Given small interventions such as the London Ultra Low Emissions Zone (ULEZ) already cause a lot of debate, our experts were united in agreeing that any next Government should seek to build political and public consensus around what’s needed to transition to net zero, generating the trust and confidence needed to deliver at pace.

It could also decide that public engagement is too costly, or that it is too late for meaningful engagement, and so focus instead on creating an enabling environment for businesses and markets to drive the transition. Instead of a centralised public campaign, businesses such as energy retailers or land developers would engage consumers about the transition. 

The choices then become about when to communicate, how and how much. Given the number and pace of planning decisions needed on infrastructure for power sector decarbonisation alone, one argument is that it is already too late for meaningful public engagement. In this scenario, Government could be at its most directive, communicating what needs to happen and providing upfront and ample compensation, as is being considered in Germany.

Another option would be to urgently prioritise and fund a meaningful public engagement exercise. To be effective, our experts suggested it would need to be a priority for the first 100 days, and likely to cost around £100 million. This is a large figure, but comparatively very small in Government terms and with a potentially high return on investment if it results in better decisions, higher buy-in and an accelerated transition. 

In either scenario, the next Government also has a choice about the extent to which it invests in articulating a positive vision for a net-zero UK. It’s easy to focus the narrative on the necessity of transition, climate risks and efforts to reduce the negative impacts of reaching net zero, but setting out a vision of its benefits to the UK and its people could expedite public buy-in and create momentum. 

Governing the net-zero transition: institutions as help or hindrance?

Despite world-leading ambition and delivery on net zero to date, experts point out the UK doesn’t have the institutional structures to provide the level of policy clarity, coordination and delivery it needs going forward. In central government, for example, the Department for Energy Security and Net Zero (DESNZ) is accountable for meeting carbon budgets but holds only some of the levers to achieve them. Local government may have 82% of emissions within its “sphere of influence” but it lacks the capacity, resources and clarity of direction to know how to pull those levers and has direct responsibility for only 2-5%. 

Outside of the UK Government, existing regulators such as Ofgem and the National Energy System Operator (NESO) have clear roles and relationships on paper, but no clear mechanisms for coordination. Finally, there are some big gaps in delivery across all sectors, begging the question about the function and form of what should fill them. Our experts underlined that a constraint in making and shaping these choices is the lack of commercial and delivery expertise in the public sector. 

The next UK Government’s choices are therefore about the degree to which it reshapes central government and its relationship with devolved administrations and local government. It also needs to consider the role, function and coordination of institutions outside government and whether it establishes new institutions to fill delivery gaps. 

If central government’s role is to provide clear policy direction, an incoming Government could choose to set and manage that direction firmly from the top by making net zero the responsibility of Number 10. It would be a signal of prioritisation and a mechanism for coordination, with Secretaries of State accountable for delivering on parts of the net-zero transition within their control and reporting to the centre. Longevity and structural prioritisation that can endure the emergence of other political priorities is key for this to work. DESNZ could then focus on energy, the Department for Science, Innovation and Technology on technologies and the Department for Business and Trade on growth. 

For full coherence and coordination, though, our experts agreed that the Treasury needed to be engaging on the substance of regulation and the big questions around who pays. An alternative would be to focus on reforming the machinery of government, reshaping departmental responsibilities and structures to deliver on the net-zero transition. In either scenario, our experts pointed out the need to bring delivery expertise into Whitehall, alongside existing policy expertise, to overcome the UK’s weaknesses in implementation despite ‘plans on paper’. 

Policy direction at the centre could enable local authorities to act faster and in a more coordinated fashion if combined with resources and capabilities. More than 300 have declared a climate emergency, over a third have climate action plans, and they are already actively retrofitting housing stock and supporting consumers to make greener choices. But our experts pointed out they are doing so in the absence of targets, direction, adequate funding or expertise. 

The Scottish and Welsh Governments have already begun to integrate local authorities into their national net-zero plans. Introducing clarity about the roles and responsibilities of English regional and local authorities in delivering net zero, streamlining fragmented and short-term funding processes, standardising reporting and progress, and supporting skills and capacity are no-brainers. The choice for the next UK Government is how fast and comprehensively it chooses to act.

The configuration of institutions responsible for delivering on net zero outside the Government is messy, too. Individual institutions have clear remits – Ofgem regulates energy and NESO will plan and operate gas and electricity networks – but there is no clear mechanism for these institutions to coordinate with Government or with each other, to make decisions or resolve disputes. The prospect of new institutions such as GB Energy, which may own, manage and operate clean power generation, complicates the configuration and underlines the significance of getting coordination right. 

There are also potential institutional gaps: around the Strategic Spatial Energy Plan (if it is to be statutory), on innovation and industrial strategy, on who sets and upholds standards for consumers, for example on low-carbon heating, and who regulates new economies such as green hydrogen. The next Government could choose to proactively fill these gaps, taking a maximalist approach such as GB Energy, or it could look to markets for system alignment and coherence. Our experts agreed that Government’s role is to shape ‘the rules of the game’ so that institutional form – regardless of the market actor or state’s relationship to it or ownership of it – follows function.

Then there are choices about how best to go from plans to delivery, whether on planning or powering net zero. Government could choose to bring delivery in-house as it almost has with Great British Nuclear, which operates as a unit within DESNZ, or it could choose to establish a delivery agency with specific outcomes and funding, akin to the Olympic Delivery Authority. The institutional form might look different for each sector but, again, our experts agreed the key success factors would be specificity of outcome and function with outputs and institutional form following in line, in combination with clear lines of responsibility across different institutions. 

Conclusion

There is no risk-free or cost-free option when it comes to the UK’s net-zero transition, but failing to act with certainty is likely to be the costliest of all. The UK is at a critical juncture. The choices the next Government makes will determine whether and how the UK can capture the benefits of the green transition as well as minimise the costs as it heads towards net zero by 2050. 

Why does this target matter? Because it is the UK’s contribution to keeping global temperatures within liveable limits. The 50ºC city is no longer an anomaly. Human-induced warming is projected to surpass 2ºC by 2040 and has the potential to reach 4ºC by 2100 when a child born today reaches old age.

Our experts landed on a marked degree of consensus about the need for a much more directive state: one which takes decisions about monopoly infrastructure, priorities for industrial strategy, nuclear and CCS; which provides policy certainty and support for investors and businesses to innovate and compete; and which protects individual choice over where and how to act. 

Given the sheer scale of change and coordination needed across the economy if the UK is to meet the 2050 goal, it also needs citizens and the public and private sectors to work together. There is no agreement on the most feasible way to engage the public or reform institutional roles and responsibilities to actually coordinate and deliver. To be effective, both require pace, political capital and resources. Done slowly and poorly, engagement campaigns and changes to the machinery of government and associated institutions will sap resources and attention from action elsewhere. The choice for the Government is therefore to do them quickly and effectively and bank the benefits, or don’t do them at all, and pay the costs down the line. 

Fundamentally, the choice for the next UK Government is the degree to which it deliberately chooses to act on net zero in the short term and capture the benefits, or to minimise change in the short term, and deal with the long-term costs. 

Workshop participants

We sincerely thank our chairs and workshop participants for their time and contributions. Please note that not all participants will have agreed with all the discussion points above.

• Ravi Gurumurthy (Chair), CEO of Nesta and Behavioural Insights Team
• Adam Standage, Associate, Green Finance Institute
• Anouka Dhadda, Co-founder of Zeroism
• David Halpern, President of the Behavioural Insights Team
• David Joffe, Director, Royal Academy of Engineering
• Geeta Subramaniam-Mooney, Director of Environment and Climate Change, Hackney
• Guy Newey, CEO of Energy Systems Catapult
• Josh Buckland, Partner, Flint Global
• Jordan Lee, Senior Climate Programme Manager, Conservative Environment Network
• Baroness King, Chair of Adaptation Sub-Committee, CCC

Top 10 priorities for the next UK Government

1. Renewables and energy infrastructure
2. Governance: the consistency, coherence and coordination of net-zero policy
3. Energy pricing and regulation
4. Home decarbonisation and energy efficiency
5. Public engagement and buy-in
6. Green transport and transport infrastructure
7. Distributional impacts and costs to consumers
8. Green industrial strategy
9. Education and workforce
10. Energy storage

Top 10 interventions for the next UK Government

1. Investment in energy infrastructure average score 4.6
2. Phase out fossil fuel hardware (gas boilers, internal combustion engines) average score 4.1
3. Provide affordable financing and incentives for energy efficiency and decarbonisation (subsidies and zero interest loans) average score 4.1
4. Investment in transport infrastructure average score 4.0
5. Introduce and update building regulations to support decarbonisation average score 4.0
6. Tax incentives and credits for decarbonisation of industry and buildings average score 3.9
7. Land use and planning regulation reform average score 3.8
8. Reform regulation to increase renewables average score 3.8
9. Investment in education and workforce retraining average score 3.7
10. Develop green industrial strategy (for example, origin and content rules, dual interest rates for renewables, sector deals, FOAK deployments) average score 3.7