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SMEs: Net-zero Targets

Volume 830: debated on Wednesday 7 June 2023


Asked by

To ask His Majesty’s Government what steps they are taking to support small and medium-sized enterprises in working towards net-zero targets.

My Lords, the Government have launched a campaign aimed at increasing the energy efficiency of businesses, charities and public sector bodies. We continue to support UK businesses to meet their net-zero commitments via the UK business climate hub. SMEs are encouraged to join the UN’s Race to Zero initiative; more than 4,200 UK small businesses have done so. We are also developing a dedicated energy advice service for SMEs, which is due by the end of the year.

I am sure that we all value the important contribution that SMEs make to our economy. One of the issues consistently facing them is their ability to employ and retain skilled workers in a highly competitive jobs market. This is especially prevalent where skills are lacking, such as in retrofitting buildings and in new green technologies. The scale of the challenge of achieving net-zero targets presents SMEs working in these areas with a great opportunity. However, barriers such as shortages of skills and available finance are preventing them making the progress that they seek to achieve. What steps are the Government taking to promote green jobs, skills training and competitive supply chains, particularly by working with industry, the education sector and the finance sector to create pathways into these jobs?

The noble Baroness makes an important point. The encouragement of green jobs and helping workers to go from the old fossil fuel economy to new jobs is a challenge. We are spending several billion pounds a year working with the DfE and across the various green homes grants. We have a number of highly skilled green jobs funds, which industry accessed. There is no one simple answer but she is right; it is a job that we are working on.

My Lords, earlier today, I spoke to an owner-manager of an SME in the print industry in my part of the world. She said that her biggest issue in trying to become a B Corp SME is getting information from big suppliers on their scope 3 emissions, which is really important for SMEs that want to go down this path. Could the Minister take this issue and how it might be solved back to his department, or give me an idea of how that issue might be approached by the Government in future?

The noble Lord makes an important point. We are aware of this issue. We are increasing the reporting requirements for bigger companies. We must be careful to make sure that we do not put too many undue burdens on business but I will certainly have a look at the issue for the noble Lord.

My Lords, does the Minister agree that there is no clear consensus as to what net zero entails for SMEs? With them accounting for 99% of all businesses in the United Kingdom, what are the Government doing to standardise pathways to net zero among these businesses?

Of course it will vary depending on the type of business. Many businesses are already working in green areas. A lot of them are involved in retrofitting. On the other hand, some of them are very energy intensive. There are different solutions for different businesses.

My Lords, given that their competitors in Germany and elsewhere are extending the deadline for ending the production of motor cars with internal combustion engines, are we not in danger of making our large car manufacturers into small and medium-sized enterprises as they are being forced to reduce production, with great consequences for employment and competitiveness?

I normally agree with my noble friend, but I do not on this solitary occasion: I think he is wrong. Other major economies, including the EU, are essentially doing a similar job—they have made a couple of small exceptions to the ban with things such as novel fuels. Providing certainty for industry and business is the direction they need to go in. Supporting them in the appropriate areas, ensuring that the right gigafactories are completed in the UK, is the way to go, in my view.

My Lords, one way to help small and medium-sized businesses is to remove barriers to trade. Given that the UK and the EU both have carbon pricing, would it be possible for the UK and the EU to agree to waive the requirements for exporters and importers to calculate and report on carbon emissions from products traded between the EU and the UK?

The noble Baroness makes an important point. We want to make trade as simple and easy as possible. I will certainly take the point back to the trade department.

My Lords, I declare my interests as set out in the register. The Minister talked about the importance of providing certainty for business and small and medium-sized enterprises. One of the barriers to those enterprises investing in skills training is uncertainty about programmes such as retrofitting and energy efficiency, which have been marred by stop- go policies in the past. Will the Minister look again at the Government’s opposition to the energy efficiency proposals in the Energy Bill?

I am afraid that I do not agree with the noble Baroness. We have an extensive energy efficiency programme. We are spending £6.6 billion over this Parliament. I agree that long-term consistency and certainty are important, which is why the Treasury has guaranteed an additional £6 billion from 2025 for precisely these measures.

My Lords, the Government have a very ambitious net-zero target and part of that is their ambitious target for the installation of heat pumps, which, frankly, at the moment they look like they are not going to meet. The Minister’s own department’s figures suggest that the great majority of heat pumps so far installed in this country are produced abroad. Is there not a way in pursuit of this ambitious target to ensure that a much greater number of heat pumps installed in this country are produced in this country by British manufacturers rather than sending the business abroad?

I agree very much with my noble friend, and we are working with a number of manufacturers looking to relocate production to the UK. I think his figures in terms of the percentage produced in the UK are slightly wrong. Mitsubishi in Scotland produces a large number of heat pumps and there are a number of ground source heat pump manufacturers as well. We want more relocated into the UK. We are looking at a market mechanism with the boiler manufacturers, and have a grant programme to relocate production facilities into the UK.

My Lords, as the noble Lord, Lord St John, pointed out, 99% of businesses in this country are SMEs and many will not be able to reach carbon neutrality. What are the Government going to do to try to help them with carbon offsetting?

My noble friend makes a good point. Of course, carbon offsetting is a controversial area. We must ensure that any offsetting that takes place is genuine, viable and reduces real-world carbon production.

My Lords, because the net-zero metric does not include all the emissions associated with imported products, does the Minister agree that we must bear in mind our total carbon footprint on any activity in the UK which uses imports, so that we are not unnecessarily exporting our emissions? That would be of no help whatsoever in combating global warming.

I agree. Carbon leakage is an important problem, and one of the reasons why a number of the larger industries are subject to international competition, as the noble Lord mentioned. We give them free permit allocations under the emissions trading system.

My Lords, are the Government looking at the efficiency of heat pumps? Have they monitored them, and will they produce a report on their cost and effectiveness?

Indeed, we have already done so. There have been a number of reports on the efficiency of heat pumps. Efficiency varies depending on the quality of the installation. We must ensure that they are installed properly in the appropriate properties with the right number of emitters. I am happy to send copies of the reports that we have done to the noble Lord.

My Lords, a number of SMEs operate in old buildings. When retrofitting to improve insulation considerably, we rapidly come up against planning restrictions. Are the Government doing their best to reconcile the preservation of the built environment with the need for much more efficient insulation of old housing?

“Yes” is the short answer to the noble Lord’s question. I am on a working party with DLUHC looking at some of the planning barriers that exist. The conclusion is that there are not many legislative barriers; it is just the views taken by different planning officers in different local authorities. Like the noble Lord, we value local authority autonomy to decide these things for themselves, but there is perhaps more of a role for government guidance in these matters.