Rishi Sunak's first Budget provides a down payment on a net zero future

The green economy reaction to Rishi Sunak's first Budget provides almost a perfect encapsulation of the cognitive dissonance and inherent tensions that define the climate crisis. It was both the greenest budget of modern times and a disappointing missed opportunity. It was compelling evidence of the government's very real commitment to the net zero transition and a dereliction of duty in the face of a climate emergency. Personally, I err more towards the former than the latter analysis, but the apparently conflicting assessments are not actually mutually exclusive.  

The scale of the climate crisis means that until a government embeds the net zero transition into every single policy and spending decision, while mobilising an unprecedented infrastructure spending blitz and full spectrum public engagement programmes, then justifiable accusations that the policy response is underpowered will only continue. But at the same time the increasingly rapid ratcheting up of the government's decarbonisation efforts means that each major set piece political event should be greener than the last, providing ever bolder policy interventions and more ambitious spending plans. It would be churlish not to recognise that progress, even while highlighting how it does not go far enough. The political response to the climate crisis is invariably a curate's egg, in the truest sense of the term. 

Today's Budget was a perfect case in point. By any measure this was one of the greenest Budgets in years. Sunak dedicated a lengthy section of his speech to the UK's net zero transition, stressing that "there can be no lasting prosperity for our people, if we do not protect our planet" and highlighting how the government was committed to getting green growth and environmental protection "done".

And it wasn't just rhetoric. There was a doubling of flood defence funding; £800m for at least two CCS clusters; important new taxes on gas, plastic pollution, and red diesel; a massive increase in R&D funding, including support for nuclear fusion and electric vehicles; a further £500m for extended EV grants and charging infrastructure; a call for evidence on hiking VED on the most polluting vehicles and more funding for local clear air zones; another £270m for green heat networks; confirmation of the extension of the Renewable Heat Incentive (RHI); and a £640m Nature for Climate Fund. There was even £10m for green whisky innovations. And all this after the government recently announced it is to pull forward the phase out date for petrol and diesel cars, step up green hydrogen funding; and enable a new wave of onshore renewables development.

For a Conservative Chancellor to find space to voice such clear a commitment to climate action and announce tangible support for the net zero transition at the heart of a speech that was inevitably dominated by the response to the rapidly escalating coronavirus crisis felt like a significant step forward. The climate sceptic wing of the Conservative Party looks to have been completed routed, confined to the backbenches from where it can pen occasional grumpy columns for the Telegraph or Spectator. Here was further evidence that Boris Johnson was serious when he said net zero was a top priority for his government.

And yet, the various accusations that the Budget "fails to put the UK on track to net-zero emissions" or represents "a huge missed opportunity" will still resonate with many.

The harsh truth is that plenty of gaps remain in the government's decarbonisation strategy. The deferral of the promised National Infrastructure Strategy so as to ensure it does not fall foul of the same legal challenge that hit Heathrow expansion meant there was no news on the government's nuclear and domestic energy efficiency plans. Aviation, shipping, and the North Sea oil and gas industries remain glaringly obvious blind spots in the UK's decarbonisation plans. Even where money has been committed, the £800m for CCS and £1bn for green transport do not compare favourably with the £27bn for new roads. Difficult decisions, such as the continuing freeze of fuel duty or whether to impose mandatory climate risk reporting, continue to be ducked. It is easy to argue that even when the government prioritises climate action, its plans remain worryingly short of what is required.

However, such criticism, while understandable and largely justified, misses what looks like an evolving and potentially effective strategy.

For better or worse this is a government built on focus groups and polling. Political opponents will slam the Tories for their hypocrisy as they ostentatiously ditch the austerity programme they oversaw for a decade and promise the biggest public spending blitz in a generation. But with the government delivering what a large chunk of the electorate say they want such criticism struggles to stick.

Consequently, we are starting to see how the net zero strategy is being phased in a way that is designed to maintain public and political support, while laying the foundations for the cost effective clean technologies that should allow the transition to accelerate later in the decade.

The pre-Budget announcements started the process with the government taking on the Tory shire sacred cow of opposition to onshore wind and solar farms and pulling forward the petrol and diesel car phase out date. The Budget builds significantly on this start with much of the R&D and infrastructure funding focused on pulling down the cost of essential clean technologies and seeding the development of new industries such as CCS and nature-based solutions.

Moreover, largely under the radar measures such as the new tax on gas, the extension of the RHI, the promised plastic tax, and potential changes to road tax could all have outsized impacts reminiscent of the initially largely ignored carbon floor price that led to the UK's coal phase out. The price signals in favour of the electrification of our infrastructure could prove to be significant.

Next comes the heavy lifting in the form of the National Infrastructure Strategy, now expected before the end of May, which could and should provide much needed clarity for investors in renewables, smart grids, nuclear, CCS, and, crucially, domestic buildings. That will be followed by a Spending Review and the crucial over-arching national climate action plan to be submitted to the UN ahead of COP26. A strategy is starting to take shape.

There is even a rationale for dodging some of the tougher measures that the government should arguably be taking to accelerate decarbonisation efforts. As Sunak acknowledged there is a strong fiscal and environmental case for hiking fuel duty, but "many people still rely on their cars" and he is separately "taking considerable steps… to incentivise cleaner forms of transport". Translation: a fuel duty hike will come, but only when we can be sure cleaner forms of transport are in place that can allow motorists to switch without them being excessively penalised. The same calculations apply to the North Sea and other carbon intensive sectors. As a decarbonisation strategy it may be suboptimal, as a political strategy to avert a gilet jaunes style backlash and ensure the consensus around climate action sustains it makes a lot of sense.

The hope is clearly that the fast emerging clean technologies and low carbon infrastructure can become so compelling and competitive that the government can drive the net zero transition without having to grasp the nettle of likely controversial measures. It is arguably a high risk approach that may not deliver sufficiently rapid decarbonisation. It is also deeply frustrating that it is coming several years late and is still not being fast-tracked with sufficient urgency - the continuing absence of a sufficiently ambitious energy efficiency strategy in particular remains a scandal. But this approach could yet drive rapid green economic progress and a new era of deep emissions cuts and clean tech exports.

As CCC chairman Lord Deben noted, today marked "a realistic start". The big question now is whether the next phases in this strategy deliver at the requisite scale. Will Sunak build on his promise to get net zero done and ensure the promised fiscal stimulus is demonstrably green, or will the government prove too committed to returning to business as usual, in every sense?

The government and the economy is going to face unprecedented and deeply worrying pressures over the next few months. It needs to come out the other side with a compelling and credible net zero strategy in place or risk proving its critics right. Today provided an encouraging down payment on that strategy. Now Sunak must deliver.

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• Budget 2020
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• Rishi Sunak