11. Net zero will drive widespread changes to the global economy. Almost every sector will be affected, whether directly or because of wider changes around them. In many cases this will create new economic activity - in some it will lead to sectors declining or stopping altogether. We can expect changes to:
• How we heat our homes and buildings - and the attention paid to making them more energy efficient, e.g. through better insulation. This will involve retrofitting the current stock and changing how we construct new buildings.
• How we generate electricity, with a massive increase in the use of renewable energy technologies like wind and solar - as well as upgrades to our grid and a much greater emphasis on storing energy using batteries and other technology.
• How we travel - with the growing popularity of clean versions of the vehicles we currently use (e.g. electric vehicles, electric trains), alongside new lower carbon fuels for planes. In many countries, we can expect people to be encouraged to cycle and walk more.
• How we produce food - improving the sustainability of farming practices and helping to sequester carbon by improving the soil management and biodiversity of farmland. In some countries, including the UK, we are seeing a decline in demand for some of the foods that need the most carbon to produce - such as red meat20 - and there is potential for lab-grown alternatives.
• How we use land - with many countries, including the UK, setting huge targets for tree planting, halting and reversing deforestation, and other ways to use the natural environment to absorb carbon dioxide. This will include key commodities moving towards sustainable and deforestation-free supply chains.
• Consumer behaviours - growing public desire to help reduce emissions, including in the UK, means new demand for products that are seen as green. At the same time, we can expect businesses to feel more pressure from their customers, boards, and shareholders to reduce their own emissions.
• New manufacturing and materials - the new technologies (e.g. wind turbines or batteries) will need to be built, often requiring highly-technical skilled workforces. The raw materials for these are often different to those needed for current mainstream technologies - creating new demand for mining and processing. We can also expect greater interest in reusing and recycling as part of a drive towards an economy that wastes less.
• New services - we can expect new demand for expertise in using and manufacturing these technologies, in environmental law, in green financial reporting, in sustainable investment, and elsewhere.
• New skills and education - these new activities will require workers to learn new skills, changing the focus of both technical and academic education.
• And many changes we cannot predict today. Any predictions for 2050 will inevitably miss the emergence of major new technologies, economic activity, and social changes. Either as the primary driver or as a secondary influence, we can be certain that growing activity to decarbonise and the impacts of climate change will lead to widespread and unexpected changes to the economy.
12. The opportunities these changes will bring are global and vast. The global market opportunity for UK businesses from net zero could be worth more than £1 trillion (in total cumulative revenue) in the period 2021 to 2030.21 By 2030 global exports for low-carbon goods and services could be worth £1.0 trillion-£1.8 trillion a year, seven to twelve times more than today.22 Global spending on electric vehicles (EVs) and charging infrastructure surged by 77% to $273 billion in 2021.23 Some estimates suggest net zero could generate an additional £330 billion in extra economic activity every year by 2030.24 For the UK, government estimates that the net zero transition could generate up to £100 billion of private investment and support up to 480,000 jobs by 2030.25 Ecuity analysis estimates that renewable and low-carbon technologies could support 1.38 million jobs by 2050, with around 600,000 of these materialising in this decade thanks to home retrofits and energy efficiency installations in buildings.26
13. In the UK this could include new export opportunities. Updated analysis27 by the Department for Business, Energy & Industrial Strategy (BEIS) estimates that just over half of the £60 billion gross value added (GVA) potential from sectoral decarbonisation in 2050 comes from export related opportunities.28 Realising the economic potential of net zero rests on capturing export opportunities as well as export demand ensuing from the net zero transition. Energy Innovation Needs Assessments research (2019) identified that, for example, growth in the UK road transport sector is expected to be supported mainly by export opportunities, whereas growth in the construction sector is primarily driven by domestic demand.29
14. There is also evidence that net zero can make the UK economy more productive. The UK has a structural issue of low productivity. ONS analysis suggests that Germany is around 10% more productive than the UK, with France and the US 18% and 23% more productive respectively.30 Two thirds of UK workers are employed in businesses with below-average productivity, suggesting that economy-wide policies are needed to tackle the UK's productivity challenge. Research from the Green Alliance and Nesta suggests that the majority of changes the UK is expected to see as a result of moving towards net zero have the potential to be positive for productivity.31
15. Business recognises these opportunities - and the UK economy is already taking advantage. There are already an estimated 430,000 jobs in low carbon businesses and their supply chains across the country with turnover estimated at £41.2 billion in 2020 . 32 33 UK companies exported £12.7 billion of environmental goods and services in 2019.34 This is the tip of the iceberg, compared to the size of the global market opportunity for UK businesses described above. The Government's planned pathway to net zero carbon emissions by 2050 could support nearly 700,000 direct jobs in 2030,35 approximately 780,000 direct jobs (and an additional 905,000 in the supply chain) in 2035,36 and 1.18 million direct jobs in 2050.37 This compares to 208,000 direct jobs (and an additional 222,000 in the supply chain) in low carbon businesses currently (2020 data).38 It is worth noting that jobs estimates from different studies vary because of different definitions of the green economy and different analytical assumptions.
16. The Review has heard from hundreds of businesses that see these opportunities and what they can mean for the people living in the UK:
"The interests of the business community will be best served by a managed transition marked by effective government leadership on, and commitment to, net zero. Business is on board with the necessity of the transition and is looking for guidance and leadership from government as to how to achieve it efficiently and effectively' - Institute of Directors (IoD)39
"This is not just a moral consideration from investors who see value in positive ESG [environmental, social, and governance] ratings, but there is a recognition of the financial risks of investments that are not climate or transition resilient. The return on investment in the green economy is also markedly strong - recent research by Imperial College London and the IEA found that investments in green energy generated returns of 75.4% compared to just 8.8% for fossil fuels"40 - Confederation of British Industry (CBI)41
17. There is now huge global momentum - driven by industry as well as coordinated global action- to reach net zero and capture the economic opportunities. The UK and international business see these opportunities and are responding. Half of the world's leading institutions and 40% of companies have made net zero pledges.42 Over 4,400 UK companies and financial organisations have signed the Race to Zero pledge - a 'UN-backed global campaign rallying companies, cities, regions, financial and educational institutions to take rigorous and immediate action to halve global emissions by 2030 and deliver a healthier, fairer zero carbon world'.43 In many cases companies are outstripping the ambition being shown by the Government, pushing for decarbonisation targets well before 2050.
18. Their money is following these commitments. In 2021, global investment in the low-carbon energy transition totalled $755 billion, up from $595 billion in 2020 (a 27% increase) and just $264 billion in 2011.44 Global climate-tech equity investment in 2021 equalled $165 billion.45 In the same year, an estimated £24 billion of new investment was committed to UK low carbon sectors.46 The UK's Global Investment Summit (2021) secured £9.7 billion foreign investment for UK offshore wind, hydrogen, and electric vehicles.47 Since then, Australian businesses alone have committed to investing £28.5 billion into clean energy, technology, and infrastructure projects in the UK. Global employment in renewable energy reached 12.7 million jobs in 2021 (more than in fossil fuels).48 This was a rise of 700,000 new jobs in one year, demonstrating resiliency despite multiple challenges.
19. In 2021 alone, an estimated £24 billion of new investment was committed in the UK across low carbon sectors.49 This includes:
• Octopus Renewables and Renewable Energy Systems (RES) have announced £3 billion in investment into green hydrogen plants by 2030;50
• Bentley committed to producing its first electric car at its UK plant in Crewe and will invest up to £2.5 billion in electrification and sustainability over the next decade;51
• Kingfisher (owner of Screwfix and B&Q) has invested £19.6 million in energy efficiency projects including LED lighting installations, building energy management systems and insulation and heating improvements. Solar PV has also been installed at 29 stores, offices, and distribution centres, while biomass boilers are supplying two distribution centres and one head office building. Total investments into renewables have helped generate 9.5 million kWh per year and delivered more than £1.3 million in financial benefit per year;52
• Aviva, who were the first major insurer in the world to aim to achieve net zero carbon by 2040, committed to invest £2.5 billion in low carbon and renewable energy infrastructure. Aviva also plan to power all their offices with 100% renewable electricity.53
20. Other countries have made bold and ambitious interventions in response to these opportunities - the UK must respond. The USA's Inflation Reduction Act (IRA) committed around $370 billion in incentives and programmes to accelerate action on climate and energy.54 Germany have proposed a €177 billion Climate and Transformation Fund from the 2023-2026 federal budget to retrofit buildings and support programmes for industry.55 France has committed €30 billion committed, as part of the 'France 2030' investment plan, to speed up the ecological transition.56 Other parts of the world are recognising that the market has shifted and are explicitly acting in response. Launching new tax credits for hydrogen, the Canadian government specifically justified the move by saying: "Without new measures to keep pace with the Inflation Reduction Act, Canada risks being left behind."57
21. The UK's offer needs to respond to global change - otherwise we risk losing out on new opportunities and seeing current economic activity move away. The UK has invested too - for example the 2020 Ten Point Plan mobilised £26 billion of government capital investment for the green industrial revolution.58 But two clear conclusions emerge from the Review's evidence:
• First, that the recent investment by other countries has massively stimulated the global market. The Boston Consulting Group describe the Inflation Reduction Act as follows:
"Legislation of this magnitude and duration lasting through the 2030s and beyond is likely to have profound and lasting impacts across US and global climate and energy systems, supply chains, industries, and trade. US legislation on climate and energy also has the potential to trigger policy actions from other nations, both large energy producers that compete across these value chains, and large energy consumers."59
• Second, that early signs suggest that it is shifting investment towards the USA and away from other countries, including the UK60 - albeit the legality of the measures may now be subject to challenge.61
22. The UK has strengths to respond to these opportunities. The Economy 2030 inquiry, jointly led by LSE and the Resolution Foundation, assessed the UK's pre-existing relative strengths against the changes to the economy we can expect net zero to drive.62 It found a range of UK strengths including: tidal, offshore wind and nuclear energy and carbon capture technologies, and a strong science base and universities.
23. However, these are not universal - and they require specialisation. The Economy 2030 inquiry found: '[The] UK is not the world leader overall in clean technologies or traded goods. It certainly does worse than Germany, which has stronger advantages in many areas of manufacturing, has more existing green strengths, and more proximate future opportunities, particularly in more complex goods. But the UK is among the top countries in terms of its specialisation in clean technologies and products, and there are specific areas of strength that can be built upon as part of a new economic strategy for the UK'.63
24. Industry has told the Review very clearly what is required to grasp the economic opportunities ahead. The Review describes in detail the major issues raised by industry and a wide range of other stakeholders, which overwhelmingly focused on greater policy certainty and interventions on skills and the wider labour market. The evidence is clear that industry wants to act to deliver net zero - the Review's recommendations set out how government can best support this.