- Rishi Sunak has delayed the ban on petrol and diesel cars to 2035, while granting exemptions for gas boilers in hard-pressed households.
- Companies like Ford and BMW have invested billions in electric vehicle production, creating jobs and shareholder returns.
- The upcoming green gilts auction in November could be a test of investor trust in the government’s climate plans.
To unite environmental pressure group Extinction Rebellion and automotive manufacturer Ford Motor Company takes some doing, but British Prime Minister Rishi Sunak did so when he made a bonfire of the country’s net zero promises.
In what has been characterised as a personal crusade, he argued that Britain led the way on climate change [see chart] as he took aim at two key promises.
First, he pushed back a ban on the sale of new petrol and diesel cars from 2030 to 2035. Then he relaxed the 2035 phase-out target for the installation of new gas boilers by introducing an exemption for the most hard-pressed households.
“If we continue down this path, we risk losing the consent of the British people. The resulting backlash would not just be against specific policies but against the wider mission itself, meaning we might never achieve our goal,” he said at a press conference.
More context was given by Home Secretary Suella Braverman, who framed Britain’s net zero aims as “goals, not straitjackets”. But the prime minister’s absence from last week’s climate-focused UN General Assembly in New York and government approval this week for a new offshore oil development off Shetland left few in doubt of his real intentions.
Many see Sunak’s gambit as a political roll of the dice for a party desperate to cling on to the keys to 10 Downing Street.
The howls of despair were initially loudest from car manufacturers. They have invested very heavily over the last few years in electric vehicle manufacturing to prepare for the 2030 deadline. “Our business needs three things from the UK government: ambition, commitment and consistency,” growled Ford Motor Company UK chair and managing director Lisa Brankin.
The energy sector was close behind.
Chris Norbury, chief executive of energy supplier E.ON, called the policy change a “misstep on many levels”.
The general mood was summed up by Greenpeace UK’s head of politics Rebecca Newsom who described Britain as no longer a “serious player” in the global race for green growth.
A damaging U-turn
While much of the attention over the past week has been on reputational damage, too little has been written about the immense financial cost of Sunak’s policy U-turn.
“Transitioning to meet net-zero goals could reduce costs for the economy, attract £10bn ($12.2bn) per year of investment into the UK and create 600,000 new green, decent jobs by 2030,” says Rose Easton, chief responsible investment officer at the UN-supported Principles for Responsible Investment (PRI).
Instead, says Tara Clee, ESG analyst at British financial services group Hargreaves Lansdown, as well as the negative environmental and economic impact of these statements, the prime minister “risks being out of step” with many investors.
Automotive manufacturers like Ford and BMW have invested heavily in electric vehicle production.
As part of its €50bn ($53bn) investment in the development and production of electric vehicles in Europe by 2026 to move towards carbon neutrality, Ford ended the production of its Ford Fiesta range in July after almost 50 years. Earlier this month, BMW Mini announced the £600m investment in an electric Mini factory in Oxford that will create 4,000 jobs.
“These high-profile investments create jobs alongside long-term shareholder returns,” says Clee.
The energy and housing industries have also had the challenge of meeting climate commitments while remaining commercially viable. Although some like Bristol-based energy supplier OVO Group have pledged to be net zero by 2035, others may now think again. Large, listed energy firms facing pressure from shareholders to invest more in renewables research and development now have another excuse to “kick the can down the road,” says Clee.
Net zero: movable goalposts
Asset managers now have a headache too.
Many have committed to investing an increasing portion of their assets in climate solutions and announced strict engagement frameworks to support businesses across all sectors to reach 2030 interim net-zero targets.
“The market has been directing capital to the net zero transition and these changes…send a message that nothing is set in stone,” explains Clee. Committing in earnest to a movable goalpost, she adds, could be a major business risk.
And there is also an issuance danger to the capital markets for the next green gilts auction which the Debt Management Office (DMO) has indicated is going to be in November.
“It will serve as an interesting test,” Ulf Erlandsson, chief executive of Anthropocene Fixed Income Institute told Bloomberg. “If dedicated green investors are less interested in this than previous auctions, it would certainly be an indication of a lack of trust in the government’s plans, with likely ramifications for the position of London as a sustainable finance centre.”
The biggest global sustainability embarrassment this year had been expected to be the Cop28 meeting in Dubai. Expectations have been growing that it won’t be anything other than a public PR exercise in greenwashing.
Making Sultan Ahmed al-Jaber – minister of industry and advanced technology of the UAE as well as chief executive of state oil giant Abu Dhabi National Oil Company (Adnoc) – president of this year’s meeting is an especially bleak joke.
But the UAE now has competition in its tangential approach to sustainability. Its crown this year could well be taken by the British government.[Read more: Oil majors are burying sustainability like it’s out of fashion]