Written evidence submitted by
Department for Business, Energy and Industrial Strategy (CGE0016)

The Clean Growth Strategy (CGS)

‘The relative importance of the four main areas identified in the Strategy, and whether the Strategy places the right weight on each of those sectors to deliver emissions reductions.’

1. The CGS set out the Government’s plans to extend and increase emissions reductions across the whole of the economy and the country. Our approach recognises that concerted cross-economy action will be needed to deliver future carbon budgets. The CGS addressed all sectors of the economy in the following six chapters:

• Improving Business and Industry Efficiency and Supporting Clean Growth;
• Improving Our Homes;
• Accelerating the Shift to Low Carbon Transport;
• Delivering Clean, Smart, Flexible Power;
• Enhancing the Benefits and Value of Our Natural Resources;
• Leading in the Public Sector.

2. The table below sets out these sectors against the emissions reductions delivered so far, their share of 2015 UK greenhouse gas emissions, and the potential emissions reductions out to 2032 under one possible pathway[1]:

3. This demonstrates the importance of action, and innovation, across the economy to enable our carbon budgets to be met. This is why the £2.5 billion of innovation funding set out in the CGS covers all elements of the Strategy, with a particular focus on the areas which are responsible for the largest share of emissions, and where we have previously identified specific innovation challenges which need to be addressed. This is set out in the figure below.

4. However, we cannot predict the precise balance of actions that will deliver the fourth and fifth carbon budgets – in particular because we cannot be certain of the extent to which innovation will deliver new and improved technologies and approaches across different sectors, and therefore where least cost emission reductions will be achieved.
5. The Government sees the global move to clean growth as one of the greatest industrial opportunities of our time, and a core element of our Industrial Strategy. We want the UK to capture as much of this opportunity as it can, and the Government will help British businesses and entrepreneurs to do so, including through strong support for research, development and innovation.

‘Progress on meeting carbon budget targets to date and areas where more progress is needed going forward.’

6. The UK has made strong progress to date – we outperformed the emissions reductions required by the first carbon budget by one per cent, and we are projected to outperform against the second and third carbon budgets.
7. We are making strong progress towards achieving the fourth and fifth carbon budgets and recognise that ambitious implementation of the CGS is needed in order to ensure those budgets are met. 
8. The CGS identifies areas where we will need to drive short- and medium-term progress through future consultations, innovation spend and policy design to deliver emission reductions during the fourth and fifth carbon budget periods. As this work is completed, these policies will be reflected in our annual energy and emissions projections. We are also laying the groundwork for major decisions in areas which will be central to delivering emissions reduction in the long-term: how we reduce the emissions resulting from heating our homes and businesses; how we decarbonise transport; and how we work with industry to make carbon capture, usage and storage (CCUS) a viable future option.

‘The extent to which current and future technologies can help to meet the carbon budgets.’

9. In recent years, innovation has made increasing contributions to delivering a low carbon economy, with deployment of new technologies accelerating as efficiencies improve and costs fall. In the CGS, we described examples of how innovation is already bringing impressive cost reductions and increased uptake, in areas as diverse as renewable electricity generation, domestic appliances and electric vehicles.
10. It is only through innovation that we will see the cost of clean technologies continue to fall, which is why the CGS set out how the Government is investing more than £2.5 billion to catalyse low carbon innovation across the economy.
11. However, we cannot predict the exact role and deployment of different technologies in the decades ahead. Experience has shown that some technologies will develop faster than expected, while some may develop less quickly than we hope. While acknowledging this uncertainty, innovation could potentially make important contributions to achieving further emissions reductions in power, transport, heating and cooling, industrial processes and agriculture, and we describe some of these future innovation priorities in the CGS.

‘The uncertainty in future technologies’ contribution to emissions reductions, and how that uncertainty can best be incorporated into the Government’s carbon budgets.’

12. There is inherent uncertainty around projecting what any existing or future policy can achieve, and this uncertainty becomes even more challenging when looking at the longer-term economy out to 2050. As already mentioned, we cannot predict exactly how technological innovation will develop. Also, recent years have shown that we should be flexible in our approach to our future energy mix, as global action can transform the cost and installation of different technologies. Other uncertainties include: macroeconomic factors, such as gas prices; policy impacts and how society will respond to incentives; developments in the science evidence base; and future shifts in consumer and business behaviour.
13. In the CGS, we outlined how we explore this uncertainty by testing different potential versions of the future, based on current knowledge, and we described one possible pathway for meeting the fifth carbon budget.
14. We take a cautious approach towards quantifying the contribution of current and future innovation to emissions savings. As we cannot say precisely how our investments today will impact on the UK’s future emissions, we omit any estimates of the contribution from innovation in our analysis of progress towards carbon budgets.
15. Our performance against carbon budgets is subject to continuous review. Every year, the Government publishes updated energy and emissions projections, which allow us to monitor our progress. The Committee on Climate Change also publish an annual report on the Government’s progress in meeting carbon budgets, which we respond to later in the same year.

‘How the development and deployment of technology can best be supported, and the extent to which the Government should support specific technologies or pursue a ‘technology neutral’ approach.’

16. Through the CGS, we aim to support businesses in improving their productivity and competitiveness, as well as to maximise the advantages for UK industry from the global shift to clean growth. This can be achieved by helping companies identify and overcome barriers to both market and innovation. One size does not fit all, and the nature of support will vary across the different technologies and sectors – with earlier stage technologies needing research and development support, and later technologies needing deployment support or wider market design to help to build critical mass in supply chains, secure investment and thereby incentivise their use. The Government is aiming to be technology neutral as far as possible, rather than picking specific technology winners, to enable innovation and competition to deliver least cost solutions. For example:
1. For heating and cooling of non-domestic buildings, we are supporting a technology neutral approach, as the way these buildings are used, and their energy use profiles, are very diverse and there is no obvious ‘winning solution’.
2. The Industrial Heat Recovery Support Programme, launched 5 July 2018, aims to overcome barriers to help increase the deployment of industrial heat recovery technologies and is technology neutral. The programme is open to all manufacturing sectors and data centres. Although these technologies may be ‘off the shelf’, the application for heat recovery may be an innovative approach for the site or sector. The programme is estimated to deliver industrial energy bill savings of up to around £500 million, and carbon savings of up to six million tonnes, over the course of programme assets lifetime.
3. The Road to Zero Strategy, backed by the Transport Energy Model, set out our approach to making the transition to zero emission vehicles, and the actions we will take in reducing emissions during this transition. Differing levels of support are being provided to different technologies, depending on their ability to help meet those objectives, as well as reflecting related levels of market maturity and industrial capability.

‘The relative priority that should be attached to developing new technologies compared to deploying existing technologies, including consideration of the costs and pollution involved in the decommissioning of technologies or infrastructure.’

17. It takes two to three decades for a new energy technology to progress from inception to a position where it is globally significant. Along the way there will be potential for significant improvements in performance, productivity and cost. Conversely, there are areas where digital advances, or advances in materials science, might create breakthrough opportunities in much shorter timescales.
18. In striking the balance between continuing to develop and invest in existing technologies, or looking for the next generation, we therefore need to take a case by case view of the technology landscape. While we cannot predict the future, we aim to monitor and invest in technologies which are near to or in the market now, and appear to have substantial innovation potential yet to be realised, while supporting a healthy fundamental research base which provides a pipeline of future opportunities, and also other life cycle benefits. Conversely, onshore wind and solar costs have already fallen significantly, and global market dynamics will continue to drive this, so it is right for us to have scaled back support in those areas. We need to focus support on those technologies which have the potential to deliver significant emissions reduction in the UK, where there is significant cost reduction potential, and where we have a genuine opportunity for industrial advantage and leadership. There are also instances where it is prudent for Government to support optionality because it is not yet clear what the optimal technology pathway may look like.
19.  The major decommissioning challenges related to the energy sector arise from our nuclear legacy and our oil and gas sector, but there are liabilities arising from other technology families which we need to understand and quantify. In all instances we attempt to take a whole-life and whole-systems view of decommissioning. It is also important to recognise that cost reduction for decommissioning is an innovation goal in its own right, with benefits to the Exchequer and the wider economy.

‘Examples of specific technologies whose development and deployment have been effectively supported so far, as well as those that show particular promise for meeting the Government’s carbon emissions targets or supporting the UK’s economy, or which would benefit from specific Government action, in the future.’

20. There are several areas where Government support has been extremely effective. For example, the UK is the world leader in offshore wind – with over seven gigawatts of installed, operational capacity. This will rise to 10 gigawatts by 2020. The pace of cost reduction in this sector has exceeded our previous forecasts, in part because of the accelerated take up of new technology, and because of ‘learning by doing’ benefits accruing from having a long-term investable programme.
21. Innovation in nuclear energy seeks to cover a diverse range of challenges from dealing with the decommissioning and waste management legacy of the past, through improved operation of current plants, to the increased efficiency and flexibility of the next generation of reactors. Government is investing over £460 million in nuclear innovation, including research into the future of advanced modular reactors that has the potential to redefine the way such plants are built, operated and the way their energy is used.
22. A significant hydrogen economy already exists today, based around the chemicals sector. We now need to understand how far it can realistically expand, decarbonise and enter other sectors. Achieving this will require improvement in both hydrogen technologies and their underpinning systems – innovation is a key element of the Clean Growth Grand Challenge, and hydrogen technology is, at many parts of the value chain, still at an innovation rather than deployment stage. The deployment of hydrogen therefore builds equally on existing technologies and developing new technologies. The Government is leading a range of programmes to drive improvements in hydrogen technology.
23. We recognise the tangible impact that CCUS technologies could have in tackling some of the biggest challenges we face in decarbonising our economy, while supporting industrial competitiveness and offering new economic opportunities – a key part of our Industrial Strategy. This is why our new CCUS approach, set out in the CGS, re-affirms our commitment to deploy CCUS in the UK, subject to cost reductions.
24. The new approach sets out the Government’s ambition to have the option of deploying CCUS at scale during the 2030s, subject to the costs coming down sufficiently, and outlines the range of domestic and international actions to be progressed by Government, in collaboration with others, to unlock the potential of CCUS, including investing up to £100 million in innovation for CCUS and industrial process decarbonisation[2]. 
25. The diverse nature of UK buildings means there are no ‘silver bullet’ solutions and instead we have adopted a multi-solution approach to driving innovation in the built environment. The Industrial Strategy Challenge Fund (ISCF) programme ‘Transforming Construction’ will invest up to £170 million, matched by £250 million from industry, to create new construction processes and techniques.
26. The Government is committed to developing a smarter, more efficient energy system, as highlighted in ‘Upgrading our energy system: smart systems and flexibility plan’, published in July 2017. Innovation is expected to play a vital role in developing the key components and systems for a smarter, more flexible energy system which can maximise the use of renewable generation to obtain a lower-cost, low carbon and secure energy system for the UK. The Government, including UKRI and BEIS, expects to invest around £265 million in smart systems research, development, and demonstration in the period to March 2021. BEIS is currently supporting the development and cost reduction of a number of innovative energy storage technologies, including flow batteries and power-to-gas storage. The focus in this innovation programme is on support for technologies which are not yet widely used commercially but which offer cost-effective operation potential in the medium-term, particularly in larger-scale, stationary applications.
27. For zero emission vehicles, examples of technologies that are being supported and will continue to require investment to reduce emissions and support our economy include: batteries (energy storage, management and recycling), fuel cells, power electronics, motors and drives, advanced materials and light-weighting solutions, scaling zero emission powertrain platforms to service the freight industry, electric vehicle charging infrastructure, and hydrogen refuelling stations.

‘The role of the Industrial Strategy ‘Clean Growth Grand Challenge’, and what the Government should do to ensure it contributes effectively to meeting emissions targets.’

28. The Clean Growth Grand Challenge will help us realise our ambitious vision of the UK leading the global shift to clean growth. We are clear on what we need to achieve: the development, manufacture and use of low carbon technologies, systems and services that cost less than high carbon alternatives. In the Industrial Strategy, we set out several priority areas:

• Smart systems for cheap and clean energy across power, heating and transport;
• The transformation of construction techniques to dramatically improve efficiency;
• Making our energy-intensive industries competitive in the clean economy;
• Putting the UK at the forefront of the global move to high-efficiency agriculture;
• Becoming the global standard-setter for finance that supports clean growth.

29. The Government cannot deliver this transformation on its own. The changes needed to our infrastructure, and the pace of innovation, will require significant investment from the private sector. As with all the Grand Challenges, the Clean Growth Grand Challenge is an invitation to business, academia and civil society to work together to innovate and develop new technologies and industries.
30. The Government will demonstrate leadership and strategic vision, while making the most of available policy levers such as regulations, funding and Sector Deals, such as the Automotive, Construction and Nuclear Sector Deals. We will use our convening power to bring different actors together, while also building consumer trust in new technologies. Government investment in innovation will continue to be important to help reduce the costs of clean technologies, and we will collaborate on international initiatives such as Mission Innovation – a global partnership for clean energy research and development – to accelerate progress. We will also invest in innovation to support clean growth, including through the ISCF.
31. In May, the Prime Minister launched the first mission under the Clean Growth Grand Challenge, announcing that we will at least halve the energy use from new buildings by 2030, by making them more energy efficient and embracing smart technologies.
32. This mission is backed by £170 million of public money through the Transforming Construction ISCF challenge. As mentioned above, we expect this will be matched by £250 million of private sector investment, meaning over £400 million will be invested in new construction products, technologies and techniques.
33. Progress on the Clean Growth Grand Challenge will be reviewed to ensure that policies are having the desired impact, we are focusing on the correct issues, and we are aware of any changes in our competitive position in relation to other countries.

October 2018