A new dawn for Labour – but how will they tackle business barriers to net zero?

The results are in, and Labour has won a landslide victory. Our head of energy, Esther Griffin, examines the common roadblocks to business decarbonisation – and what Labour plans to do about it.

Financial incentives to choose green

Cost is often cited as the largest business barrier to net zero, so it’s no surprise that the CBI is calling for tax incentives to help organisations invest in low carbon solutions. In its own manifesto, the CBI calls for a targeted “green super-deduction” for businesses that invest in carbon-saving capital assets or improve energy efficiency. It also wants to see a review of the tax system to ensure it supports businesses’ transition to net zero. This should include considering appropriate incentives to support production and investment in green energy and decarbonisation assets.

Labour is keen to position net zero and its clean energy plans as an economic opportunity, but there are no specifics in the Labour manifesto that respond to the CBI’s asks. All eyes will be on the new government’s first Budget statement, when we will know more. SMEs may also be keen to find out whether a Labour government will move forward with a Tory pilot scheme which offers funding for energy efficiency measures. 

Removing grid constraints for zero-carbon power

Grid capacity constraints are perhaps the biggest hurdle to achieving a zero-carbon electricity system and moving heavy industry away from fossil fuels. Clean energy developers cite waiting times of 15 years to connect to the grid, while businesses are stalling electrification plans as they struggle to secure extra capacity.

Labour has been vocal on the subject and has pledged to work with industry to achieve “the largest upgrade to national transmission infrastructure in a generation”. It also plans to launch a “Local Power Plan” – which will prioritise local, decentralised power generation, to reduce pressure on the transmission grid. There are few details in the manifesto on just how this will play out, so we will need to wait and see.

Industrial decarbonisation

Industrial emissions are notoriously hard to abate and account for an estimated tenth of the UK’s total in 2023. Uptake of many industrial decarbonisation technologies are thwarted by high upfront costs, and the availability or “readiness” of upcoming tech.

The Energy Intensive Users Group is calling for a “Net Zero Investment Plan” which supports industrial businesses with the high upfront capital cost of emerging decarbonisation tech. It also wants to mitigate the risk of carbon leakage for energy intensive industries, with a well-designed and properly enforced UK carbon border adjustment mechanism (CBAM) that is consistent with the EU CBAM.

The Labour manifesto makes clear that industrial decarbonisation is one of its core priorities. It plans to launch a new industrial strategy (details tbc) and has pledged that a new National Wealth Fund will support the most energy intensive sectors to decarbonise. £1bn is to be set aside for carbon capture and £500m is earmarked for green hydrogen.

Labour also says it supports the introduction of a CBAM (already announced by the Conservative government) although we don’t yet have full details. 

Certainty on transport policy

Transport is the largest emitting sector in the UK and can account for a significant chunk of a business’ carbon footprint. Labour plans to restore the phase-out date of 2030 for petrol and diesel cars, and accelerate the roll out of charge points – perhaps providing some certainty for businesses seeking to electrify their fleet. However, grid constraints will be the major blocker here, so all eyes will be on Labour’s plans in this area. Other plans to decarbonise transport include an “overhaul” of the railways and bringing them into public ownership to improve efficiency and affordability. Labour’s manifesto also cites a “duty to promote and grow the use of rail freight”. The party also wants to promote active travel by giving mayors the power to create unified and integrated transport systems.

We don’t yet have any detail on how Labour will accelerate decarbonisation of other road vehicles, including HGVs, for example – but a detailed transport strategy will reveal further details.

Watch this space

As expected, we’re yet to see the meat on the bones of some of these policy pledges, but, with the 2030 clean energy target front and centre of its campaign, it’s clear that Labour is taking net zero seriously. Businesses will be waiting for detail on the incentives to make it a reality.

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Note: This article was updated on 05.07.24 to reflect the fact Labour won the 2024 General Election.