For a number of weeks, COP26 has been all over the news. This is, of course, the climate change conference that recently took place in Glasgow. The final agreement was widely considered slightly disappointing as it did not contain a commitment to reduce carbon emissions. Some branded the Glasgow Climate Pact as a ‘huge win for coal’ because there were late amendments to the wording from India and China. The words ‘phase out unabated coal power’ were changed to ‘phase down the use of coal’. Although seemingly minor, there is a significant difference in their meanings.
Despite this, there remains a huge drive to net zero across the world. Net zero refers to balancing the greenhouse gases going into the atmosphere with those taken out. Boris Johnson has made it clear that he is taking a green stance moving forward, but many questions remain unanswered. Who is going to pay for this transition to net zero? Will small businesses be left with this burden? And what are the benefits of small businesses achieving net zero?
According to figures from the UK Government, £650bn will be required to make the transition to net zero. Of that, 4% will be provided by the Government. That leaves £624bn to be funded by the private sector and external investment. Reports suggest that the percentage being given by the Government in the US are equally eye-watering.
Clearly business will only invest these amounts if it sees them as a profitable use of company funds. Government will unquestionably demand that businesses show how they are going to achieve net zero, with the Treasury requiring big businesses to show (by 2023) how they will achieve their climate change targets.
For banks, this should not be a problem. Take HSBC for example – they have recently reported a profit of £4.02bn in the third quarter of 2021, so making the transition to net zero should not have a significant effect on their finances.
But what about Paul the Plumber? There will come a time when the Government demands plans from companies on how they will achieve net zero. However, tradespeople require their vans and must travel to their client’s houses. They cannot work from home. This isn’t possible to do using public transport, and their finances are most likely left severely damaged following the pandemic. All this considered, it will be difficult for them to purchase an electric van given the large upfront cost. Furthermore, there will be very few benefits to them of making the move to net zero.
When changing banks or investments, perhaps their ‘green audit’ would be a factor in our decision over who to choose. However, if a pipe bursts at 6am and we need to call a plumber, we will most likely use Paul because we have used him in the past and he is always reliable. At that point, whether he has an electric van would not enter our minds.
Many experts have made the point that ultimately, the Government’s lack of funding will unravel extremely quickly. Since Paul is lacking subsidies to purchase his electric van, the additional cost will more than likely be passed onto his customers. If he does somehow receive a subsidy for the van, then the consumer will still pay for it through additional taxation.
When considered practically, small businesses will find it difficult to justify the large investment required to achieve net zero – especially given the apparent lack of benefits to their company.