October 27, 2021

Racing to Net Zero: A Look into the U.K.’s 2030 ZEV and SAF Mandates

Stratas Advisors

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On Nov. 18, 2020, U.K. Prime Minister Boris Johnson presented the Ten Point Plan, which lay the foundations for the U.K.’s economic recovery from the COVID-19 pandemic with a strong focus on the U.K.’s green transition. The plan was soon followed by the U.K.’s 2030 Nationally Determined Contribution (NDC) within the framework of the Paris Agreement, through which the U.K. committed to reducing its emissions by at least 68% by 2030 compared to 1990 levels.

Building on the approach followed by the Ten Point Plan and the 2030 NDC, the U.K. Government released its Net Zero Strategy (NZS) on Oct. 19, 2021, constituting the U.K.’s second long-term strategy for reducing greenhouse gas (GHG) emissions under the Paris Agreement. Stratas Advisors has analyzed the feasibility of the targets contained therein based on current capacities and projected forecasts, with a focus on developing a renewable power grid as well as mandates for zero emission vehicles (ZEV) and sustainable aviation fuel (SAF).

Net Zero: Key Policies

The U.K.’s NZS sets out a series of policies and proposals to meet the now legally binding target of net-zero by 2050, hoping to unlock GBP 90 billion (USD 124 billion) of investment. The table below provides an overview of the most outstanding targets with their corresponding funding mechanisms.

Overview of Select Targets and Funding under the U.K.’s Net Zero Strategy

Sector

2030

2035

2040

2050

Funding

Power

  • 40 GW offshore wind
  • 1 GW floating offshore wind

Power grid entirely supplied by clean electricity (subject to security of supply)

-

 

-

 

  • Future Nuclear Enabling Fund: GBP 120 million (USD 165 million) for nuclear projects
  • GBP 380 million (USD 524 million) for offshore wind capacity

Fuel Supply

5 GW green hydrogen production capacity

-

-

 

-

Industrial and Hydrogen Revenue Support scheme: GBP 140 million (USD 193 million) for green hydrogen and CCUS

Industry

-

Establishment of 4 CCUS clusters to capture up to 30 Mt CO2 of per year (6 Mt CO2 of industrial emissions)

-

 

-

Industrial Energy Transformation Fund: GBP 315 million (USD 434 million) for industry

Heat and Buildings

-

Ambition to discontinue sales of new gas boilers

-

 

-

 

  • Boiler Upgrade Scheme: GBP 450 million (USD 620 million) for households
  • Heat Pump Ready Program: GBP 60 million (USD 83 million) for R&D
  • Social Housing Decarbonization Scheme and Home Upgrade Grants: GBP 1.75 billion (USD 2.4 billion)
  • Public Sector Decarbonization scheme: GBP 1.4 billion (USD 1.9 billion)

Transport

  • Ban on sales of new gasoline and diesel cars and vans
  • 10% SAF supply in aviation
  • 4,000 new zero-emission buses

All new cars and vans must be zero-emissions

Removal of diesel-only trains

Net-zero rail network

  • GBP 620 million (USD 855 million) for EV grants and infrastructure
  • Automotive Transformation Fund: additional GBP 350 million (USD 482 million) to existing GBP 1 billion (USD 1.2 billion)
  • GBP 180 million (USD 248 million) for SAF production

Notes: CCUS – Carbon Capture Utilization and Storage; SAF – Sustainable Aviation Fuel; EV – electric vehicle
Source: Stratas Advisors based on Net Zero Strategy, 2021

Industry Developments post-NZS

Some of the targets supported by the NZS have already become legally binding, such as the ban on sales of new gasoline and diesel cars and vans by 2030, or are likely to become binding in the following years, such as the upcoming SAF mandate which is now being subject to consultations. In general, however, the NZS provides a series of indicative trajectories that the U.K. ought to follow in order to reach net-zero by 2050.

In general, Stratas Advisors expects the industry to react to policy changes within the following decade, though additional funding may be needed to reach both the U.K.’s carbon targets and the new mandates that will come into force in the next years. After analyzing trends and efforts needed in terms of renewable electricity generation and transport decarbonization, the following points can be highlighted:

  1. Offshore wind will gradually become predominant in the U.K.’s power mix by 2050, yet reliance on natural gas will not be abated unless nuclear power generation is boosted to respond to renewable power variability. In the short run, domestically produced blue hydrogen will play a more significant role than green hydrogen.
  2. BEVs will see increasing absolute sales numbers in the U.K. market with a CAGR of 22.4% by 2035 as rapid charging points increase and total cost of ownership (TCO) declines. In contrast, hydrogen-powered FCEV sales will remain marginal through 2035 mainly due to their low cost-competitiveness (see first figure below).
  3. In light of the upcoming SAF mandate, fuel suppliers are likely to prioritize biofuel blending over renewable fuels of non-biological origin (RFNBOs) due to the higher costs of the latter. However, the share of SAF in the aviation fuel mix will remain below 10% before 2030 (see second figure below).

New Light-Duty Vehicle Registrations in the U.K.


Notes: BEV – Battery-electric vehicle; FFV – Flexible-Fuel Vehicle; LPG – Liquefied Petroleum Gas; NGV – Natural Gas Vehicle
Source: Stratas Advisors, 2021

Projected U.K. Aviation Fuel Demand in 2030

Notes: RFNBOs – renewable fuels of non-biological origin (RFNBOs); RCFs – recycled carbon fuels.
Source: Stratas Advisors, 2021

 

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