Government should increase support for innovation to deliver net zero

The UK Government has set out its research and innovation priorities in pursuit of net zero, but further action is needed to strengthen governance and delivery mechanisms if it is to secure value for money for its £4.2bn of innovation spending, a new National Audit Office (NAO) report says.

In June 2019, Parliament committed the UK to achieving ‘net zero’ greenhouse gas emissions by 2050. The government expects research and innovation to play a crucial part in the UK achieving net zero.

The NAO’s latest study scrutinises whether the government is set up to deliver value for money from its approach to investment in research and innovation to deliver net zero.

It found that government had made some important progress in recent years.

In October 2021, the then Department for Business, Energy and Industrial Strategy (BEIS) published the government’s Net Zero Research and Innovation Framework, (the Framework). This provided stakeholders with a clear steer on the main innovation priorities and timescales. It identified 31 challenges areas across seven categories, ranging from decarbonising aviation to sustainable food and biomass production.

In March 2023, the newly created Department for Energy Security and Net Zero (DESNZ) published government’s Delivery Plan which sets out for the first time the complex landscape of public support for net zero research and innovation. This is made up of approximately £4.5bn up to 2025, comprising £4.2bn from the latest Spending Review and £0.26bn from the Office of Gas and Electricity Markets (Ofgem).

However, the NAO found that government has more to do to ensure value for money from this investment.

BEIS did not consider the level of longer-term public sector investment needed up to 2050 to support delivery of the innovation challenges in the 2021 Framework.

The complexity of public sector funding from 2022 to 2025 will make it hard for DESNZ and the Innovation Delivery Board to track spending. There are 115 government programmes providing funds for net zero research and innovation, delivered across eight public bodies. Many programmes pre-date the Delivery Plan and range in size from £0.35mn to £685mn.

BEIS recognised that businesses can find accessing support difficult because of the number and complexity of different innovation funding schemes. Innovate UK has introduced the first version of an online search tool with the aim of helping businesses find all innovation funding and support in one place.

Achieving net zero depends on innovations becoming commercially viable, but the Delivery Plan only covers government support up to the end of the commercial prototype stage and not until it is market ready. In March 2023, the government published its updated Green Finance Strategy, providing a high-level overview of how it expects to work with public financing bodies to commercialise and finance green technologies needed for the transition to net zero.

DESNZ estimates that new low carbon investment in 2022 in the UK was £23 billion. It expects this will need to increase two to three times that level by the late 2020s and 2030s. The government expects most of this increase will need to come from the private sector. The government is currently not able to estimate what the present level of private capital investment in net zero is, but it has commissioned an external project to develop its approach to tracking flows of net zero investment.

In March 2023, the British Business Bank, UK Infrastructure Bank, UK Research and Innovation and UK Export Finance announced a joint forum to encourage collaboration around investment in net zero.

In December 2020 the government established the Net Zero Innovation Board to develop and oversee the net zero innovation priorities. The Board oversaw development of the Framework and has sought to influence the allocation of resources across departments and UKRI programmes. It does not take decisions on how money is used. Individual public bodies continue to decide how to use their resources based on the budgets provided by HM Treasury via the spending review process.

DESNZ, with other departments, has started monitoring progress systematically across the Framework but is still to define what outcomes it is seeking to deliver and what level of risk it will tolerate.

The UK’s independent public spending watchdog recommends by October 2023, DESNZ should set out who is responsible for providing stewardship and overseeing cross-government delivery in each of the seven categories within the Framework, and how it will encourage action if progress is not on track against intended outcomes.

The NAO also recommends that the Net Zero Innovation Board should specify the desired outcomes for each of the challenge areas in the Framework, and define what level of failure is tolerable. This should include publishing update reports against the output and outcome targets for each challenge – for example, the potential for reductions in carbon emissions and the amount of private investment.

“While the government is beginning to ask the right questions on how best to support innovation needed to achieve net zero, the lack of clarity regarding government responsibility for overseeing end-to-end progress is concerning,” said Gareth Davies, head of the NAO.

“The complexity of funding routes makes it tough to track spending and assess its efficacy. Moreover, the lack of clear definition of what success will look like and by when will make it difficult to assess whether the investment is on track."

“The government should build on the important progress made with the development of the net zero innovation Framework by rapidly strengthening its delivery plans, otherwise there is a risk of jeopardising its carbon and economic objectives, as well as value for money from its £4.2bn investment.”