Despite making a good start to the transition to a net zero economy, the UK will soon find its leading position under threat, unless it responds to moves made by other major economies, Energy UK has warned.
As part of its Clean Growth Gap series with Oxford Economics, Energy UK published “Funding the Future”, a report exploring measures that have been introduced by the United States, the European Union, China, Japan and India, all with the aim of incentivising clean energy investment. This includes the $396bn Inflation Reduction Act (IRA), launched in the US last year and running through to 2031, which seeks to reward private investment in clean technology, transport and manufacturing through tax credits.
Over half (59%) the funding is made up of corporate tax credits, with Investment Tax Credits and Production Tax Credits enabling businesses to deduct a percentage of the cost of low carbon energy systems from their federal tax bill. It also includes grants and loans.
On the continent, the European Union unveiled the Green Industrial Plan, partly in response to the IRA, bringing together previously announced funding through the €250bn Recovery and Resilience Fund and €270bn REPower EU plan. It is built around four pillars of a predictable regulatory environment, enhancing skills, open trade and access to funding. It is also relaxing State Aid rules and other regulatory requirements too.
China, meanwhile, spent the most on clean technology in 2022, wracking up $546bn worth of investment and has also unveiled backing ($72.3bn) in the shape of tax breaks for electric vehicles and other green cars over the next four years. Japan launched an $18bn Green Innovation Fund in 2021 and is striving to realise $1trn in public-private investment over the coming decade, while India too is pledging to make billions ($4.3bn) in investments to aid the country’s energy transition.
The UK, in contrast, is forecast to have the slowest growth in low carbon electricity generation through to 2030, all down to low expected levels of investment. The country’s tax regime does not provide for globally competitive capital allowance rates, leaving it ranked 30th out of 38 OECD nations in terms of the average proportion of capital investments that businesses are able to recover. All in all, it means the UK risks falling behind the rest of the world on the path to net zero.
Through the rest of the Clean Growth Gap series, Energy UK and Oxford Economics will explore in greater detail the importance of clean investment for the UK and how the government can take action.
