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September 20, 2023

UK government could face legal challenge as it shelves climate commitments

Mini Cooper production line – Oxford plant
Mini Cooper production plant in Oxford: UK carmakers want “policy focus trained on bolstering the EV market in the short term and supporting consumers while headwinds are strong” (Photo: Chris Ratcliffe/Bloomberg)

Asset managers, companies and climate activists have reacted angrily to the UK government’s plans to water down key environmental policies

UK prime minister Rishi Sunak has shelved various key government climate commitments, in a decision that could see the government taken to court.

In a speech given on September 20, Sunak said the government would postpone to 2035 a planned ban on new petrol and diesel car sales due to take effect in 2030, give households more time to install heat pumps, and scrap planned minimum energy efficiency requirements for homes.

Sunak said he was prioritising consumer choice over government-imposed deadlines, because consumers would, for example, have to bear the high costs of buying an electric vehicle or replacing their gas boiler with a heat pump.

However, research by UK charity Citizens Advice has found that upgrading energy-inefficient homes in Great Britain to EPC band C would save consumers £24bn on their energy bills by 2030. Analysis by the Energy and Climate Intelligence Unit, a think tank, concluded that the policy changes announced by the Prime Minister could cost British households almost £8bn in higher bills over the next decade, and even more if gas prices spike again.

The backsliding on the net zero timetable has outraged companies and industry experts. They warn the changes could unsettle investors and encourage clean tech firms to leave the UK, causing it to fall behind both the EU and the US on reaping the benefits of moving from fossil fuels to cleaner alternatives.

Targets necessary to reach net zero by 2050

Sunak’s speech may have appealed to some members of his party, but the UK government is obliged to enact climate policy in line with requirements set by its own legislation. The UK’s Climate Change Act compels the government to devise a path to net zero by 2050 and set carbon budgets that cap the amount of greenhouse gases emitted in the UK over a five-year period. 

Last year, the High Court ruled that the government’s climate strategy was inadequate and required strengthening. In July 2023, non-profits ClientEarth, Friends of the Earth and the Good Law Project began another round of legal action over the government’s Carbon Budget Delivery Plan, arguing it is too weak to tackle climate change and reduce emissions in the necessary and agreed timeframe.

ClientEarth chief executive officer Laura Clarke said: “ClientEarth is already challenging the government’s existing climate plan on the basis that its policies cannot be relied on to deliver the UK’s carbon budgets. Any reduction in the overall strength of the government’s measures would only worsen that position against what the Climate Change Act requires.

“We will continue to pay close attention to any further announcements to assess these against the UK’s legal obligations,” she said, ahead of the prime minister’s speech.

Similarly, Lord Deben, who previously chaired the Climate Change Committee, an independent advisory body set up under the Climate Change Act, told BBC Radio 4 the targets that have been watered down “are necessary to reach net zero by 2050, which is a statutory requirement, so the government will be in the courts”.

In response to a question at a media briefing about the government’s ability to meet its legal obligations, Sunak said the government was committed to meeting its climate targets, and denied that it was watering down its climate objectives.

‘Confusion and uncertainty’ for carmakers and drivers

As well as potential legal trouble, the government faces anger from the automotive industry for delaying the ban on petrol and diesel vehicles by five years, from the 2030 deadline  introduced by former prime minister Boris Johnson.

Research in 2020 by Cambridge Econometrics predicted that a 2030 ban on polluting cars could create over 30,000 jobs and inject £4.2bn into the UK economy.

Ford’s UK chair Lisa Brankin said the automotive industry has been investing to meet the UK’s 2030 target. “Our business needs three things from the UK government: ambition, commitment and consistency. A relaxation of 2030 would undermine all three,” she said.

“We need the policy focus trained on bolstering the EV market in the short term and supporting consumers while headwinds are strong,” said Brankin, adding that “infrastructure remains immature, tariffs loom and cost-of-living is high”.

Society of Motor Manufacturers and Traders chief executive Mike Hawes said consumers must want to switch to zero emissions transport if the UK is to realise its potential as a market leader.

This shift requires the government to deliver “a clear, consistent message, attractive incentives and charging infrastructure that gives confidence rather than anxiety,” he said. “Confusion and uncertainty will only hold them back.”

Public charging network InstaVolt CEO Adrian Keen said: “Changing the date also puts investment in EV infrastructure at risk, not to mention the wider market including battery, solar and green energy initiatives. 

“We and other chargepoint operators need strong leadership from government to continue delivering the charging infrastructure essential to reach the UK’s targets.”

Investor confidence damaged

The government’s plans also raised eyebrows in the investment community.

WHEB Asset Management partner Seb Beloe warned that Sunak’s announcement may “prove to be his ‘Truss’ moment”, in reference to the prime minister’s predecessor Liz Truss. Her premiership lasted little over a month following a fiscal announcement that triggered a sell-off in the UK government’s debt and turbulence in financial markets.

Beloe said the investment community may “simply say no, and coalesce around a strengthened commitment to the reduction of fossil fuels and speedy transition to a low carbon, sustainable economy.”

Waverton Investment management senior multi-asset analyst Paris Jordan expressed her disappointment at the announcement. “It’s too short-term focused,” she told Sustainable Views. “We need the government to be doing more. We can engage, we can divest to very little effect, but ultimately… the government has a lot of power here.”

Iancu Daramus, head of sustainability at Fulcrum Asset Management, told Sustainable Views that “things which might be perceived as the UK rolling back on its commitments, I think, risk undermining this race for climate leadership”.

He added: “You can see, quite clearly, China, Europe and the US doubling down on clean tech.”

Climate change already costing the economy

Sunak’s suggestion that the costs of immediate action on the climate are too high for consumers also ignores the fact that extreme weather events are already causing localised impacts – and the longer-term economic costs of climate change could be significant, says experts, including the Climate Change Committee.

Its research shows the UK is already experiencing disruption to domestic supply chains from floods, droughts, high temperatures and other extreme weather in the UK. In 2020, very wet weather followed by very dry weather left wheat yields at their lowest since 1981, over £500mn lower in value than the previous four years’ average.

Meanwhile, a risk assessment on climate change carried out by the government in 2022 cited research suggesting that by 2045, the cost of climate change to the UK could be at least 1 per cent of gross domestic product. 

A service from the Financial Times