1.2.2  Provide long-term funding certainty

80.  This Review has consistently heard a call for the Government to provide longer-term certainty - including in long-term funding - for specific net zero policies. We heard from several local authorities, including Lewisham Council, who told us that one of the biggest barriers they are facing with regards to implementing net zero policies is "Funding certainty and scale. Particularly a lack of funding that allows Councils to plan and work with contractors over a long period of time to retrofit housing stock. Without consistent long-term funding it is difficult to attract contractors in this space to train workers and grow their business".106

81.  This is particularly an issue for emerging technologies which require consistent support to develop from early-stage research into commercial products - and where long-term certainty is likely to attract higher levels of investment and ultimately reduce costs.

"Contracts for difference (CfD) support for wind power has helped realise significant cost reductions with the price of offshore almost halving between 2010-2020 (Carbon Brief). Similar time and support will be required to realise an equivalent cost reduction for hydrogen, recognising long project lead times, high upfront costs and varying investment cycles across the production, transportation, storage, and end use sectors."- Hydrogen UK107

82.  A reluctance to provide long-term funding beyond spending review cycles - while understandable - exacerbates this risk. While changing policy commitment or new delivery risks have often been the cause of this inconsistency - it is right to look at all the ways in which the Government can signal its long-term commitment. The Government follows a principle of generally not committing spending outside of a spending review period. This is designed to ensure that spending decisions do not bind future governments to previous commitments and that money is spent in a way that considers the fiscal environment and best value for money at the time. This is a sensible default position to follow. However, it limits funding certainty for almost all spending to a five-year window at best - requiring new rounds of bidding and negotiations between government departments at the end of that period.

83.  There are examples where the Government has taken a different approach. For example, in 2020 the Government announced a six-year, £5.2 billion investment in flood protection. This went beyond usual spending review cycles, demonstrating that the Government can - in extraordinary circumstances - set out long-term commitments for urgent national priorities. The Levy Control Framework for renewable electricity is another example where Government decided funding - in this case for schemes to support low carbon electricity - over a longer period of time.108

84.  For businesses, the certainty that funding is allocated for the medium-term is a crucial signal of UK commitment. Of the emerging technologies that the Government's Net Zero Strategy most relies upon, it is hydrogen and CCUS where stakeholders have flagged that the investment landscape currently appears to be most uncertain and therefore needing clear signalling of support from the Government. Long-term funding certainty is not currently in place for either. For example, the Government has committed to annual allocation rounds for electrolytic hydrogen production throughout the 2020s but made no commitments on the overall budget envelope for these rounds. Similarly, while the Government has committed to a 'Track 2' bidding process for CCUS projects, there will need to be further allocation rounds for CCUS projects and this will need to be underpinned by a long-term funding commitment. The CCC has made clear that CCUS is a necessity for net zero, and the London School of Economics has found that 'the potential contribution of CCUS to sustainable growth is high, especially considering the long-term preservation of jobs - potentially up to 53,000 by 2030 - in energy-intensive industries'109. Other countries, for example the USA through the Inflation Reduction Act, have taken major recent steps to provide longer-term certainty to grow their capacity in these technologies. In this context, the absence of long-term funding commitments to some of the major technologies we know will be required by the UK appears to be creating unnecessary uncertainty and risk.

85.  Given the long-term nature of some of the investments required, we recommend that HMT at the next Spending Review, review options for providing longer-term certainty to a small number of major priorities for net zero - where we know that long-term policy commitment will be essential for success and provide long-term opportunities to save money. CCUS, hydrogen, and nuclear should all be under consideration.