Net-zero: less than it seems

By Richard North - September 22, 2023

Despite other issues building up, we need to have another look at Sunak’s magical mystery tour of net-zero to see precisely what he is up to – which isn’t very much and not as much as it seems.

Firstly, we need to look at his “concession” on ICE vehicles, extending the timeframe from 2030 to 2035 before the sale of new vehicles is banned. But, to take in the full implications, we need to go back to my piece on 17 September.

It was there where I noted that the measure of Sunak’s determination to hold to net-zero was his intention to introduce minimum sales quotas for EVs, and to fine UK manufacturers £15,000 for every car short of the quota – the so-called Zero Emissions Vehicle (ZEV) mandate.

Originally, it was proposed that the quota system should start next year, with a requirement that 22 percent of new cars sold would have to be electric, rising to more than 50 percent in 2028 and 80 percent by 2030 when only they and hybrids could be sold new.

As a result of Sunak’s “pragmatic” initiative, however, one would have thought that a five-year extension on the ICE timeline would have seen a commensurate adjustments to the quota phasing on EVs, but this appears not to be the case.

According to the Financial Times (and others), the initial EV quota target of 22 percent will stand unchanged, and the indications are that only slight changes, if any, will be made to the other interim targets.

Government insiders, we are told, say that the continuation of the EV sales quota scheme shows that ministers were still serious about shifting Britain towards electric cars, but the actual effects are hard to predict as there are number of possible outcomes.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT) is concerned on behalf of his members that [more] consumers will delay purchasing EVs, which could mean that manufacturers producing ICEs and EVs could have even more difficulty meeting their sales quotas.

One response of these companies could be to discount heavily their EV cars – as well as adding favourable finance terms and other incentives. But, in a dynamic marketplace, where the possibility of impending fines will be predicted, prospective buyers may hold off from buying early in the year, in anticipation of discounts cutting in later.

Mixed product companies could, of course, dump the excess costs on their ICE cars, thus making them more expensive and narrowing the price gap with EVs. But as long as buyers can purchase cars from overseas makers which are not caught by the ZEV mandate, such a stratagem would be self-defeating.

The obvious response to that would be for UK-based manufacturers of ICE cars to offshore their production, importing them through separate subsidiaries, or even badged differently to the former UK-built models.

Either way – or with whatever other stratagem might be dreamed up by inventive minds – UK manufacturers will be disadvantaged by Sunak’s initiative, even to the extent of them quitting the business. The only beneficiaries would be the Chinese, which is what I suggested might be Sunak’s real objective – now largely endorsed by former Nissan executive, Andy Palmer.

If that isn’t going to cause enough problems, it should be recalled that heat pumps will have their own quotas, through what has been labelled the Clean Heat Market Mechanism.

Although Sunak hasn’t changed the timeline for gas boilers – with the phase out of new sales still set at 2035 – he has introduced a new variable, indicating that he is only looking for an 80 percent uptake of zero-carbon appliances. Although details have not yet been specified, 20 percent of households for which heat pumps would not be practical will be allowed to continue fitting gas boilers.

Apart from being a regulatory and administrative nightmare and extremely difficult to control – where large numbers of applicants for exemptions might have to be processed, there is likely to be an unintended consequence which I doubt Sunak has fully considered – if at all.

Essentially, the operation and maintenance of the domestic gas distribution system is financed by the standing change imposed on top of the charges for gas consumption. If, though, the customer base is to be cut by 80 percent, that will mean that the system costs will have to be borne by the remaining 20 percent. This suggests that standing charges – all things being equal – will have to increase five-fold, exceeding the amount some low volume users pay for their gas consumption.

Assuming also that existing non-exempt gas users will have to be physically disconnected from the gas supply when they change to zero-carbon appliances, that too will impose a cost which – unless catered for by other means – will have to be met by the remaining gas users.

One supposes that Sunak does not have in mind a new subsidy for the rump of “exempt” gas users, in which case his successor will be left with a tricky problem which could negate much of the purpose of the exemption.

As for the 80 percent who will in some way be induced to dispense with their gas-fired heating, Sunak made great play of increasing the heat pump grant from £5,000 to £7,500.

In one of those joyous little episodes, though, it turns out that the overall £150 million cap on the replacement scheme has not been increased. Thus, in the unlikely event that there is an enthusiastic rush for the higher grant, it will be available to 10,000 fewer households.

In numbers, the households able to claim the grants each year will plummet from 30,000 a year to 20,000. Yet the government’s declared target for heat pump conversions is 600,000 households a year, each year until 2028. Increasing the budget to fund 600,000 installations a year would cost £4.5 billion annually.

From the very outset of little Rishi’s venture into “pragmatism”, we have been hearing how rushed the project seems to have been. On the day of his speech, it was reported that he had called an unscheduled virtual meeting of his Cabinet, to discuss his proposals, even though he had chaired a formal meeting the day before.

MPs were said to have been “blindsided”, after Sunak’s plans had been leaked “like a bolt from the blue”. Some had gone home for the three-week recess and were already in the pub when the news broke.

Speaker Linsay Hoyle had not been informed of the prime minister’s intentions and issued a “furious” statement complaining that the proper place to reveal a “major policy shift” was the House of Commons, that Sunak’s press conference was “not the way to do business” and declaring that releasing the details while the House was in recess “robbed the lower chamber of the chance to scrutinise the changes”.

This, and the clunky nature of Sunak’s two headline changes, does seem to confirm that we’re seeing policy on the hoof, cobbled together with little thought and even less care – all to grab ephemeral publicity which is already being overtaken by events.

The ultimate irony is that even the modest changes tabled by Sunak might not stick. The “lawfare” machine has sprung into action and is contemplating legal action aimed at thwarting the prime minister’s plans.

Friends of the Earth, we are told, has written to the government. Niall Toru, the group’s senior lawyer, told the Guardian: “Sunak’s decision to weaken UK climate policies will make it harder to meet our climate targets”.

He thus tells the paper, “Our lawyers will carefully scrutinise any new set of plans. Friends of the Earth has successfully taken legal action against the government’s climate strategy in the past – and we are prepared to do so again if Mr Sunak’s sums don’t add up”.

This rather begs the question of who actually runs the country – the government or activists and NGOs with deep enough pockets to go to law. Maybe, this was Sunak’s real agenda, to set up a scenario where a popular move by government is over-ridden by self-serving activists, whence he can go to the country asking that self-same question.

That is probably too much to hope for, but it looks as if a court case might happen anyway. Net-zero might thus survive to live another day, but the life of this government is less certain.