How can regulators help the UK achieve net zero?
The National Infrastructure Commission has reported on how regulation needs to shift to meet net-zero.
The National Infrastructure Commission has published a report looking at how the regulatory system must adapt so infrastructure providers can better adapt to climate risks, embrace digital technologies and play their part in reaching net-zero emissions by 2050.
The report states there needs to be significant new investments by water, energy and telecoms operators to meet net zero, including £9 billion for the power sector to reach net-zero emissions, £900m a year by water companies to improve the resilience of their phsical assets and networks to drought and extreme weather events. A further £3.5 billion a year for 5G and full-fibre by 2033is also cited in the report. This investment in next-gen networks is going to be essential in making sure digital technologies can help other sectors transform and decarbonise their own operations, whilst at the same time enabling efficiencies and allowing widespread adoption of powerful new digital tools.
As well as highlighting the case for and scale of investments, the main value of the report is looking at the structural changes that need to take place among infrastructure regulators, and key recommendations are:
Regulators Ofcom, Ofgem and Ofwat should have new duties to promote the achievement of net zero carbon emissions by 2050 and improve resilience
The government should set out a long-term strategic vision for each of the regulated sectors, through strategic policy statements within the first year of each Parliament, to support lasting plans and stable funding
Most major strategic investments should be removed from the price control processes and opened to competition to support innovation
Regulators should be able to prevent companies from engaging in price discrimination that does not provide an overall benefit to consumers
The UK Regulators Network should be given a stronger leadership role through the appointment of an independent chair to promote collaboration and coordination, and ensure markets continue to deliver for consumers.
The second half of the report covers the crucial issue of how to get consumers behind these changes. To do this, the report suggests better transparency and reporting on pricing, new powers for regulators to order changes to pricing and making sure billpayers benefit from economic concepts used in utility financing such as the Regulated Asset Base (RAB) and returns based on the weighted average cost of capital (WACC).
Other recommendations are that regulators should be able to seek more regular guidance from their sponsoring government departments to make them more responsive and flexible to changing market conditions and disruptive business models. Another intriguing possibility is an independent chair for the UK Regulators Network so regulators such as Ofcom, Ofgem and Ofwat can co-operate more, share data and align their objectives and regulatory approaches.
This report is a valuable addition to the increasing body of work setting out how the UK can reach net-zero. With climate action at the forefront of the agenda, the infrastructure operators, policy makers and regulators need to take heed.
techUK has just launched a new Climate Strategy and Resilience Group to co-ordinate the sector response to the climate crisis. To sign up or learn more please get in touch using the details below.
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