MPs Urge Fairness in the Path to Net-Zero

Environmental Audit Committee calls for fairness in climate policy delivery

The UK’s Environmental Audit Committee has told ministers they must prove net-zero policies deliver fair outcomes for all communities. Without this, public support for climate action could collapse just as the country faces its most challenging decarbonisation targets yet.

The warning comes as government prepares to set the Seventh Carbon Budget into law by 30 June 2026. This budget will dictate emission limits for 2038 to 2042, a period when the UK must tackle harder-to-abate sectors like heavy industry, aviation and agriculture. Unlike earlier carbon budgets that benefited from quick wins in power generation, the next phase requires substantial capital investment and changes to how people live and work.

For businesses, the message is clear. The next carbon budget will shape regulatory requirements, supply chain expectations and tender criteria for at least 15 years. Companies that understand these shifts early can position themselves competitively. Those that wait risk being caught out by tightening standards and rising compliance costs.

Climate Change Committee sets 535 million tonne target for 2038-2042

On 26 February 2025, the Climate Change Committee published its statutory advice recommending the Seventh Carbon Budget be set at 535 million tonnes of carbon dioxide equivalent. This figure includes international aviation and shipping emissions, sectors previously treated separately in UK carbon accounting.

The target represents a continuation of the trajectory needed to reach net-zero by 2050. However, it requires significantly faster progress than recent years have shown. The UK met its first three carbon budgets largely by switching from coal to gas and renewables in electricity generation. Emissions have roughly halved since 1990, a substantial achievement by any measure.

Yet that progress has plateaued. The fourth and fifth carbon budgets, covering 2023 to 2032, demand action across transport, buildings, industry and agriculture. These sectors present far more complex challenges. Decarbonising them requires new infrastructure, different business models and, in many cases, changes to consumer behaviour.

The Climate Change Committee’s recommendation is not optional guidance. Under the Climate Change Act 2008, the government must either accept the advice or publish reasons for departing from it. This creates a legally binding framework that will influence business regulation, planning policy and public spending for years to come.

Cross-government coordination needed to deliver carbon budget commitments

The Environmental Audit Committee has examined how government should approach the Seventh Carbon Budget since September 2024. Its central concern is whether the pathway to net-zero can maintain public consent. Specifically, the Committee looked at the role of fairness and behaviour change in climate policy.

The Committee’s report emphasises that long-term certainty and coordinated delivery across government departments are essential. Currently, different departments often work in silos. The Department for Energy Security and Net Zero sets climate targets, but delivery depends on decisions made by Transport, Housing, Treasury and Business and Trade. Without visible cross-government leadership, policies can contradict each other or leave gaps that slow progress.

The Committee recommends the Prime Minister and Chancellor provide clear public direction to ensure departments work together. This is not just about internal coordination. Businesses need consistent signals about future policy direction to justify investment in low-carbon technology, new production methods or retrofit programs.

Moreover, the Committee warns against conflating decarbonisation with deindustrialisation. Allowing production to move abroad would weaken the UK’s industrial base while doing little for global emissions. This phenomenon, known as carbon leakage, occurs when companies relocate to countries with less stringent climate rules. The result is job losses at home and no net reduction in greenhouse gases.

For manufacturers and industrial firms, this matters enormously. The government must show how carbon budget policies will support domestic production while preventing competitors from gaining advantage by offshoring emissions. This could involve border adjustments, support for capital investment in clean technology, or regulatory frameworks that reward low-carbon production.

Policy costs estimated at 0.2% of GDP annually with private sector leading investment

The Climate Change Committee estimates that meeting the Seventh Carbon Budget will cost approximately 0.2% of UK GDP per year on average. This figure accounts for both the costs of new technology and infrastructure, and the savings from reduced fossil fuel use and improved efficiency.

Importantly, most upfront investment is expected to come from the private sector rather than government spending. This shifts the focus to creating conditions where businesses can justify those investments. That means regulatory certainty, access to finance and clear long-term demand signals.

The cost estimate is significantly lower than previous projections. In 2020, the Climate Change Committee estimated decarbonisation costs that were 73% higher than current forecasts. The reduction is largely due to faster-than-expected cost falls in battery technology, electric vehicles and renewable energy. These technologies are now commercially viable without subsidy in many applications.

For businesses, this presents both opportunity and risk. Companies that adopt low-carbon technology early may find themselves ahead of regulatory requirements and able to win contracts based on sustainability credentials. Those that delay face the prospect of retrofitting or replacing assets as standards tighten, often at greater cost and disruption.

The Seventh Carbon Budget relies on what the Climate Change Committee calls a “Balanced Pathway”. This approach combines multiple strategies rather than depending on any single technology. Electrification accounts for 60% of planned emissions reductions by 2040, primarily through electric vehicles, heat pumps and industrial process changes.

The remaining reductions come from low-carbon fuels such as hydrogen and sustainable aviation fuel, carbon capture and storage in heavy industry and power generation, nature-based solutions like tree planting and peatland restoration, and behaviour change towards lower-carbon consumption patterns.

Each element of this pathway creates different implications for businesses. Electrification requires investment in grid infrastructure and on-site electrical systems. Low-carbon fuels need new supply chains and distribution networks. Carbon capture depends on industrial clusters and transport infrastructure that do not yet exist at scale. Nature-based solutions involve land use decisions and biodiversity considerations.

What the Seventh Carbon Budget means for business planning and compliance

• The Seventh Carbon Budget covers 2038 to 2042 and must be set into law by 30 June 2026, creating a firm regulatory framework for the next 15 years.
• The Climate Change Committee recommends a limit of 535 million tonnes of carbon dioxide equivalent, including aviation and shipping emissions.
• The Environmental Audit Committee warns that failure to demonstrate fairness in policy implementation could undermine public support for net-zero measures.
• Meeting the budget is estimated to cost 0.2% of GDP annually, with most investment coming from private sector rather than government spending.
• Decarbonisation is now 73% cheaper than estimated in 2020, mainly due to cost reductions in battery technology and electric vehicles.
• The pathway relies on electrification for 60% of emissions cuts by 2040, with the remainder from low-carbon fuels, carbon capture, nature-based measures and behaviour change.
• Government must provide cross-departmental coordination to prevent policy conflicts that could slow progress or create uncertainty for business investment.

How manufacturers and service companies should respond to tightening carbon limits

The gap between now and 2038 may seem distant, but investment cycles in many sectors span decades. Decisions made today about factory equipment, vehicle fleets, building systems or supply chain relationships will determine whether companies can comply with future requirements without costly disruption.

Businesses should start by understanding their current carbon footprint across all three scopes of emissions. Scope 1 covers direct emissions from owned or controlled sources. Scope 2 includes purchased electricity, heat and steam. Scope 3 encompasses all other indirect emissions in the value chain, from purchased goods to use of sold products. Many companies find that Scope 3 emissions dwarf their direct footprint.

The Seventh Carbon Budget will influence regulation, but it will also shape commercial expectations. Public sector procurement already uses carbon criteria through measures like PPN 06/21, which requires suppliers to publish carbon reduction plans. Private sector supply chains increasingly apply similar standards. Businesses without credible decarbonisation plans may find themselves excluded from tenders or dropped from approved supplier lists.

For companies in energy-intensive sectors, the focus should be on long-term capital planning. Heat pumps, electric process equipment and on-site renewable generation require significant upfront investment but can reduce both emissions and operating costs over their lifetime. Understanding the payback period and available support mechanisms is essential for making sound investment decisions.

Service sector businesses face different challenges. Office buildings need retrofit to improve energy efficiency. Company car fleets must transition to electric vehicles as the 2030 ban on new petrol and diesel cars approaches. Business travel policies need to account for the carbon intensity of different transport modes. These changes affect costs, but they also influence employee satisfaction and client perceptions.

Supply chain engagement is crucial across all sectors. As companies report Scope 3 emissions with increasing rigour, they will need suppliers to provide reliable emissions data and demonstrate credible reduction plans. This creates both pressure and opportunity. Businesses that can document their carbon performance clearly will be better placed to win contracts. Those that cannot may face difficult questions from procurement teams.

Businesses should also engage with carbon reduction planning and reporting support to ensure they meet current compliance requirements while preparing for stricter future standards. Understanding both the regulatory timeline and the commercial implications helps companies plan investment sensibly rather than reacting to last-minute deadlines.

Where to find detailed information on carbon budgets and climate policy

The Climate Change Committee’s advice on the Seventh Carbon Budget provides the full technical detail behind the 535 million tonne recommendation, including sector-by-sector analysis and assumptions about technology costs.

The Environmental Audit Committee’s inquiry page includes written and oral evidence submitted during the investigation into fairness and consent in climate policy. This material offers insight into how different sectors and communities view the net-zero transition.

The Department for Energy Security and Net Zero publishes policy updates, consultations and guidance on climate regulations as they develop. This is the primary source for understanding how carbon budget commitments translate into specific regulatory requirements.

For businesses needing practical guidance on carbon reporting and reduction planning, the SBS compliance support service helps companies navigate regulatory requirements and develop credible carbon reduction strategies that satisfy both public and private sector procurement standards.