techUK's Digital Economy blog series where we deep dive into defining trends across the tech sector.
The World Economic Forum has said we are in a ‘twin transition' - where the delivery of a net zero and green economy is highly connected to digitalisation. These two transitions are predicted to revolutionise how we produce, consume, and move goods and services.
Leveraging the twin transition, with a carefully considered strategy, presents a major economic opportunity for the UK. The government's own commissioned review noted it to be 'the economic opportunity of the twenty first century'.
So, what exactly are we talking about here?
The 'green transition' involves reducing greenhouse gas emissions, building a clean energy system, restoring nature, and reversing environmental degradation. It is heavily linked to the net zero agenda as well as the need to use less resources and protect nature. The 'digital transition' on the other hand requires integrating digital technology across all areas of society to optimise services, increase productivity and improve efficiencies.
At techUK we agree that both need to happen at the same time. Some see the ‘green transition' as a disruptive cost, however if it uses digital tools at every stage, it is a massive economic opportunity.
Illustrating the potential impact, the International Energy Agency projects that digital technologies could save $1.8 trillion in grid investment globally through to 2050 by extending the lifetime of grid infrastructure and helping to integrate renewables, benefiting consumers with lower energy bills. The Energy Systems Catapult also cite that the complexity and scale of integrating multiple technologies to reach net zero emissions will not be possible without digitalisation of the energy system.
So, what have political parties been saying on this so far…
As we move closer to the government's own net zero by 2050 target, and the UK's general election campaign trail continues, there remains an intensified focus from all political parties on improving the UK's energy security and self-sufficiency. Recent polling found this to be a salient issue among voters with three quarter's (76%) of those likely to vote in the local elections supporting the 2050 target.
Futher important given the UK's reliance on imported gas and oil and energy costs directly hampering business growth ambitions. Last year, the OBR found that gas prices cause more of a shock to the UK in comparison to many other countries and polling earlier this year by techUK and Public First, involving over 250 senior tech sector leaders, saw them identify energy costs (36%) as the primary barrier to growth, surpassing concerns on interest rates (31%). Deloitte's recent survey with CFOs further underscores the urgency of the situation, finding that geopolitical risk is the main concern for CFO's due to business concern over disruption to energy supplies or higher energy prices.
Labour's five national missions include ‘Switching on Great British Energy', and their plans have now been unveiled. The state-owned energy company, headquartered in Scotland, will be handed £8.3bn over the next five years for investments, funded by a windfall tax on the profits of oil and gas companies.
The primary aim to reduce reliance on imported energy and deliver clean power through infrastructural investment. Along with longer term ambition to cut energy bills and deliver certainty for UK citizens and businesses given they continue to face threat of annual energy price spikes. Labour have outlined that the UK could generate 98% of electricity from clean sources (note, an increase from the current low carbon electricity at 61.5%).
The Conservatives have outlined ‘prioritising the country's energy security by continuing to support Britain's North Sea energy industry'. Sunak outlined that “we'll get to net zero, but in a way that prioritises our country's energy security and household bills”.
Details on the Tories policy in this area is somewhat less clear so we expect to see more in their manifesto over the next few weeks. A reminder that last September saw weakened policies on electric vehicle manufacturing and building energy efficiency. techUK members believed this sent the wrong signals, creating instability among businesses and investors.
At a time when the stakes are high, swift action is needed to capitalise on the economic benefits the net zero and digital transitions can offer.
What are techUK's recommendations for the next government?
Any future industrial strategy must support the twin transition and ensure the pieces needed to decarbonise and digitalise are coordinated. Our UK Tech Plan and Seven Tech Priorities call for a focus on the wider infrastructure - including an effective planning system, regulatory certainty, and skills provision.
This includes the following, focusing on areas of supply, demand and competitiveness:
- Planning reform is essential to deliver the digital infrastructure that enables digital technologies, which, in turn, can support the net zero transition. Consistency and addressing barriers, such as delays and legal challenges, are critical. Especially given low-carbon industries, investment timelines for offshore wind projects typically stretch to 12 years.
- Place digitalisation at the heart of the National Energy System Operator (NESO) and planned Strategic Spatial Energy Plan (SSEP). This will help to better co-ordinate government policy and network development. Endorsed in national and planning policy, the SSEP would outline necessary deliveries and provide a solid evidence base for clean energy projects. Digital technologies can also enhance the operations of the SSEP.
- Classifying strategic digital infrastructure as Nationally Significant Infrastructure could cut costs, improve efficiency, and reduce time for infrastructure development.
- Reform to the Apprenticeship Levy, adding flexibility to allow high quality training, across areas of digital and green, to cascade through supply chains.
- Expanding access to Energy Intensive Industries (EII) schemes for digital infrastructure sectors will help ensure high costs are not passed on to business users. However, this could be an expensive tax incentive for the Treasury to implement so cost benefit analysis would be needed.
- A cohesive and coordinated strategy across Whitehall is vital for successful delivery. This could be supported by the creation of an Office for Net Zero Delivery at the centre of government, bridging the twin transition and government departments responsible for net zero and digital implementation.
- Use government grants and funds that have worked to digitise and decarbonise business, this includes expansion Made Smarter Adoption programme for sectors other than manufacturing.
At techUK, we have worked closely with the government's Energy Digitalisation Taskforce, providing member insight to inform key recommendations to optimise whole system investment and operation. Previous techUK work have also highlighted the key role that digital technologies, including digital twins, can play in the energy sector.
Alongside this, techUK members continually outline their commitment to net zero. They recognise the carbon cost often associated with digitisation and are working hard to optimise digital assets and infrastructure to reduce their environmental impact and energy usage. Our recent article for BusinessGreen outlines just a few of our members, including CGI, who are providing the smart solutions and data-driven technologies to support the net zero transition.
At a critical juncture, where the countdown to a general election meets the urgency of a climate crisis, the next government must manage the twin transition in the right way. This will help deliver the sustainable economic growth needed to solve the UK's stagnation problem and ultimately bring down costs.
Recent economic analysis found that total gross value (GVA) by businesses involved in the net zero economy stands at £74 billion. In contrast to stagnation in the wider economy with GDP growth at just 0.1% in 2023. Demonstrating the role of digital in this, the World Economic Forum estimates that digitalisation has the potential to unlock up to $1.3 trillion of value in the electricity sector globally.
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