How the Subsidy Control Bill can accelerate the UK's 'Green Industrial Revolution'

The Government's Ten Point Plan for a Green Industrial Revolution explains how the Government will invest £12 billion and leverage a further £42 billion of private sector investment in activities that promote environmental protection. 

It is a hugely ambitious proposal and was launched by Boris Johnson with a statement that it will mark "the beginning of the UK’s path to net zero" and send "a clear signal to industries across the British economy to invest in the UK".  

Looking back over the six months since the plan was first published, Kwasi Kwarteng told Parliament that "We are helping businesses and people to go greener every day, by delivering on our commitment to greener business, buildings and transport".  

What are the aims and features of the Ten Point Plan?

The Ten Point Plan aims to deliver a green "recovery from coronavirus…generate jobs and bolster the economy, whilst continuing to drive down emissions both now and in the future" and forms a key part of the UK Government's commitment to achieving net zero by 2050.

The core aspects of the Plan are:

1. Advancing Offshore Wind – a £160m injection of public investment "into modern ports and manufacturing infrastructure, providing high quality employment in coastal regions", potentially facilitating £20 billion of private investment to "quadruple [the UK's] offshore wind capacity" by 2030. To support this target, the UK Government has commenced the Offshore Transmission Network Review and will implement more stringent measures in the Contract for Difference auctions. 

Projects which have already been selected for public funding under this heading include Able Marine Energy Park (AMEP) on the south bank of the River Humber, which is set to receive up to £75 million of Government investment and Teesworks offshore manufacturing centre, on the River Tees, which is set to receive up to £20 million.

2. Driving the Growth of Low Carbon Hydrogen – developing "5GW of low carbon hydrogen production capacity by 2030" supported through the launch of a £240m Net Zero Hydrogen Fund and new "hydrogen business models and a revenue mechanism" to encourage an estimated £4 billion of private investment. 

3. Delivering New and Advanced Nuclear Power – supported by a £385m Advanced Nuclear Fund enabling "investment of up to £215 million into Small Modular Reactors to develop… smaller-scale power plant technology". Sitting alongside this fund will be an additional £170m in public funding earmarked for research and development into Advanced Modular Reactors.

4. Accelerating the Shift to Zero Emission Vehicles – encouraging the use and production of zero emission vehicles through extensive public funding including:

• £1 billion "to support the electrification of UK vehicles and their supply chains"; 
  
• £1.3 billion to deliver new charging infrastructure and on-street charge points; and  
• £582m "to extend the Plug-in Car, Van, Taxi and Motorcycle grants to 2022–23".

5. Green Public Transport, Cycling and Walking – encouraging "the share of journeys taken by public transport, cycling and walking" to further decarbonise the transport sector. The proposed public funding investments include:

• £4.2 billion for city public transport;
  
• £5 billion for buses, cycling and walking infrastructure including more low-traffic neighbourhoods and thousands of miles of segregated cycle lanes; and
  
• "tens of billions of pounds in enhancements and renewals [to] the rail network" including investments in the Midlands Rail Hub and Northern Powerhouse Rail. 

6. Jet Zero and Green Ships – turning "fossil fuel intensive journeys into lower carbon routes of transportation" in the aviation and maritime industries. To help achieve this aim, the UK Government plans to invest £15m into FlyZero and £20m into the Clean Maritime Demonstration Programme.

7. Greener Buildings – aiming to make residential and commercial buildings more energy efficient and less reliant on fossil fuel boilers. This objective will be delivered through £1 billion in public funding to introduce a new Homes Upgrade Grant and to extend:

• the Green Homes Grant "to improve the energy efficiency of homes and replace fossil fuel heating";
  
• the Public Sector Decarbonisation Scheme to "reduce emissions in schools, hospitals and public buildings"; and 
  
• the Social Housing Decarbonisation Fund to improve the energy efficiency of social housing 

The UK Government will also consult on introducing higher energy efficiency standards for non-domestic buildings.

8. Investing in Carbon Capture, Usage and Storage ("CCUS") (1) – aiming to capture "up to 10 Mt of carbon dioxide per year" by 2030 via four CCUS industrial clusters located across the UK. The UK Government will support this initiative through a £1 billion CCUS Infrastructure Fund and the introduction of a new revenue mechanism to encourage "private sector investment in industrial carbon capture and hydrogen projects". 

9. Protecting Our Natural Environment – "designating more of England’s beautiful and iconic landscapes as National Parks" and Areas of Outstanding Natural Beauty as well providing £40m for the latest round of the Green Recovery Challenge Fund. The UK Government will also introduce Landscape Recovery projects to "pilot land use change to restore wilder landscapes in England" and pilots for the Environmental Land Management scheme to incentivise sustainable land management.

10. Green Finance and Innovation – accelerating the innovation of "low-carbon technologies, systems and processes in the power, buildings, and industrial sectors" corresponding with the initiatives detailed within the Plan and delivered through a £1 billion Net Zero Innovation Portfolio amongst other initiatives.

The importance of getting Subsidy Control right

The Subsidy Control rules regulate the award of public funding to ensure that the UK's international commitments on subsidies are met.  The new rules came into force from 11pm 31 December 2020 largely replacing EU State aid law. 

When awards, such as those set out above, are awarded it is necessary to take into account the obligations set out in:

• the EU Trade And Cooperation Agreement ("TCA");
• the Northern Ireland Protocol;
• the Withdrawal Agreement;
• the WTO rules; and
• other trade agreements which the UK has entered into. 

It is in the interests of both the funding body and the applicant to ensure that all the legal requirements are correctly satisfied.   Failure to do so may put the award of public funding at risk. 

Designing Subsidy Control rules to help the environment

Given the importance of tackling climate change, we responded to the Government's consultation on the Subsidy Control rules in March 2021, making the case to include a special provision to encourage all public bodies to consider the environmental impact of their subsidies.

Specifically, when subsidies are awarded under the TCA there is a requirement to make a case as to how the award meets six new "common principles".  We suggested a possible new, seventh common principle that would oblige every public body awarding subsidies to, where applicable, take into account how a subsidy shall "contribute to environmental protection or achieving the UK's Net Zero objective".  The UK is not obliged to do this as it is not in the TCA, but it could do so voluntarily.

This would apply to over 500 public bodies across the United Kingdom.  It would mean every award should at least consider environmental impact.  This need not prevent measures which were not "green" in origin but it would mean that any negative impact in this respect should at least be considered in terms of counter-balancing positive effects. 

In addition, we submitted ideas for "safe harbours" for lower value and less controversial interventions. These will be light touch conditions, which if fulfilled mean an award is automatically considered to satisfy the common principles.  Our argument is that the Government can such safe harbours to make it easier to direct public funding towards certain environmental protection projects in a safe and secure way and in doing so, leverage more private sector investment into such projects. 

Comments

Ahead of COP26 the UK Government should be and no doubt is exploring ways to demonstrate environmental leadership.  This should include developing ambitious but practical Subsidy Control rules that ensure that whenever public funding is invested that it contributes to national priorities. 

References

(1)  As described in the Plan, CCUS technology prevents carbon dioxide from entering the atmosphere by collecting it from industrial and power generation processes and storing it underground. For more information see HM Government, The Ten Point Plan for a Green Industrial Revolution, (November 2020), p.26.