Huge increase in UK infrastructure investment needed to reach net zero

A dramatic increase in public and private sector investment is needed to build a net zero economy after decades of low national spending, the National Infrastructure Commission (NIC) has warned.

The commission’s Infrastructure Progress Review 2023, which is published today, has warned that spending is currently running below what is required – with additional challenges for the UK being added by American and EU schemes to encourage green investments in their economies.

Since 1980, UK investment levels as a share of GDP have been less than comparable countries such as France, Germany and the US.

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The NIC report said: “Ambitious and stable policy from government, alongside effective regulation, is needed to facilitate private sector investment in the country’s key infrastructure sectors.”

Secretary of State for Energy Security and Net Zero, Grant Shapps is being urged to take actionSecretary of State for Energy Security and Net Zero, Grant Shapps is being urged to take action
Secretary of State for Energy Security and Net Zero, Grant Shapps is being urged to take action

It added that “significant investment across a whole range of activities, from heating homes to driving cars” is required to hit the country’s target of reaching net zero by 2050.

"Doing so will also help keep the UK at the forefront of international competition in some areas. Over 130 countries, comprising over 90 per cent of global gross domestic product, now have a net zero target set or under discussion.”

It added: “Large scale investment in infrastructure, both public and private, is essential to achieving a net zero economy. In the UK, climate change is primarily an economic infrastructure challenge. Estimates from the Climate Change Committee suggest up to £50 billion of investment will be needed each year for the next 25 years for the UK to reach net zero.

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“Further investment will also be needed to increase resilience and adapt to the growing risks from flooding and drought driven by climate change.

“Private sector investment is also critical for meeting the government’s long term targets on infrastructure. In recent years, public and private investment in economic infrastructure assets has been broadly similar, with annual public investment around £20 billion and private sector investment around £18 billion.

"The UK must remain an internationally competitive place to invest, at a time when the Inflation Reduction Act in the United States and the REPowerEU plan and Net-Zero Industry Act in the European Union make the investment environment more challenging. Ambitious and stable policy from government, alongside effective regulation, is critical for providing the private sector with the certainty it needs to invest.”

The report highlighted concerns about progress in supporting carbon capture and storage schemes which have been suggested as a key way of reducing the country’s emissions. Carbon capture works by removing CO2 from an industrial process and transporting it underground into geological formations.

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Drax has recently announced a ‘pause’ on its carbon capture plans for its North Yorkshire power plant, which the company says it is willing to invest £2bn into. Drax said last week it was awaiting a ‘firm commitment’ from Government into the scheme.

In the recent Budget, Chancellor Jeremy Hunt announced £20 billion investment into the wider development of Carbon Capture and Storage, but not specifically into Drax’s programme.

The NIC report warns: “Government continues to expend too much effort on many small scale funding interventions and repeated consultations, trying to maintain optionality in all areas. This leaves key strategic policies - such as business models for hydrogen and carbon capture and storage - unfinished.”