Delivering a net zero economy in Wales: A shared mission?

Background

This general election takes place against the backdrop of the longer-term, existential threat that is the climate and nature emergency. However, the amount of air time these issues are getting is relatively paltry, as I noted during the BBC Wales General Election Debate on the radio recently. Perhaps this is understandable, at a moment when the cost of living crisis and the underperformance of public services are at the forefront of people’s minds. Yet, ‘the environment’ remains in the top five issues according to polling of voters in Wales. In fact, analysing the parties’ manifestos reveals that some of their key policies on economic growth, such as increasing investment in renewable energy projects, depend on net zero to be effective. There is therefore a need to dive into net zero as a policy ambition, examining why it’s an issue at this election and what the main parties are saying about it in a Welsh context.

First things first, Wales and the UK are legally mandated to reach net zero carbon emissions by 2050, a goal established in the Climate Change Act (2008), and amended in 2019. In doing so, the UK became one of the first nations in the world to legislate to achieve such a goal.

To meet this target, governments across the UK produce carbon budgets, each covering a five-year period. These budgets represent a cap on the amount of greenhouse gas emissions emitted over that period. They provide the indicative pathway each government across the UK must take to reach net zero by 2050, with targets increasingly stringent as we get closer to 2050. The UK Climate Change Committee (UKCCC) has been set up as an independent, statutory body to advise on the nations’ carbon budgets as well as report on the progress (or lack thereof) of governments’ actions in greenhouse gas emissions and on adapting to climate change.

So far, so good.

Progress, powers and responsibilities

The UKCCC has been clear in detailing where governments across the UK have failed to make sufficient progress against net zero targets, putting at risk the pathway to 2050.

At a UK level, the UKCC notes in its report on progress towards net zero that there is a ‘hesitancy to commit to key pledges’. The Committee states that they have less confidence than previous years in hitting interim emissions reduction targets, thus putting overall progress at risk.

At a Welsh level, the UKCCC’s most recent reports on emissions reduction and climate adaptation have identified where Wales is on and off track in devolved areas such as transport, agriculture, housing and land use. Whilst acknowledging policy progress, their report highlights that progress has been slow and that the ‘Welsh Government is not using its policy powers to full effect’. 

The UK and Welsh Governments each have responsibilities to make progress towards targets in their areas of competence when it comes to net zero. The work of the UKCCC has been vital in highlighting who has responsibility and power for what. Their reports are essential reading in order to understand where responsibilities lie, and in a set of activities as cross-governmental as decarbonisation, this is inherently complex.

At the very least, relations between UK Government and devolved governments need to improve in order to accelerate progress towards net zero goals. The seeming lack of communication between Welsh and UK Governments regarding potential deals to save Tata Steel’s operations in Port Talbot, at the cost of jobs, is a case in point.

With so many powers and goals shared between the UK and the devolved nations,  co-working on pathways to net zero is not only beneficial, but a prerequisite for a successfully planned transition.

Shared Commitment?

Earlier this year, the IWA hosted an important conversation between two of the key stakeholders in Wales and the UK’s climate space. Future Generations’ Commissioner for Wales Derek Walker and (then) Chief Executive of the UKCCC Chris Stark, sat down with the IWA to discuss progress against net zero in Wales and the context across the UK (you can listen back to the event here). 

The discussion set out how both Wales and the UK were performing against their net zero goals, but also the practicalities of how progress is (or isn’t) being made and some of the major blockages to action on the scale required. The speakers also detailed how, in a devolved nation like Wales, it is often difficult to tell who has responsibility for what, noting that politicians can wilfully and intentionally play into this difficulty to shirk ownership of a lack of progress. 

At the very least, relations between UK Government and devolved governments need to improve in order to accelerate progress towards net zero goals. The seeming lack of communication between Welsh and UK Governments regarding potential deals to save Tata Steel’s operations in Port Talbot, at the cost of jobs, is a case in point. With so many responsibilities and powers shared, it is vital that intergovernmental relations improve, and this is particularly the case with net zero policy, as cross-cutting, complex and dependent on funding as it is. Welsh and UK Governments must imperatively establish a mutually respectful partnership of equals on a shared pathway to net zero. As a solution, Stark stated that there was a need for a co-owned and independent forum for net zero, as a potential means to cut through the difficulty of ‘devolved and reserved’ by focusing on key sectors, such as steel. Whatever the party forming the next UK Government, the establishment of joint pathways to net zero would be a good place to start in accelerating delivery against net zero goals.

The conversation also highlighted the need to speed up progress in order to meet interim targets. It also stated how prevarication and lacklustre messaging from UK Government on policy and investment to reach net zero is risking progress more broadly. The future government should show long-term commitment to a policy direction in order to provide certainty for everyone involved in delivering against net zero targets, including those across the private, third and public sector. Doing so can aid public sector delivery at all levels as well as making the UK (and Wales) more attractive to investment in green industries.

Finally, the conversation underlined the vital importance of governments across the UK working together to achieve shared visions for the future, underpinned by a shared set of powers and responsibilities. Critical within this are some fundamental principles for success: policy consistency, strong structures for intergovernmental engagement, and funding in line with the ambition. Collaboration, not consultation is key. 

What this tells us is that, for Wales, what the next UK Government plan to do to accelerate greenhouse gas emissions reductions and to adapt our communities for a changed climate will have a big impact.

Political consensus no more?

Over the last decade and a half, the UK has seemingly been an international outlier in that the importance of tackling the climate and nature emergency (if not the policy to match) has been acknowledged across party political lines. Whilst nations across Europe, including France and Germany, saw widespread political pushback for climate policy, the UK remained steadfastly committed.

We can safely say this is no longer the case, with pushback against climate policies, such as the wider rollout of low-emissions vehicle zones in London, leading to a politicisation of the rollout of net zero policies. Whilst most parties are still committed to legally-mandated net zero targets, the battle lines have been drawn over the speed of interventions and the costs to people and businesses.

In a Welsh-specific context, we have seen pushback from particular groups against Welsh Government policy as it starts to impact people’s lives more directly. This is most clearly seen in the agricultural sector. Farmers have successfully protested against the Welsh Government’s proposed Sustainable Farming Scheme, which has now been delayed following protests.

As we get closer to 2050, policies will need to be increasingly bold, ambitious and importantly, impactful on everyday life.

The next UK government must be alert to such pushback, and recognise that net zero policy inherently means disruption, and increasingly so over the decade ahead. In this transition, as others, there are winners and losers. The best policy will incentivise the so-called losers to join the winners, not condemn them. Achieving a balance between effecting transformative policy that impacts all of our lives whilst ensuring no one is left behind is the political challenge, for both UK and Welsh Governments.

Telling the truth for a long-term vision for change

This brings us to the need to tell the truth. Truth about the enormity of the risk posed by climate change, the levels of the policy interventions and investment required, and how people can adapt their lives accordingly. This will require transparency about the scale of the challenge, and of the solutions, with political leadership and public buy-in increasingly vital over time.

As we get closer to 2050, policies will need to be increasingly bold, ambitious and importantly, impactful on everyday life. Whether this means making it harder to drive carbon-emitting cars, taxing highly-emitting behaviours or putting more regulation on businesses, these types of policies will be coming over the next decade if we are to meet net zero targets.

Over the past decade, the UK and Wales’ performance on reducing greenhouse gas emissions has been substantially aided by the fact that our economies are deindustrialising. This has resulted in less need for the types of bold policies highlighted above. But we are at a point where this deindustrialisation bonus, if you like, is running out. We can no longer use our desindustrialisation as a mask for business as usual across a number of policy areas. Lastly, there is no getting away from the fact that the deindustrialisation of the UK economy pushes our emissions onto other countries, further reinforcing a cycle of extractive climate practices.

Telling the truth also means engaging with the amount of investment needed to decarbonise the UK economy. The independent Office for Budget Responsibility stated in 2021 that reaching net zero by 2050 in the UK would require around £1.3 trillion of investment. Of course this is spread across the next 25 years and costs will be shared between private and public sources. Yet, this is the level of transformation and investment required.

At this election, the Institute of Fiscal Studies (IFS) has addressed profound critiques to all parties’ platforms. It has accused both Labour and the Conservatives of a ‘conspiracy of silence’ on funding policies over the medium term. It has stated that Liberal Democrat measures to raise funding through taxation may not raise the amount stated. The IFS has also criticised the Green Party and Reform UK for fiscal promises which are ‘wholly unattainable’ and ‘poison the entire political debate’. Finally, the IFS query whether a new ‘needs-based funding settlement’ between UK and Welsh Governments, as proposed by Plaid Cymru, would result in any more funding to Wales, highlighting it could, in effect,lead to actual budget reductions.

Recent research by Wales Fiscal Analysis shows how the manifestos of the two main parties will trickle down into the Welsh budget over the years ahead. They find that ‘serious budget challenges’ lie ahead for Welsh Government under plans by the two largest parties, with likely future funding cuts to services . They also forecast significant spending cuts for the Welsh Government’s capital budget, which will constrain the building of net zero infrastructure so vital to the nation’s net zero ambitions.

Pretending that we can meet not only net zero, but also address the cost of living crisis, achieve economic growth, and have public services truly fit for our needs, all without a trade-off, is fanciful at best. Either tax rises, rising debt or budget cuts are the only policy levers that can support these ambitions, yet these have largely been ruled out by the two main parties. This may constrain the ambition for net zero policies, which will increasingly require high levels of investment.

Grasping the opportunity

Equivocation and hesitation on governments’ commitment to net zero policies is also damaging and inhibits long-term confidence in the stability and commitment to net zero.

As the UK’s international competitors, such as the US and the EU, are formulating ambitious, market-shaping portfolios of investments, the UK is left stranded at the starting line. The US Inflation Reduction Act, the largest climate Bill in US history committing to hundreds of billions of dollars of investment to stimulate climate action. The EU Green Deal represents multiple-billions of euros of investment to 2050, and represents a collective green industrial strategy for the continent. The lack of public investment on the scale required, in order to create the market conditions to aid and guide private investment, is having a considerable drag on our economic fortunes. 

According to the IPPR, the UK is an international outlier in the growing international consensus on green investment and industrial policy.

The Resolution Foundation’s Stagnation Nation report highlights how the lack of public and private investment has contributed significantly to the UK’s flatlining economy over the past 30 years. This is seeing the UK fall further behind those nations which we like to compare ourselves favourably to, France, Germany and Canada for example. The gap in living standards that separates us from these nations is increasingly yawning.

According to the IPPR, the UK is an international outlier in the growing international consensus on green investment and industrial policy. But, through targeted investment in place-based green industrial strategies, the UK can help to deliver sustainable prosperity,whilst levelling up local economies across the nations. The IWA’s work has consistently made the case that decarbonisation could act as Wales’ economic opportunity for the decades ahead. That’s why we want to see parties at UK and Wales levels commit to investment in the green economy, to lift living standards, tackle poverty and provide a sustainable economic future for communities across the nation.

Parties’ perspectives

One of Labour Party’s stated missions for Wales is to unlock the nation’s green energy potential. Central to their economic mission to grow the economy is taking an active industrial strategy approach, directing private and public sector investment towards its wider set of missions, including a just transition to net zero. This is underpinned by a Green Prosperity Plan, which will invest in the green economy through a National Wealth Fund.

In terms of energy, Labour pledged to set up Great British Energy, a publicly owned entity, in order to hit a target of ‘clean energy by 2030’. With both this and the Green Prosperity Plan, the aim is to crowd in private sector investment with public.

The Conservatives pledge to treble offshore wind capacity across the UK, with a cluster in South Wales. The Conservatives will build two carbon capture and storage clusters, including one in north Wales. They also plan to increase the UK-wide farming budget by £1 billion, and continue to ringfence devolved agriculture funding. Their pledges on net zero aim to focus on cutting the ‘cost of tackling climate change for households and businesses’. The party also rules out any new ‘green levies’ and commits to continuing to grant licences for North Sea oil and gas extraction.

Plaid Cymru commits to bringing forward the net zero target in Wales to 2035. The party also calls for full powers over energy to be devolved to Wales. Their manifesto supports the devolution of the Crown Estate to Wales, using the profits to create a Sovereign Wealth Fund for Wales. 

The Liberal Democrats propose to invest in renewable energy so that 90 percent of energy needs are met from renewable sources by 2030 at a UK level. They also call for the UK’s net zero target forward the UK’s net zero target to 2045. They pledge to put climate change at the heart of a new industrial strategy. 

Reform UK are diverging from the other parties by pledging to scrap net zero targets and related subsidy regimes. Instead, they would focus on nuclear as a cleaner energy technology for the future. 

The Wales Green Party pledge a ‘Green Economic Transformation to a Wellbeing Economy,’ which, they say, would support a transition to net zero by frontloading investment in green industries, whilst scrapping nuclear power. They also aim to support communities to benefit from local renewable projects, supporting the devolution of the Crown Estate to Wales, to retain the benefit of offshore. They aim to achieve net zero ‘more than a decade’ ahead of the current 2050 target.

Please note that each of these breakdowns is not an exhaustive list of policies. You can read the manifestos of the Conservatives, Labour, Plaid Cymru, the Liberal Democrats, the Green Party and Reform UK via the links.

The IWA Stance

The IWA has been at the forefront of net zero policy over the last decade. Our Re-energising Wales series provided a practical roadmap for Wales to achieve 100% renewable energy by 2035. We have also influenced the political debate in Wales, continually highlighting that green energy is the economic opportunity over the coming decade. We have consistently ensured that our economy and democracy policy work prioritises activities which bring about a more sustainable, green and fair Wales.

Some of our recent policy recommendations regarding net zero to UK Government, include:

• The devolution of prudential borrowing powers to Wales – alongside providing greater flexibility in Wales’ budget and enabling investment in major projects, such as net zero infrastructure
• Devolution of the Crown Estate to Wales, as a means to turbo-charge renewable energy projects. Contributing to Wales’ renewable energy generation targets and providing the conditions through which investment brings economic benefit to communities in Wales
• Devolve renewable energy project subsidy regimes to Wales
• Establish mechanisms for a shared net zero strategy across all UK nations, underpinned by the Carbon Budget Mechanism
• To recognise net zero as an economic opportunity for all UK nations, investing on the scale of  the challenge the climate crisis requires.

We know that lowering emissions is the long-term challenge facing not only the UK, but the globe. It is also the socio-economic opportunity for Wales, enabling us to  tackle inequalities that continue to blight our economy. If Wales and the UK can get ahead in the global race for the net zero industries of the future, then they could create the conditions for a stronger, more equal economy for future generations.