In June 2019, the UK legislated to achieve net-zero emissions of greenhouse gases by 2050 following unprecedented calls to do so by the scientific, business and civil society communities. Getting there will require a significant increase in domestic policy ambition to ensure that the UK’s regulatory standards, fiscal incentives, market mechanisms and public spending are all aligned with the net-zero goal.

However, the way the UK develops its trade agreements after Brexit will have a critical bearing on its ability to achieve domestic targets and the extent to which UK businesses can gain a competitive advantage by providing the low-carbon goods and services that the world economy will increasingly demand. 

Three priorities for the UK’s trade policy

When it comes to climate change and energy, the UK’s upcoming trade agreements need to deliver in three key areas. First, they must facilitate greater trade in low-carbon goods and services. It is estimated that the global market for low-carbon goods will be worth more than £1trn a year by 2030—7 to 12 times greater than today—with significant growth expected in the low-carbon services market as well. This presents a huge opportunity for the UK. British businesses have many existing competitive advantages in these areas, such as offshore wind farms, low-carbon building design, low-carbon industrial innovation and green financial, legal and insurance services.

Second, the UK’s future trade agreements should promote the UK’s reputation as a leading low-carbon economy. They need to encourage trading partners to take on more ambitious climate and environmental standards in line with the UK’s commitment to reversing the decline of the natural environment within a generation. Third, any free trade agreement or other form of bilateral trade relationship must preserve the UK’s “right to regulate” so that the UK can deliver on its domestic policy goals.

Supporting the UK’s “right to regulate”

The latter point is particularly critical from both an environmental and business perspective. If the UK is to achieve its net-zero emissions target, it will need the flexibility to introduce new market rules and product standards and to increase their stringency over time. Introducing such market standards could simultaneously protect the environment and bolster trade. For example, product standards driving down the embodied carbon of steel and cement could help drive innovation in, and demand for, ultra-low carbon building materials.

To be effective and to tackle imported emissions, these rules and standards will need to apply to all products and services sold on the UK market, whether these have been made domestically or abroad. Failure to do this could result in the competitiveness of UK businesses being undermined by foreign competitors not abiding by the same environmental standards.

On February 3rd 2020, prime minister Boris Johnson made it clear that the UK government did not intend to agree to environmental and climate measures “which go beyond those typically included in a comprehensive free trade agreement”. While free trade agreements increasingly contain environmental chapters, the concern is that these are not binding and are not as enforceable as economic terms.

A review of case history triggered under the investor-state dispute settlement (ISDS) mechanisms often included in free trade agreements suggests that where tensions occur between a national government’s desire to introduce new environmental regulations and an investor’s right to a “stable business environment”, arbitral tribunals tend to decide in favour of the investors. This blocks a country’s ability to pursue legitimate environmental policy goals. For example, France softened its climate protection laws that would have restricted natural gas and oil production following the threat of legal action by Canadian energy company Vermilion. It is absolutely critical, therefore, that the provisions of future trade agreements are such that the UK’s right to regulate and apply new regulations to all market participants is clearly protected.

Given its unhelpful case history, the government should also be wary of agreeing to any kind of ISDS settlement mechanism when dealing with environmental matters. Issues relating to the UK’s sovereign right to regulate are not just important to achieve the UK’s net-zero target, they also matter hugely to the UK’s ability to deliver its environmental improvement targets under the Environment Bill and Agriculture Bill, two major and welcome pieces of legislation currently going through Parliament.

Trade and domestic climate policy must work hand in hand

The UK Government is committed to establishing a world-leading environmental and climate policy framework and for its businesses to be key players in the global low-carbon economy. Making this vision a reality requires a coherent trade policy which supports the delivery of the UK’s net-zero and other environmental targets and strengthens the competitiveness of British businesses in the process. 

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.

Despite the dominance of Brexit, public concerns and political commitments on the environment and climate change have been at the heart of the recent UK general election campaign. Whilst this is a first for a UK election campaign, it is not surprising. It follows a period of two years during which public support for serious action on the environment and climate change has been steadily growing. This has resulted in the UK taking policy action against the iconic issue of plastic pollution and legislating for a legally binding target to reduce its emissions of greenhouse gases to “net zero” by 2050.

The next five years are key

It is abundantly clear that the next parliamentary term will be crucial for the green agenda. Recent reports, such as the advice from the Committee on Climate Change that led to the net-zero target, show that policy decisions over the next five years will determine whether the UK is genuinely on track for achieving net-zero emissions by 2050 and whether it can fulfil its ambition of reversing the decline of the natural environment within a generation.

The next five years are equally crucial for the future competitiveness of British businesses, and not just in relation to the Brexit transition. The environmental policy decisions and progress of the UK will determine whether its businesses can become leading providers of the low-carbon goods and services that the world economy is increasingly demanding.

Three key policy priorities to support clean growth

With the Conservative Party having won a sizeable majority, the time has come for meaningful–and urgent–policy delivery on the environmental and climate agenda. As the Aldersgate Group argued in its recent manifesto report, the new government should pursue three key priorities.

First, it must crack on and put forward credible plans to deliver and fund its net-zero target. Key policy announcements are needed to deliver a step-change in private sector investment to cut emissions from buildings and transport – two areas where progress to date has been wholly inadequate - and to complete the decarbonisation of the power sector. This needs to go hand in hand with serious public backing for large scale trials of critical technologies, such as carbon capture and storage that could help cut emissions in complex sectors including heavy industry, agriculture and long-distance transport.

Second, with Brexit around the corner the government must rapidly re-introduce an ambitious environment bill. This Bill is essential to ensure that the UK does not backslide on environmental standards and that environmental law continues to be properly enforced by public authorities after the UK leaves the EU. It is also an opportunity to introduce legally-binding improvement targets and to create a regulatory framework that could incentivise the public and private sectors to provide much-needed investment towards resource efficiency of the economy.

Third, these domestic policy priorities must be complemented by an ambitious strategy on climate diplomacy and trade. The UK will be hosting the COP26 climate summit in November 2020. This will be the most important summit since the Paris Agreement, with all nations expected to increase their emission reduction pledges. The poor progress seen at the COP25 summit in Madrid has highlighted the huge task that lies ahead. In order to be the influential host the world needs it to be, the UK must show that it has a credible delivery plan to deliver its net-zero target.

A coherent and influential foreign policy on climate change also requires that the UK develops a post-Brexit free trade policy that is anchored in its domestic environmental targets. Future trading arrangements must encourage greater trade in low-carbon goods and services, promote high environmental standards and provide the UK with the flexibility it will need to ratchet up its own standards to achieve its domestic objectives. This will by no means be a simple task given the environmental credentials of some of the UK’s likely trading partners but it is an essential pillar of serious policy on climate change and the environment.

Beyond “getting Brexit done”

The UK’s departure from the EU will inevitably be the dominant political theme in the early days of 2020 and will remain a key topic for much of the parliamentary term as the UK shapes its future relationship with the EU. But beyond “getting Brexit done”, tackling today’s pressing environmental and climate challenges must become the defining task for this new government. The credibility of the UK’s environmental, climate and clean growth ambitions depend on it.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.

With social, business and political awareness of climate change and environmental degradation growing, UK environmental and climate policy has been on an important journey over the last 18 months. At the start of 2018, the Prime Minister published a 25 Year Environment Plan, which whilst non-binding, made the ambitious commitment of over-turning the decline of England’s natural environment within a generation and ensuring all key aspects of the environment reach a healthy status.

In June 2019, following an influential report from a UN body calling for an urgent increase in global action to tackle climate change, the UK Government made the decision to adopt a legally binding target to achieve net-zero emissions by 2050, up from 80% previously.

UK climate policy: good on ambition, falling short on delivery

Providing a clear sense of policy direction is essential to attract affordable business investment in the green infrastructure needed to tackle and adapt to climate change and the Government should be commended for doing this. However, when it comes to delivery policies, UK government action on the ground has fallen significantly short of what is needed.

Two recent reports from the Committee on Climate Change (CCC) – the government’s independent statutory adviser on climate policy – warned that the Government had only delivered one policy in full out of 25 headline policies recommended last year to cut emissions. When it comes to preparing the UK to the impacts from unavoidable climate change, the Committee concluded that the government is now spending less on making the UK’s environment, homes, infrastructure and businesses resilient to extreme weather events than it did ten years ago.

Policy detail and cross-government co-operation urgently needed

This stark assessment of the UK’s insufficient action to tackle and prepare for climate change needs to be urgently addressed by the new Prime Minister. The vast majority of investment needed to reduce emissions and adapt to climate change will come from the private sector and businesses will not invest at the scale needed unless clear regulatory drivers and market mechanisms are put in place to support investment. This is especially the case as much of the infrastructure needed (such as the potential conversion of the gas grid to hydrogen and the deployment of carbon capture and storage technology) tends to have high upfront costs and can take many years to build.

At the heart of the policy challenge that lies ahead is the fact that the UK doesn’t just need new policies to be introduced, it also needs all government departments to pull in the same direction – and with the same level of urgency – and for their respective actions to be far better co-ordinated.

Stepping up action on emission reductions

Starting with emission reductions, urgent action is required to deliver meaningful cuts in building and transport emissions and to complete the decarbonisation of the power sector (most notably by providing a new investment route to cheap forms of renewable energy like onshore wind). A large swathe of the UK’s homes and commercial buildings lack regulations to improve energy efficiency and in areas where these regulations do exist, ambition is often lacking and enforcement is poor. This needs to be rapidly addressed through the introduction of increasingly ambitious regulatory standards mandating improvements in energy efficiency, complemented by tax incentives such as stamp duty adjustments for the owner-occupier market.

When it comes to transport, the government needs to accelerate the roll-out of zero-emissions vehicles by bringing forward the deadline to phase out the sale of petrol and diesel cars and vans to around 2030. This should be complemented by tightening fuel efficiency standards throughout the 2020s, providing guaranteed grants for the purchase of zero-emission vehicles until they achieve upfront cost parity and providing innovation funding for decarbonising long-distance heavy-duty vehicles. 

Time to get serious about resilience

When it comes to improving the UK’s resilience to climate change, the Government should first of all ensure that its upcoming legislation is in line with the ambition of its 25 Year Environment Plan. The Agriculture Bill should aim to put in place a public subsidy system that is genuinely linked to farmers delivering improvement to the natural environment. The upcoming Environment Bill – which will introduce a new regulatory framework for the environment after Brexit - should introduce legally binding targets to improve the state of the natural environment in key areas such as soils, peatland, biodiversity and resource efficiency. These should be complemented by a requirement on Government to put in place the necessary policies to achieve them and report regularly against them.

Reviewing Building Regulations and implementing the Environment Agency’s recent Flood Strategy will also be vital to better prepare the UK’s homes, infrastructure and businesses to the impacts of surface flooding, overheating and other weather impacts.

The time for action is now

In 18 months’ time, the UK will be the likely host of COP26. This will be the most important climate summit since the 2015 Paris Agreement, where it is hoped that emitters around the world will increase their pledges to cut emissions. To be an effective host of COP26 and ensure the summit puts the world on a credible pathway to avoid the worst impacts of climate change, the UK must show that it has a credible plan to build a climate-ready, net-zero economy and that it has begun delivering on its plan. This is more than ever a time for action. 

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.