Government Net Zero Announcement – what does it mean?

Government Net Zero Announcement – what does it mean?

Please read the latest announcement below from Chris Bingham, Chairman and CEO of Greenarc.

As someone who provides both traditional energy (heating oils and diesel) and provides a transition to green energy (Electric vehicles, charge points, solar, batteries, HVO and EV fuel cards) into businesses and rural homes across the UK, the announcements that were made yesterday in relation to the speed of transition will have some major impacts on how we develop and invest over the coming years. Here are my initial thoughts:

Delay of ban on new diesels and petrol vehicles to 2035

Although this is the part of the announcement that is leading the mainstream media coverage and, indeed, was the lead from the government yesterday, I think it is the least impactful of the various new policy timescales.

The UK was already an outlier in the 2030 ban, which was more about politics than economics. The UK is not a big enough market to change the development strategies of global scale businesses such as BMW, Audi, VW etc – all of whom are working around the 2035 date for their home markets. There may be some small UK players for whom this will be important, but the world is moving at a set speed and I don’t think this will have any impact on that transition.

A far bigger factor is how the tax system treats electric cars once the current Benefit in Kind rates are reviewed. Today around 90% of electric cars are sold in the UK into businesses for staff – there is a very small private market for these cars, but this may change as the numbers of second hand cars increases in line with the new sales. There is a possibility that the delay could slow the role out of EV chargers, but my experience is that there is such a demand for them, the shift will just give more time for the installers to catch up with demand.

Home heating

The big change relates to off gas grid customers who are no longer facing a ban on new oil boilers in 2026, which had not been announced, but was under discussion. The new date of 2035 brings it into line with gas customers and will mean that there will be fossil fuel boilers for up to 15 years beyond this date.

The argument against this move is that oil is more carbon intensive than gas (true, 40% more) and that heat pumps should therefore be focused on these homes before the homes on the gas network. I can see the logic, but as someone who is actually looking at these rural homes to transition, it is clear that they represent some of the most challenging projects imaginable, with bigger, older homes that need significantly more work to make them suitable for low energy heating like heat pumps. That does not mean it can’t be done, but this is an example of picking the high hanging fruit first.

We have a major skills gap in low energy heating, a fraction of what we will need over the next decades, but trying to force off grid customers with such difficult challenges to be the basis for skills growth makes no sense to me, and the government has always acknowledged there is a 20% segment of the UK housing stock that will always be very difficult to electrify – many of these homes will be off grid.

To drive the adoption of heat pumps, and build the UK skill base, new builds are the obvious start point. I can see no reason that any new home is not designed today to be low energy and efficient. The major builders have the scale to drive apprenticeships and bring the skills into the space. I suspect this is how this market will develop in the coming years.

The Politics

Of course all of this is driven by the election that is likely in January 2025. A Labour shadow minister came out immediately last night and said they would reverse the 2035 petrol and diesel change – as I said earlier, I think this is largely a red herring anyway and I suspect all the main parties will look at the opinion polls to see how these announcements are received. I would expect a very vocal and negative response from the green energy side of the debate, but how the quiet majority react will be of far more importance and set the tone of how this debate plays out both before and after the general election.

Regardless of timing, none of the major UK (or indeed major economies) is rowing back from the longer term commitments to reduce emissions, I think what we are seeing is the rough and tumble of when politics and economics collide – how this develops we will see in the coming days and weeks.

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