What should a net zero policy test look like?

Organisations ranging from the Climate Change Committee to the Trades Union Congress have all called for the government to implement a ‘net zero test’. But how would it work, what would it achieve and why would it be necessary? Gareth Simkins reports.

Treasury building Ensuring that spending accords with net zero is a "major priority" for the Treasury. Photograph: Godrick / iStock / Getty Images

It’s rare for the leaders of the Trades Union Congress and the Confederation of British Industry to sing from the same hymn sheet. But that is what they did in December, signing a letter to the prime minister calling for more effective implementation of the Net Zero Strategy.

Joined by others from environmental NGOs and the UK Corporate Leaders’ Group, it called for a new cross-government initiative to review how current climate change policies could be implemented more quickly and determine what new policies could accelerate action. 

One of the key demands was the introduction of a “net zero test for new policies and programmes”, though it did not elaborate on what this would mean in practice.

The Climate Change Committee (CCC) provided more detail on the idea in its latest progress report to parliament. It said that a test should be established to ensure that all government decisions are compatible with meeting carbon budgets and net zero, describing it as a “priority recommendation”.

“Decisions on road building, planning, fossil fuel production and expansion of waste incineration are not only potentially incompatible with the overall need to reduce emissions but also send mixed messages and could undermine public buy-in to the net zero transition,” it warned.

Energy UK chief executive Emma Pinchbeck said she had long been in favour of the test.

“With less than three decades to go, we cannot afford to have policies and decisions that delay or undermine the UK’s efforts to reach net zero, costing us both precious time and money and holding back all the benefits a truly green economy can bring. This is why we would like to see a future Energy Bill that addresses the needs of the transition to cleaner energy and includes initiatives like the net zero test,” she said.

The idea has also been picked up by the Labour Party. “Everything we do in government will have to meet a net zero test to ensure that the prosperity we enjoy does not come at the cost of the climate”, said party leader Kier Starmer in his September conference speech.

The government pledged to embrace the net zero imperative in spending decisions the following month. “Our goal is to go even further to embed net zero across government activity. This will mean that the government takes net zero into account when taking decisions, public sector buildings will emit less carbon, our procurement decisions will lead to greener supply chains, and civil servants across government will have the skills they need to deliver this mission,” said October’s Net Zero Strategy.

A source also told ENDS that making sure that spending decisions contribute to reaching net zero is a “major priority” for the Treasury.

But the CCC was unpersuaded that these commitments corresponded to what it had advised. Its response to the strategy said that the test is needed to ensure that all policies are consistent with net zero. It should also extend to the planning regime, “to avoid locking in high-carbon developments”, it advised.

In a statement to ENDS, the body said that the government should ensure that the test is “properly built into the policymaking process”, to avoid or mitigate negative impacts and identify “helpful opportunities” to align policy, taxation and spending decisions with the net zero pathway. Further detail will emerge in its next progress report, due in June.

Current assessments

Broad tests to proposed public policy measures are already applied, so introducing a net zero test would not set an unusual precedent.

Government appraisals of policies, programmes and projects are guided by the Treasury’s ‘Green Book’. It was last updated in December 2020, one and a half years after the goal of reaching net zero by 2050 was adopted by parliament. Although the goal is not mentioned even once across the 152 pages of the main guidance document, it does require that policies are assessed for how well they help deliver the government’s long-term objectives more broadly, which of course includes net zero.

Explicit references to net zero and carbon budgets are kept to supplementary guidance on valuing greenhouse gas emissions, which is used across government both to put a price tag on changes in emissions resulting from policy interventions and to support their design. These assessments should be conducted if feasible and proportionate, according to the guidance.

In parallel, the public sector equality duty established by Part 11 of the Equality Act 2010 obliges authorities to consider their impacts on ‘protected characteristics’ such as race, pregnancy and religion. This has been translated into a series of tests applied to draft statutory instruments through the regulatory impact assessment (RIA) process, which also covers potential effects on small firms, health and the environment in general.

But neither process adds up to a specific requirement for the government to ensure that its spending, taxation and policies fit with the legal requirement to meet net zero by 2050.

The gap was picked up by WWF in the summer, which found that last year’s budget directed the equivalent of only 0.01% of the UK’s gross domestic product towards climate change mitigation policies, potentially putting carbon targets at risk. Measures expected to cut emissions came to £145m, while those that would drive up emissions, including the freeze on fuel duty, equated to £40bn, the group said.

“The latest budget simply doesn’t add up to the cleaner, greener future we all want to see. To turn things around, ministers must close the gap between their climate commitments and their spending plans, by adopting a net zero test for all government spending,” said Isabella O’Dowd, its head of climate change. “Building a greener future now will save us all money in the long term and is full of opportunities for better jobs, improved health and thriving nature,” she added.

In parallel, think tank Policy Connect’s ‘climate policy dashboard’ – last updated in October – says that the government has taken on board only 34 of the CCC’s 70 key recommendations. The policy lacunae include efforts to increase the proportion of electric vehicle sales ahead of the 2030 phase-out, ensuring that the building trade has the requisite skills for net zero and clarity on decarbonising off-road mobile machinery. The worst gaps are in the waste sector, with no policies to curb reliance on incineration and landfill, nor to ensure that composting operations reduce methane emissions.

A net zero test would have the added benefit of giving the government a better grip on how much is needed to finance the objective. A year ago, the Commons’ Public Accounts Committee report said that neither the Treasury nor DEFRA have a good understanding of the costs of hitting net zero. “Without this, the government’s approach to funding will continue to be piecemeal, with risks for value-for-money and for whether the goals can be achieved at all,” it warned.

WWF’s tool

WWF’s finding that government spending on greenhouse gas abatement is falling far short of the 1% of GDP that the CCC believes is needed to meet the 2050 target is derived from using a ‘budget tagging tool’ it developed. This will allow assessment of whether future budgets and spending reviews are compatible with net zero.

The tool provides qualitative scores for spending and taxation decisions at fiscal events, across six dimensions taken from the European Union’s Sustainable Finance Taxonomy: climate change mitigation, climate change adaptation, biodiversity, water management, air pollution and circular economy.

The second phase of the project, conducted with Vivid Economics, was to extend it to estimating emissions. This found that the last budget would raise emissions rather than bring them down as required.

O’Dowd described the more sophisticated approach as “almost like a risk assessment tool” that the Treasury could use ahead of spending decisions to ensure they are aligned to legally-binding targets. It would be independent of the Green Book, with data from the projects subject to feeding into it, delivering a broad overview of where spending and policy decisions are heading.

The Treasury’s Net Zero Review, which accompanied the Net Zero Strategy, provides a clue as to why a formal net zero test has not been adopted. “There is no internationally adopted methodology for assessing and reporting on the climate change impacts of government spending” or taxation, it said.

However, its guidance for the 2020 Spending Review required departments to include the likely greenhouse gas emissions associated with funding bids, and their impact on meeting carbon budgets and net zero. It is currently reviewing this exercise, while “these issues remain at the forefront of HM Treasury’s priorities”, the review added.

“Having this information will help to improve oversight of the effect of government policies on reducing emissions. In turn, this means that the climate impacts of spending policy can shape decision-making. This will support the government to meet its net zero target at minimum cost to the economy while maximising wider benefits,” it said.

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