Third Report - Growing back better: putting nature and net zero at the heart of the economic recovery

The consequences of another widespread outbreak of a zoonotic disease of similar lethality would be catastrophic. Covid-19 must therefore be treated as a wake-up call. The factors which appear to be increasing the incidence of such diseases must be thoroughly investigated and urgent action taken to mitigate the risks.

The potential consequences of biodiversity loss for human populations have for too long been overlooked. It is vital that nature recovery is also prioritised in our economic recovery efforts alongside action on climate change. If measures to promote economic recovery are not treated as an opportunity to ‘grow back better’, then the global collapse in biodiversity, together with the impacts of pollution and climate change, may, if left unchecked, result in an even more catastrophic crisis.

Policymakers owe it to everyone who has suffered during the pandemic to ‘grow back better’ from the crisis by creating a greener, healthier and more resilient UK. Fairness and the levelling up agenda must be central in efforts to secure the recovery while also pursuing the transition to net zero.

The speed at which we have developed the vaccine under pressure shows how rapidly scientific progress can be made when efforts are concentrated and urgent. We now need to apply that same level of urgency to developing and deploying the solutions to the climate and extinction crisis. The UK’s post-crisis economic recovery stimulus must be treated as an opportunity to accelerate investment on nature recovery, climate adaptation and cutting emissions to net zero. Many of the solutions necessary to slow the pace of climate change and biodiversity loss will also spur innovation, create jobs and make the economy and society more resilient to any future crisis.

Levels of unemployment not seen in decades are now in prospect, on a scale which inevitably demands Government intervention. In its approach to the recovery, the Government should, as far as possible, front-load its investment in areas such energy efficiency, the circular economy, climate adaptation and nature recovery, so as to provide a green jobs boost to counter unemployment. This investment will provide economic multipliers in terms of jobs and improved productivity and will offer wider benefits such as cleaner air and warmer homes. Consideration should also be given to how investment in energy efficiency and nature recovery can be used to rebalance the UK by supporting communities most in need. Do this and we can also ensure that the UK is more resilient to future shocks.

We further recommend that the Government establish clear and ambitious statutory targets for the state of nature, waste minimisation, water quality and air quality under the Environment Bill once enacted. (Paragraph 50) 72 Growing back better: putting nature and net zero at the heart of the economic recovery The Bank of England’s response to the crisis

We congratulate the Bank of England on its laudable work highlighting the financial risks from climate change in recent years. The Bank of England has led the world in this regard, not least by becoming the first central bank to publish its own climate- related financial disclosure. The Bank is to be commended for its leadership on this.

The Government should clarify that the Bank’s monetary policy remit should include climate and nature objectives in the conduct of UK monetary policy, including when considering any extension of the Covid Corporate Financing Facility (CCFF) or future such mechanisms. We recommend that if any future support is offered via the CCFF, the Bank should require recipients to publish climate-related financial disclosures in line with the Government’s Green Finance Strategy as a minimum condition.

We also repeat our recommendation that the Bank writes to each CCFF loan recipient to alert them that the Government’s Green Finance Strategy expects all listed companies and large asset owners to publish climate-related disclosures not later than

It is a matter of grave concern that the carbon intensity of the UK corporate sector remains aligned with global temperature rises that would be catastrophic. We welcome the news that the Bank of England is exploring how it can adjust its Corporate Bond Purchase Scheme with regard to the Government’s climate objectives. Before the Pre-COP summit in September 2021, the Bank must set out the steps it intends to take to reduce the average carbon intensity of its corporate bond portfolio to align with the temperature goals of the Paris Agreement. This is necessary to avoid undermining UK diplomatic leadership on climate change and to demonstrate the seriousness of the UK’s commitment to fulfil its Nationally Determined Contribution.

We further recommend that the Government updates its Green Finance Strategy to add an explicit objective to reduce the carbon intensity—and therefore the climate risk exposure—of the UK corporate sector and financial markets, such as the London Stock Exchange. The Government should examine how best to use the mechanism of mandatory climate-related financial disclosures to encourage listed companies to draw up transition plans aligned with the objectives of the Paris Agreement. (Paragraph 83) Investment in infrastructure and nature recovery

We welcome the publication of the Ten Point Plan, the National Infrastructure Strategy, and the changes to the Green Book criteria for public infrastructure projects. We now call for greater urgency in publishing detailed strategies and policies to allow private sector and industry to invest.

Infrastructure invested in now will be in use for decades to come. It is essential that all decisions on infrastructure investment are considered against the net zero target, likely impacts on biodiversity and future projections of the changes in climate likely to affect the UK, and comply with the UK’s air quality, biodiversity protections and Growing back better: putting nature and net zero at the heart of the economic recovery 73 climate change commitments. The nature recovery network that the Government has promised must not be an afterthought established after other infrastructure is built. Nature recovery must be integral to the Government’s infrastructure plans and factored in from the start as a strategic priority.

The Government’s current approach to transport decarbonisation relies heavily on a consumer switch to the purchase of electric passenger cars and vans as a consequence of banning the sale of certain petrol- and diesel-fuelled vehicles by 2030. Such heavy reliance on a single policy lever to deliver such a substantial policy outcome appears unwise.

We recommend that the Government set out, in its forthcoming transport decarbonisation strategy, what plans it has for substantial long-term investment in better public transport and in traffic reduction measures, and how such investment will reduce levels of road congestion, improve air quality and contribute to achieving net zero.

Each project within the Government’s Road Investment Strategy will no doubt be analysed for its costs and benefits in accordance with Government guidance in the ‘Green Book’, as revised in November 2020. To ensure a green recovery, it is vital that the likely impact of each is explicitly appraised against the UK’s air quality, biodiversity protection and climate change commitments before final approval for construction is given in each case.

In supporting the development of strategic nationwide communications networks between urban centres, the Government must not overlook the importance to rural communities of hyper-local transport networks. Private car usage on well- maintained rural roads will of necessity continue to form a significant part of the overall UK transport mix. In its programme to encourage economic rebalancing and revival, the Government must also ensure that rural areas receive their share of investment in low-carbon transport and communications infrastructure, so as to bear down on levels of exhaust and tyre wear emissions while improving rural connectivity.

Changes in ways of working during the pandemic have led to far greater levels of working from home, in urban and rural areas. This has doubtless reduced commuter car usage in rural areas in particular. Home working can therefore contribute to meeting net zero goals. High quality internet and mobile connectivity are nevertheless a prerequisite for home working to be sustained after the pandemic, and must therefore be considered as an essential utility. Access to reliable mobile signal, and fast and reliable broadband, must now be guaranteed as a priority.

There is emerging evidence that areas of the world with higher concentrations of air pollution may be experiencing higher covid-19 mortality rates. The development of active travel infrastructure, designed to reduce traffic and promote walking and cycling in towns and cities, must be a priority to help clean the air we breathe, cut carbon and improve our health and fitness.

Significant Government investment in the development of carbon capture, usage and storage (CCUS) technology sends an important signal in the run up to COP26 74 Growing back better: putting nature and net zero at the heart of the economic recovery about the UK’s ambition and its confidence in the contribution this sector can make in putting the whole of the UK economy on the path to net zero. While we welcome investment in carbon capture, usage and storage clusters, we recommend that the Government set out a clear strategy for CCUS, with timelines and impacts, and support the development of the technologies needed where absolute zero carbon cannot be achieved.

The Government must publish a hydrogen strategy as soon as possible, setting out clear mechanisms to support the development of green hydrogen systems in the UK.

The switch to electric vehicles—a key component of the Government’s plan for achieving net zero—will require the introduction of cutting-edge manufacturing processes to the UK’s automotive sector for the manufacture of electric vehicles and their batteries. It is estimated that up to eight ‘gigafactories’ will need to be built. Government support will be necessary to scale up the electric vehicle supply chain— in particular the manufacture of electric vehicle batteries—to enable the sector to make the rapid switch from the production of internal combustion engines to the manufacture of ultra-low and zero emission vehicles.

The Government must ensure that its ‘build, build, build’ agenda has, at its heart, a commitment to delivering truly sustainable development by promoting the construction of low-carbon homes fit for a changing climate. We recommend that the Government introduce embodied carbon targets for the construction of new homes, so as to increase demand for low carbon materials, thereby stimulating growth in low- emission manufacturing of traditional, local materials and promoting the use of new low carbon materials.

The manufacture of construction materials is a sector with the potential to make a significant contribution to the path to net zero. We plan to examine this sector in greater detail in a forthcoming inquiry into the sustainability of the built environment. We will be making further recommendations on the Government’s plans for energy efficiency of existing homes in our forthcoming report on the subject.

We welcome the intention behind the Government’s Green Homes Grant It is disappointing that the administration of the scheme appears to be putting green jobs at risk, rather than creating them. Delivery has been poor for consumers and has led to perverse consequences for installers, and the scheme remains too short- term to have any prospect of achieving its initial targets. We recommend that the Green Homes Grant scheme be urgently overhauled and extended to provide greater long-term stimulus to the domestic energy efficiency sector. The Government must be mindful not to repeat the mistakes of the failed Green Deal energy efficiency incentive scheme.

The Government has promised £2.9 billion for support for public sector decarbonisation projects over the five years to 2025. We consider that there is an urgent need for the front-loading of programme expenditure, and we recommend that as part of the programme the Government should support the capital cost of upgrading the energy efficiency of schools and hospitals. Providing energy efficiency upgrades Growing back better: putting nature and net zero at the heart of the economic recovery 75 to the UK’s social housing stock should also be prioritised. This should be assessed periodically by the National Audit Office as part of its regular work programme.

Investment in nature recovery projects could deliver a range of economic, environmental and social benefits. As well as protecting UK wildlife, well designed schemes could create thousands of job opportunities, while improving flood resilience and locking more carbon in trees and soils.

The lockdowns which have been imposed to counter the spread of covid-19 have given the public compelling reasons to appreciate the value of neighbourhood green spaces in towns and cities. Projects designed to enhance urban biodiversity and to increase access to green space can offer immense benefits to urban dwellers.

We recommend that the Government, in developing further its strategy for economic recovery, give greater priority to strategic projects aimed at encouraging nature recovery. The Government should work with conservation charities to pilot the idea of a National Nature Service this summer to open up conservation opportunities. (Paragraph 188) Fiscal and financial incentives for a green recovery

We welcome the Government’s announcement of a Sovereign Green Bond and consider that it has significant potential to incentivise a green recovery. We recommend that the Government undertake a full evaluation of the potential economic and social benefits of its bond issuance, especially with respect to the creation of green jobs.

We further recommend that, in his forthcoming Budget Report, The Chancellor set out in detail a plan to ensure that revenue from the Sovereign Green Bond is invested only in projects which deliver demonstrable, significant and measurable environmental benefit.

We welcome the creation of a National Infrastructure Bank: we trust that the Government has learned from the experience of selling off the previous Green Investment Bank. We recommend that the Government give an unequivocal guarantee, supported in statute if necessary, that the Bank will be maintained as a public institution for the long term. We further recommend that, in addition to a mandate to contribute to the delivery of net zero, the Bank be given a mandate to encourage the financing of projects which promote nature recovery. We recommend that the Government give an unequivocal guarantee, supported in statute if necessary, that the Bank will be maintained as a public institution for the long term. We further recommend that, in addition to a mandate to contribute to the delivery of net zero, the Bank be given a mandate to encourage the financing of projects which promote nature recovery. (Paragraph 201) 76 Growing back better: putting nature and net zero at the heart of the economic recovery

The UK will host COP26 in November 2020. All eyes will be on the UK as an environmental world leader. The Chancellor’s Spring Budget must back this ambition, and ensure that the UK’s spending plans align with its net zero and biodiversity commitments.

As the UK recovers from the immediate crisis, a shift towards green taxation could help direct investment into job-rich low carbon activity, shift behaviour and increase resource and energy efficiency.

The Government now has the latitude to propose the variation, or the abolition, of value added tax on certain categories of goods. We recommend that the Chancellor of the Exchequer bring forward proposals to reduce the rate of VAT on repair services and products containing reused or recycled materials to increase the circularity and resilience of the UK economy. We recommend that the Chancellor of the Exchequer bring forward proposals to reduce the rate of VAT on repair services and products containing reused or recycled materials to increase the circularity and resilience of the UK economy. The Government should also reduce VAT on green home upgrades to incentivise more people to install low-carbon technologies and improve the energy efficiency of existing homes.

To support the accelerated uptake of ultra-low emission cars in the UK, further tax incentives should be introduced to make these vehicles more affordable. Where current environmental taxes, such as Air Passenger Duty, are blunt in their effect, the Chancellor should consider fine-tuning them to reward and incentivise investment in cleaner, more efficient, low-emission technology.

One of the most economically efficient ways to incentivise low-carbon choices would be through the introduction of an economy-wide carbon tax. The Government should begin scoping work on a carbon tax to incentivise low-carbon changes across the whole economy.

We recommend that the Government investigate the merits of carbon border adjustments, to accompany work on a carbon tax, as one way of addressing carbon leakage. We recognise this would also require measures to ensure that such policies do not adversely impact developing countries. (Paragraph 229) Growing back better: putting nature and net zero at the heart of the economic recovery 77