Maintaining the Net Zero consensus: will the next Prime Minister bring change or continuity?

The first week of the Conservative Leadership contest has been dominated by policy pledges: significant personal and business tax cuts, immediate measures to address the cost of living, future spending plans and ideas on how to ‘properly’ implement Brexit. The big divergence with the last three years of government has been the major shift in focus away from Net Zero and the environment.

Proponents of the agenda within the Conservative Party have sought to fight a rearguard action over recent days with pressure on all the leading candidates to maintain the commitment. Businesses in particular have been anxious over the uncertainty, with many already heavily invested in the transition to a lower carbon future. So where are we now a week in and what’s the likely direction of travel?

The frontrunners have committed to maintaining the Net Zero by 2050 target.

At a hustings earlier this week Rishi Sunak, Liz Truss and Penny Mordaunt all committed to keeping the 2050 target, providing comfort to those worried about the early rhetoric from the

contest. All three have high profile advocates for climate action on their teams. Candidates are under pressure now to sign up to a series of principles from the Conservative Environment Network on climate action – so far Sunak and Tugendhat have pledged their support.

It’s worth acknowledging though the number of candidates who did raise concerns about the overall direction and pace of change, most notably Suella Braverman and Kemi Badenoch. This isn’t a surprise – it reflects that there’s an element of the Conservative parliamentary party concerned about the approach, ranging from sceptcisim to outright opposition. It’s a clear and helpful reminder to business though that while there’s largely been a political consensus to date over the appropriateness of pursuing Net Zero, this isn’t absolute and there’s a spectrum of opinion.

High level support doesn’t mean more granular targets won’t shift.

Macro level ambitions are one thing, but for most businesses and consumers it’s the specific policies that underpin them that matter most. The leading contenders have signed up to a high-level ambition, not to maintaining total consistency with Johnson’s plans. Business should recognise that there could be divergence on the detail, scale and timings of elements of the transition moving forwards.

Those sector targets that are already well engrained – such as the ending of the sale of new ICE vehicles by 2030 – are likely to survive. However, there will be a ‘clean slate’ of policy across many areas of government with no certainty that previous decisions will remain. For those businesses who want timeframes to be delayed allowing industry to adapt, costs to fall or new innovation to come forward, new people and a fresh start could deliver an opportunity for review.

Depending on the leader elected, expect that the need to act further on the cost of living could see the next set of ministers arguing that delaying some aspects of Net Zero – for example through a moratorium on environmental levies on bills – is necessary in the short term.

Difficult decisions are likely to be pushed even further into the long grass.  

The new PM will have approximately two years ahead of the next election. Their focus will be on developing the narrative and agenda which will allow the Conservative’s to win an historic fifth term in office. ‘Removing the barnacles from the boat’ as Lynton Crosby famously advised David Cameron by avoiding unnecessarily difficult issues and focusing only on those policy issues that appeal to the critical electoral coalition the party is focused on will likely become the big priority.

Under Johnson’s government a plethora of major decisions linked to Net Zero are either in the pipeline or have been deliberately pushed down the track, from the micro to the macro. These include – but are not limited to – how you decarbonise home heating and what incentives or legislative action are required to achieve change; how fuel duty is replaced and the timing for exploring a road pricing model; and the future of local transport, including whether and how car use is disincentivized and the policy and regulatory framework for enabling new innovation, such as e-scooters. These are all issues that are fraught with political risk – the likelihood is that on most of these issues the new leader will seek to avoid the confrontation and electoral pain rather than tackling the tough policy issues.

What does this mean for industry?

Compared to the panic amongst business and proponents for climate action less than a week ago, we now have clarity that the frontrunners are bought into the concept and overall timeframe for achieving Net Zero. Underneath this though there’s significant fluidity, with much less certainty over specific policy proposals.

This will require agility from business to quickly remake their case to government, to be flexible to the new context and the government’s priorities and motivations – potentially adapting their message to be more about energy security, jobs or regional development, and not just about decarbonisation. Net Zero is still on the agenda, but business can’t take for granted that things will continue as planned, the case will need to be remade.