Financial signalling for certainty

1037.  The UK must take steps now to ensure the net zero R&D and technology sector can rapidly scale up to match the pace of what net zero requires. Many stakeholders in our roundtables pointed out that interventions need to be made to ensure net zero R&D and technologies can be rapidly scaled up to meet ambitions for 2030 and beyond.

1038.  The net zero technology sector is valuable and growing - and returns on investment rank competitively against other technologies.734 Despite this, some investment into the sector is slowing (Figure 6.3).735

Figure 6.3 - Equity investment made by venture capital investors

1039.  Many stakeholders told us that a lack of investment is preventing the scale-up of net zero technologies to commercialisation. Stakeholders raised that the UK net zero R&D and technology sector is experiencing the "valley of death" between early-stage technologies and commercial scaled-up products.

"It is difficult to sell small projects to investors as an investment proposition. Furthermore, there are some strong ideas with weak deployment." Council for Science and Technology Members736

1040.  Other countries are moving ahead of the UK in R&D spending. Imperial College London raised how proactive other international partners are in providing early-stage funding compared to the UK. Stakeholders suggested that without further financial intervention, the UK could lose economic advantages from emerging R&D and technologies for net zero to other nations.

"… the global move towards a low carbon future are recognised by our competitors: the US recently proposed its largest-ever increase in non-defence R&D spending, Germany is targeting 3.5% of GDP on R&D and China's R&D spending hit a record high of 2.4% in 2020 and is now targeting annual increases of 7% or more in each of the next five years. Recent data from the IPPR has shown the UK's share of global R&D investment has fallen by a fifth since 2014." - Imperial College London737

1041.  Stakeholders suggested that a lack of market signals and government commitment is a factor behind the limited investment and scale-up past research stages. They advised that investors need confidence that the emerging R&D and technologies for net zero have a sustainable future and commercial viability, and that there are economic opportunities to be reaped.

"Government should signal to the world the UK is the place for businesses to undertake late-stage R&D and unleash net zero innovation with clear signposting of the UK offer" - Royal Academy of Engineering738