## 1gbrea2022011 ## Source details **Canonical URL:** [1gbrea2022011](https://www.imf.org/-/media/files/publications/cr/2022/english/1gbrea2022011.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1gbrea2022011.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1gbrea2022011.pdf.json) --- ### Mission, scope, and timetable - At the request of the Chancellor of the Exchequer, an IMF Fiscal Affairs Department (FAD) team undertook a remote Climate Public Investment Management Assessment (C-PIMA) during September 20 to October 5, 2021. - The assessment incorporates information from the Net Zero Strategy (October 19, 2021) and the Autumn Budget and Spending Review 2021 (October 27, 2021). - Mission team composition: Ms. Carolina Renteria (lead), Mr. Bryn Battersby, Ms. Michelle Stone, Mr. Tjeerd Tim (all FAD), Mr. Carlos Mulas Granados (European Department), Mr. Murray Petrie (FAD short term expert); Mr. Tommy Chrimes (UK IMF ED Office) joined some meetings. - The mission met senior officials across HMT, BEIS, DEFRA, DLUHC, DfT, IPA, NAO, NIC, ONS, UKGI, UKIB, OBR, the Climate Change Committee (CCC), National Highways, Network Rail, and others. ### Context and high-level findings - Legal and outcome targets: - The UK has legally-binding long-term emissions reduction targets with the objective of achieving net-zero emissions by 2050. - The UK reduced greenhouse gas (GHG) emissions by 44 percent between 1990 and 2019. - Investment needs and institutional gaps: - The Climate Change Committee (CCC) estimates about £50 billion per year in additional investment is required to get to net zero by 2050. - Institutional setting, policies, and actions for mitigation are more developed than for adaptation; action on adaptation is lagging. - Capacity shortfalls exist in the supply of technical expertise on climate change and its interaction with policies and programmes; existing training programs fall short and require significant and speedy scale-up. ### Climate-PIMA overall assessment and scoring - Overall: relatively well-designed system to manage climate-relevant public investment with identified gaps in institutional design effectiveness. - Scoring summary: out of 15 dimensions, the UK scores high in 9 and medium in 6. - Selected dimension-level assessments and reform priorities: - C1 Climate-aware planning: HIGH. Reform priority: Low. - C2 Coordination between entities: MEDIUM. Reform priority: Medium. - C3 Project appraisal and selection: MEDIUM. Reform priority: Medium. - C4 Budgeting and portfolio management: HIGH. Reform priority: Low. - C5 Risk management: HIGH. Reform priority: Medium. - Annex 2 detailed scores (selected entries): - C1a National and sectoral planning: 3 - C1b Spatial Planning, Land use and building regulations: 3 - C1c Centralized guidance on planning: 3 - C2a Coordination across central government: 3 - C2b Coordination with devolved administrations and local governments: 2 - C2c Oversight and monitoring framework for PCs: 2 - C3a Climate analysis in project appraisal: 3 - C3b PPP framework including climate risks: 2 - C3c Climate consideration in project selection: 2 - C4a Climate budget coding: 2 - C4b Ex post review of projects: 3 - C4c Asset management including climate risks: 3 - C5a Disaster risk management strategy: 3 - C5b Ex ante financing mechanisms: 2 - C5c Fiscal risk analysis including climate risks: 3 ### Emissions outcomes, carbon budgets, and sectoral trends - National emissions: - UK annual GHG-emissions fell from 809 MtCO2e in 1990 to 458 MtCO2e in 2020 (excl. LULUCF). - Between 1990 and 2018 the UK reduced emissions by 40 percent; global emissions increased by 54 percent over the same period. - The UK's share of worldwide GHG emissions went from 2.5 percent in 1990 to 1 percent in 2019 (excluding LULUCF). - Intensity and per-capita changes: - GHG-emissions per capita dropped by 49 percent. - Emissions per USD$ unit of GDP decreased by 77 percent (compared to a global decrease of 69 percent). - Ton CO2e per capita: UK 1990 = 13.2; UK 2018 = 6.8; Change from 1990 = -49% - Ton CO2e per thousand USD$ GDP: UK 1990 = 0.7; UK 2018 = 0.2; Change from 1990 = -77% - Carbon budgets (as reported): - Budget 1 (2008 to 2012): Carbon Budget Level 3,018 MtCO2e — Approx. Emissions Reduction Target 25% — Progress: Target met - Budget 2 (2013 to 2017): Carbon Budget Level 2,782 MtCO2e — Approx. Emissions Reduction Target 31% — Progress: Target met - Budget 3 (2018 to 2022): Carbon Budget Level 2,544 MtCO2e — Approx. Emissions Reduction Target 37% by 2020 — Progress: Ongoing - Budget 4 (2023 to 2027): Carbon Budget Level 1,950 MtCO2e — Approx. Emissions Reduction Target 51% by 2025 — Progress: Still to start - Budget 5 (2028 to 2032): Carbon Budget Level 1,725 MtCO2e — Approx. Emissions Reduction Target 57% by 2030 — Progress: Still to start - Budget 6 (2033 to 2037): Carbon Budget Level 965 MtCO2e — Approx. Emissions Reduction Target 78% by 2035 — Progress: Still to start - Sectoral contributions to CO2-emissions decrease between 1990 and 2020: - Around 54 percent from the electricity sector - Around 19 percent from the business sector - Around 10 percent from the transport sector ### Net Zero Strategy (NZS): pathways, investment framing, and planning documents - Role of NZS: - Provides indicative pathways for key sectors and estimates combined private and public investment requirement to meet the Carbon Budgets. - Highlights investment decisions equivalent to around GBP26 billion taken as part of the Ten-Point Plan. - Promotes a “systems approach” and a framework for considering public vs private investment roles. - Does not provide a detailed roadmap of public investment requirements; a multi-year capital programme for newly announced sectoral plans is yet to be presented. - Planned and announced investment scales: - Government announced in March 2021 plans to invest more than GBP 600 billion in gross public sector investment over the next five years. - The CCC estimates capital investment required for a low-carbon energy system will rise from around GBP 10 billion in 2020 to around GBP 50 billion in 2030, and remain at approximately this level until 2050. - Sectoral and cross-government planning documents cited (examples): Ten-Point Plan, National Infrastructure Strategy, Energy White Paper, Transport Decarbonization Plan, Heat and Buildings Strategy, Hydrogen Strategy, Industrial Decarbonization Strategy, North Sea Transition Deal, Peat and Trees Action Plan. ### Spatial planning, building regulations, and planning reform - Spatial planning and regulations: - National Planning Policy Framework (NPPF) provides mitigation and adaptation guidance (flood risk, coastal change, water supply, biodiversity, landscapes, overheating). - Building Regulations Part L (2010) sets energy performance requirements; consultations on Future Homes Standard began in 2019 and Future Buildings Standard in 2021; these are unlikely to be in place before 2025. - Planning reform: new planning bill and revised NPPF expected to address climate mitigation and resilience; CCC criticized the Planning Bill as missing an opportunity to ensure Net Zero compliance and resilience. ### Project appraisal, PPPs, and transparency (C.3) - Project appraisal frameworks: - Business cases follow the "five case model" in the Green Book, Better Business Case Guidelines and supplementary guidance (Strategic Outline Case, Outline Business Case and Full Business Case). - "Accounting for The Effects of Climate Change: Supplementary Green Book Guidance" (2009, updated late 2020) sets out how to incorporate climate change into project development and appraisal. - The Green Book Review committed to commencement of summary business case publication from April 2021 within four months of projects having reached final approval; first publications were expected soon (at time of assessment). - Transparency and capability gaps: - Business cases are generally not published; the assessment team found it difficult to find public examples of business cases that incorporated climate impacts. - Mixed levels of capability across government to prepare robust appraisals accounting for a wide range of climate impacts. - Recommendations include publishing business cases and investing in capacity building for climate-inclusive appraisals. - PPPs and legacy PFI: - Over 700 PFI/PF2 projects executed with capital value of GBP 57 billion; PFI use halted in 2018. - IPA’s PFI Centre of Excellence supports national management of legacy contracts; NAO estimated assets to be transferred back to central government to 2026 valued at GBP 3.9 billion. - Historical PFI guidance did not explicitly cover climate risks for long-term PPP contracts; devolved authorities' PPP guidance does not explicitly include climate outside Green Book requirements. - Recommended: establish framework for legacy PFI contract management embedding climate considerations; devolved authorities should update PPP guidance. ### Budgeting, portfolio management, Green Gilts, and disclosure (C.4) - Budgeting and reporting limitations: - Annual budget documents report capital spending inputs by policy area but provide limited information on outputs or expected outcomes of climate-related investments and limited multiyear project spending details. - Lack of an operational definition of climate change-related investment restricts line of sight between Carbon Budgets and the government budget. - Main Estimates present contingent liabilities, including some climate related items (e.g., nuclear industry). - Spending Review 2021 (SR21) climate investments and coverage: - SR21 confirmed that since March 2021 the government will have committed a total of £30 billion of public investment for the green industrial revolution to support the Ten Point Plan. - SR21 targeted investments to 2024−25 included: - £620 million of new investment over the next three years for transition to electric vehicles and walking/cycling funding. - £416 million R&D funding for low and zero emission transport technologies and related programs. - £3.9 billion to decarbonize buildings (including £1.8 billion to support low-income households and £1.4 billion to decarbonize the public sector estate in England). - £1.5 billion to fund net zero innovation and invest in nuclear technologies and offshore wind (including £1.7 billion to enable a final investment decision for a large-scale nuclear project in this Parliament, £120 million for Future Nuclear Enabling Fund, £380 million for offshore wind). - Confirming £1 billion for Carbon Capture, Usage and Storage (CCUS). - Up to £140 million to support hydrogen producers and heavy industry adopting CCUS. - Expansion of the Nature for Climate Fund to ensure total spending of more than £750 million by 2024-25 (targets: plant at least 7,500 hectares of trees every year in England by 2025; restore 35,000 hectares of peatland). - Green Gilts and Green Register: - First sovereign green bond issued in September 2021; a second Green Gilt with 32 year maturity issued in October. - HMT will set up a Green Register to track allocations against Eligible Green Expenditure categories. - Eligible Green Expenditures include mitigation and adaptation and other environmental expenditures; allocations limited to expenditures no earlier than 12 months prior to issuance, the budget year of issuance, and the two budget years following issuance. - HMT intends to publish an allocation report annually and an impact report at least every two years. - Examples of intended environmental impact metrics include annual GHG emissions reduced/avoided (tons CO2 equivalent), project lifetime GHG impacts (MtCO2), and number of flood defenses and properties better protected. ### Evaluation, ex post review, asset management, and transparency - Evaluation frameworks: - Guidance: Chapter 8 of the Green Book and the Magenta Book on evaluation; planning of monitoring and evaluation required by HMT Business Case guidance. - Gate 5 Review (Operations Review and Benefits Realisation) assesses agreed strategic outcomes, typically occurs at handover and again 6−12 months after handover; major infrastructure projects must publish long-term evaluation of social and economic benefits between five and ten years into operation. - Government policy requires publication of evaluation reports but in practice they have limited visibility; SR20 acknowledged need to strengthen evaluation across government. - Asset management and performance reporting: - Gateway 5 Review tests lifecycle maintenance, sustainability targets, resilience frameworks, and stress tests. - Network Rail and Highways England have integrated adaptation and mitigation into strategies and KPIs: - Highways England reported maintenance and construction emissions of around 734 thousand tonnes of CO2e in 2020 projected to fall to around 350,000 tonnes in 2040 with no additional action. - Highways England targets include 40-50 percent emissions reduction by 2030 compared to 2020 and net zero for maintenance and construction emissions by 2040. - Central property register and State of the Estate KPIs: - Electronic Property Information Mapping Service (e-PIMS™) and State of the Estate Report capture property performance data. - Government reduced its emissions by 50% in 2019-20 compared to the 2009-10 baseline, exceeding the 43percent target for 2020. - Estimated contributors: 31 percent of the reduction due to estate management; 19percent due to national grid decarbonization. - Departments sent only 6percent of waste to landfill in 2019−20, exceeding the target to send less than 10percent. ### Risk management, fiscal risks, and ex-ante financing (C.5) - Disaster risk and adaptation governance: - CCRA and National Adaptation Programmes (NAP) underpin adaptation governance; Adaptation Sub-Committee of the CCC established. - CCRA3 identifies 61 high-level climate-related risks/opportunities across the economy, 11 directly related to infrastructure; finds sufficient adaptation underway for only four out of 61 risks and no plans for seven risks. - CCC highlights risks of cascading failures beginning in the power sector as a priority. - Contingencies Fund and ex-ante financing: - Contingencies Fund used for urgent expenditure; limit usually fixed at 2 percent of total authorized Supply expenditure in the preceding financial year. - Contingencies Fund Act 2020 increased maximum capital from 2 percent to 50 percent (COVID-19 response); a subsequent Act allowed temporary increase to 12 percent. - The government does not utilize other ex-ante financing mechanisms to manage public infrastructure post-disaster recovery beyond the Contingencies Fund. - No successor program announced to replace the EU Solidarity Fund to which the UK previously had access. - Fiscal risk assessment and OBR scenario work: - OBR Fiscal Risks Report (biennial) introduced climate-related fiscal risks in 2019 and deepened analysis in 2021. - OBR scenario assumptions example (Unmitigated climate change scenario): 4-degree Celsius increase in UK temperatures by the end of the century; cost of adaptation for each degree of warming of around 0.3 percent of GDP each year; scale and frequency of shocks roughly doubles by the end of the period. - Under the illustrative scenario, net debt interest payments increase from 2.5 percent to around 28 percent of revenue by the end of the century. - Exposure valuation: - CCRA3 and Monetary Valuation of Risks provide indicative quantitative analysis for infrastructure-related risks; largest valuations relate to cascading failures and flooding with risk valuations in the hundreds of millions to billions of pounds per year. - Oversight and risk maturity: - NAO survey of ARAC Chairs: four out of five Chairs considered climate risks relevant; over half noted no climate/sustainability risk policy or dedicated accountable employee; seven in ten Chairs said climate risks had never been discussed or discussed less than annually at ARAC meetings. - NAO guide aimed to assist ARACs in supporting senior management on climate risk management. ### Capacity development, information systems, and operational actions - Capacity challenges and NZS actions: - NZS highlights capacity gap and ambition for capabilities from “broad essential capabilities” to “world-leading technical specializations.” - Steps summarized in NZS: Government Skills and Curriculum Unit, expanded climate-specific training for civil servants, embedding climate in competency frameworks, new climate focus for leadership training. - Information systems and reporting: - OSCAR and GMPP databases do not currently include climate information; OSCAR includes a PFI database. - HMT committed to set up a Green Register to track Eligible Green Expenditure categories; ONS leading an online portal for climate information based on a new UK Climate Framework with a prototype planned for launch. - Monitoring and managing adaptation data remains more challenging than mitigation; adaptation impacts are not currently tracked and a baseline of adaptation indicators is not yet available. - Cross-cutting operational recommendations: - Include key project-level climate information in the GMPP database. (IPA) - Design the Green Register to meet a wide range of user needs for information in addition to green gilt reporting. (HMT with BEIS, DEFRA, ONS) - Extend the ambition for government capacity summarized in the Net Zero Strategy to all levels of government and to public corporations, and develop measures to build this capacity. (All levels of government) - Build capabilities in relevant areas of DEFRA to ensure strategies and plans are implemented, and to deliver guidance and training. (DEFRA) ### Priority recommendations (selected by Climate-PIMA dimension) - C1 Climate-aware planning - 1.1 Build strategy and planning capacity across government agencies for investment strategies to better support achievement of climate targets. (BEIS and DEFRA in consultation with HMT) - 1.2 Increase guidance and training on incorporating mitigation and adaptation objectives into public investment. (BEIS and DEFRA in consultation with HMT) - C2 Coordination between entities - 2.1 Develop a regional and local government delivery, and accompanying reporting, framework with climate change-related investment responsibilities, actions and requirements. (BEIS, DEFRA, DLUHC) - 2.2 Develop and implement guidance on integrating climate into shareholder ownership and oversight functions. (HMT, BEIS, DEFRA) - C3 Project appraisal and selection - 3.1 Improve the transparency of business cases - publication. (HMT) - 3.2 Improve training and support on the incorporation of climate impacts in business cases and strengthen DEFRA's capacity to support business case assessments. (HMT with DBEIS and DEFRA) - 3.3 Establish a framework for legacy PFI contract management and the return of assets to the public sector that embeds climate considerations. (IPA) - 3.4 Devolved authorities implementing PPPs should update their guidelines for climate risks. (Devolved Admin. with IPA) - 3.5 Include information on adaptation impacts to the highest-level decision makers during spending reviews. (HMT) - C4 Budgeting and portfolio management - 4.1 Define and publish an operational definition of what constitutes a climate change-related investment. (HMT) - 4.2 Expand disclosure of anticipated impacts of new public investment spending in existing budget documents or as part of a wider Climate or Green Budget Statement. (HMT, BEIS and DEFRA) - 4.3 Implement current policy on publication of ex post project evaluations and increase the accessibility of evaluation reports. (All government agencies) - 4.4 Develop detailed monitoring and evaluation frameworks for climate change adaptation. (DEFRA with HMT) - C5 Risk management - 5.1 Close gaps in progress toward planning for climate-related infrastructure risks identified by the CCC. (DEFRA) - 5.2 Undertake fiscal stress tests of high-impact low-probability climate-related events and assess the need for alternative ex-ante financing mechanisms to cover extreme events. (HMT) - 5.3 Assess the need for alternative ex ante financing mechanisms (e.g., disaster fund or risk-transfer mechanisms) for extreme events. (HMT) *Source: IMF staff* ### PREFACE ___________________________________________________________________________________________________ 6 ### PREFACE and EXECUTIVE SUMMARY ### Mission, scope, and timetable - At the request of the Chancellor of the Exchequer, an IMF Fiscal Affairs Department (FAD) team undertook a remote Climate Public Investment Management Assessment (C-PIMA) during September 20 to October 5, 2021. - The assessment incorporates information from the Net Zero Strategy (October 19, 2021) and the Autumn Budget and Spending Review 2021 (October 27, 2021). - The mission team was led by Ms. Carolina Renteria and included Mr. Bryn Battersby, Ms. Michelle Stone, Mr. Tjeerd Tim (all FAD), Mr. Carlos Mulas Granados (European Department) and Mr. Murray Petrie (FAD short term expert). Mr. Tommy Chrimes (UK IMF ED Office) joined some meetings. - The mission met senior officials across HMT, BEIS, DEFRA, DLUHC, DfT, IPA, NAO, NIC, ONS, UKGI, UKIB, OBR, the Climate Change Committee (CCC), National Highways, Network Rail, and others. ### Context and high-level findings - The UK has legally-binding long-term emissions reduction targets with the objective of achieving net-zero emissions by 2050. - The UK reduced greenhouse gas (GHG) emissions by 44 percent between 1990 and 2019. - The Climate Change Committee (CCC) estimates about £50 billion per year in additional investment is required to get to net zero by 2050. - The institutional setting, policies, and actions for mitigation are more developed than for adaptation; action on adaptation is lagging. - Capacity shortfalls exist in the supply of technical expertise on climate change and its interaction with policies and programmes; existing training programs fall short and require significant and speedy scale-up. ### Climate-PIMA overall assessment - The Climate-PIMA shows a relatively well-designed system to manage climate-relevant public investment but identifies gaps in institutional design effectiveness. - Scoring summary: out of 15 dimensions, the UK scores high in 9 and medium in 6. - Detailed scores are at Annex 2; the questionnaire is at Annex 3. - Institutional strengths and gaps by assessed dimension: - C1 Climate-aware planning: HIGH. National and sectoral public investment plans are aligned with climate objectives; spatial planning and building regulations support resilience; extensive written guidance exists. Reform priority: Low. - C2 Coordination between entities: MEDIUM. Strong central coordination but weaker requirements and reporting from local governments and public corporations. Reform priority: Medium. - C3 Project appraisal and selection: MEDIUM. Good guidance exists (Green Book and supplements) and projects are required to incorporate climate analysis; business cases are generally not public; legacy PFI contract management from a climate perspective is incomplete; formal selection criteria are not in place. Reform priority: Medium. - C4 Budgeting and portfolio management: HIGH. Budget documents report capital spending inputs; SR20 and SR21 included climate-related investments; IPA has Net Zero and climate resilience assurance tests; robust ex post evaluation and NAO VfM audit frameworks; central property register records climate-related data. Reform priority: Low. - C5 Risk management: HIGH. Strong risk management framework with comprehensive fiscal risk analysis in the CCRA and OBR fiscal risk statements; Contingencies Fund available subject to 2 percent of total authorized supply expenditure. Reform priority: Medium. ### Observed strengths in practice - National and sectoral planning aligned with climate objectives and supported by spatial planning and building regulations. - Central coordination framework with clearly-defined departmental roles; lead responsibilities exist at the executive level. - Project appraisal guidance (Green Book and supplementary guidance) requires consideration of climate change in project development and decision-making. - Budget and portfolio practices include capital spending inputs by policy area; IPA assurance tests and NAO audit guidance support oversight. - Central property register captures climate-related data and supports reporting against targets. - Strong risk identification in the CCC’s Climate Change Risk Assessment (CCRA) and UK Risk Register; OBR provides illustrative fiscal impact guidance. ### Observed gaps and limitations - Adaptation action lags mitigation; modifications in standards and wider training/support are required to integrate climate targets across programmes and projects. - Local governments are not required to report climate change-related investment strategies or projects to the UK Government; no formal UK-wide forum/process to coordinate climate-related public investment strategies with local authorities. - Current public corporation (PC) ownership framework lacks a UK government-wide ownership policy and performance instruments requiring PC capital spending plans to be fully consistent with mitigation and adaptation targets. - Business cases are generally not published, reducing transparency. - Management framework for legacy PFI contracts is still being established and does not yet fully embed climate considerations. - Subnational PPP frameworks and the Green Book PPP annex do not explicitly refer to climate change. - Budget documents provide limited information on expected outputs or outcomes of climate-related public investments and limited information on multiyear project spending and outputs; negative climate-change impacts are not identified in published budget materials. - Fiscal tools for extreme, high-impact low-probability climate events are limited; fiscal stress tests could be used to assess alternative ex-ante financing mechanisms. ### Priority recommendations (by Climate-PIMA dimension) - C1 Climate-aware planning - 1.1 Build strategy and planning capacity across government agencies for investment strategies to better support achievement of climate targets. (BEIS and DEFRA in consultation with HMT) - 1.2 Increase guidance and training on incorporating mitigation and adaptation objectives into public investment. (BEIS and DEFRA in consultation with HMT) - C2 Coordination between entities - 2.1 Develop a regional and local government delivery, and accompanying reporting, framework with climate change-related investment responsibilities, actions and requirements. (BEIS, DEFRA, DLUHC) - 2.2 Develop and implement guidance on integrating climate into shareholder ownership and oversight functions. (HMT, BEIS, DEFRA) - C3 Project appraisal and selection - 3.1 Improve the transparency of business cases - publication. (HMT) - 3.2 Improve training and support on the incorporation of climate impacts in business cases and strengthen DEFRA's capacity to support business case assessments. (HMT with DBEIS and DEFRA) - 3.3 Establish a framework for legacy PFI contract management and the return of assets to the public sector that embeds climate considerations. (IPA) - 3.4 Devolved authorities implementing PPPs should update their guidelines for climate risks. (Devolved Admin. with IPA) - 3.5 Include information on adaptation impacts to the highest-level decision makers during spending reviews. (HMT) - C4 Budgeting and portfolio management - 4.1 Define and publish an operational definition of what constitutes a climate change-related investment. (HMT) - 4.2 Expand disclosure of anticipated impacts of new public investment spending in existing budget documents or as part of a wider Climate or Green Budget Statement. (HMT, BEIS and DEFRA) - 4.3 Implement current policy on publication of ex post project evaluations and increase the accessibility of evaluation reports. (All government agencies) - 4.4 Develop detailed monitoring and evaluation frameworks for climate change adaptation. (DEFRA with HMT) - C5 Risk management - 5.1 Close gaps in progress toward planning for climate-related infrastructure risks identified by the CCC. (DEFRA) - 5.2 Undertake fiscal stress tests of high-impact low-probability climate-related events and assess the need for alternative ex-ante financing mechanisms to cover extreme events. (HMT) - 5.3 Assess the need for alternative ex ante financing mechanisms (e.g., disaster fund or risk-transfer mechanisms) for extreme events. (HMT) ### Cross-cutting operational actions - Information systems - Include key project-level climate information in the GMPP database. (IPA) - Design the Green Register to meet a wide range of user needs for information in addition to green gilt reporting. (HMT with BEIS, DEFRA, ONS) - Capacity development - Extend the ambition for government capacity summarized in the Net Zero Strategy to all levels of government and to public corporations, and develop measures to build this capacity. (All levels of government) - Build capabilities in relevant areas of DEFRA to ensure strategies and plans are implemented, and to deliver guidance and training. (DEFRA) *Source: IMF staff* ### 1. The UK has a strong climate change framework emanating from the Climate ### 1. The UK has a strong climate change framework emanating from the Climate ### Overview of the climate framework - The Climate Change Act (CCA) 2008 introduced legally binding quantitative short-, medium- and long-term targets, processes for policy planning to realize short and interim emissions-targets, and an independent advisory body that advises the UK governments on meeting its targets and monitors progress. - The CCA covers both mitigation and adaptation governance and processes. - The CCA has been cited as a model by other jurisdictions. ### Governance and institutional arrangements - The CCA defines climate-change-related duties and powers of UK government departments and enables collective decision-making via Cabinet committees (one chaired by the prime minister). - Departmental responsibilities: - Department for Business, Energy and Industrial Strategy (BEIS): cross-economy decarbonization strategies (most recent: Net Zero Strategy), power sector and industry emissions, joint work with Department for Levelling-up, Housing and Communities (DLUHC) on buildings. - Department for Transport (DfT): transport emissions. - Department for Environment, Food, and Rural Affairs (Defra): land use, agriculture, waste, water and Fluorinated greenhouse gases. - Support and coordination: Cabinet Office, Prime Minister’s Office, Her Majesty’s Treasury (HMT) (including a budgetary framework to enable climate policy), and working groups at director general and director levels. - Devolved administrations (Scotland, Wales, Northern Ireland) have their own climate policies but must contribute to UK-wide targets; they account for roughly 20 percent of total UK GHG emissions. Around 11 percent of emissions are in areas where some or all key powers are reserved to devolved administrations. - Independent institutions: - Climate Change Committee (CCC): publicly funded independent statutory body; duties include independent analyses, stakeholder engagement, advice on setting and meeting carbon budgets and preparing for climate change, and monitoring progress. - Office for Budget Responsibility (OBR): estimates potential economic and budgetary impacts and fiscal risks of climate change adaptation and mitigation actions. ### Climate change mitigation: objectives and carbon budgets - Long-term target: - The UK aims at achieving net-zero emissions by 2050. - CCA 2008 originally set a 2050 target of 80 percent below 1990 levels; in 2019 this was increased to net-zero by 2050. - Carbon budgets (budget-based approach): - Government must set five-year carbon budgets at the national level from 2008 to 2050, set 12 years in advance; carbon budgets are proposed by the CCC and the government must explain deviations from CCC advice. - So far, six budgets have been approved and the government has always taken on board the CCC’s proposed carbon budgets. - Carbon budget table (as reported): - Budget 1: Budget Period 2008 to 2012 — Carbon Budget Level 3,018 MtCO2e — Approx. Emissions Reduction Target 25% (below 1990 levels) — Progress: Target met - Budget 2: Budget Period 2013 to 2017 — Carbon Budget Level 2,782 MtCO2e — Approx. Emissions Reduction Target 31% — Progress: Target met - Budget 3: Budget Period 2018 to 2022 — Carbon Budget Level 2,544 MtCO2e — Approx. Emissions Reduction Target 37% by 2020 — Progress: Ongoing - Budget 4: Budget Period 2023 to 2027 — Carbon Budget Level 1,950 MtCO2e — Approx. Emissions Reduction Target 51% by 2025 — Progress: Still to start - Budget 5: Budget Period 2028 to 2032 — Carbon Budget Level 1,725 MtCO2e — Approx. Emissions Reduction Target 57% by 2030 — Progress: Still to start - Budget 6: Budget Period 2033 to 2037 — Carbon Budget Level 965 MtCO2e — Approx. Emissions Reduction Target 78% by 2035 — Progress: Still to start ### Emissions outcomes and sectoral trends - National GHG-emissions trends: - UK annual GHG-emissions fell from 809 MtCO2e in 1990 to 458 MtCO2e in 2020 (excl. LULUCF). - Between 1990 and 2018 the UK reduced emissions by 40 percent, while global emissions increased by 54 percent over the same period. - The UK's share of worldwide GHG emissions went from 2.5 percent in 1990 to 1 percent in 2019 (excluding LULUCF). - Intensity and per-capita changes: - GHG-emissions per capita dropped by 49 percent. - Emissions per USD$ unit of GDP decreased by 77 percent (compared to a global decrease of 69 percent). - Table excerpt (GHG-Emission Per Capita and GDP, excl. LULUCF): - ton CO2e per capita: World 1990 = 7.3; World 2018 = 6.6; Change from 1990 = -8% — UK 1990 = 13.2; UK 2018 = 6.8; Change from 1990 = -49% - ton CO2e per thousand USD$ GDP: World 1990 = 3.8; World 2018 = 1.2; Change from 1990 = -69% — UK 1990 = 0.7; UK 2018 = 0.2; Change from 1990 = -77% - Sectoral reductions: - The UK has reduced CO2-emissions in all economic sectors; strongest reduction in the energy (electricity) sector. - Contribution to CO2-emissions decrease between 1990 and 2020: - Around 54 percent from the electricity sector - Around 19 percent from the business sector - Around 10 percent from the transport sector - Electricity sector decarbonization instruments: - Carbon pricing - Feed-in tariffs for low-carbon generators - Emissions Performance Standard limiting CO2 per kWh for new power stations ### Climate change adaptation: governance, risks, and priorities - Adaptation governance under the CCA: - Establishment of an Adaptation Sub-Committee of the CCC. - Government required to publish a Climate Change Risk Assessment (CCRA) every five years; responses are set out in National Adaptation Programmes (NAP). - Adaptation Reporting Power: discretionary power enabling the government to invite or direct infrastructure providers and public bodies to report on climate change preparedness. - Projected risks: - Even under ambitious global mitigation scenarios, the UK will most likely be exposed to severe climate change risks (CCRA3): changing rainfall patterns, flooding, water scarcity, coastal erosion, wildfires, and increased variability of weather variables (wind strength and direction, sunshine, UV-levels). - Bank of England (2021) estimated that sea level rise could exacerbate coastal flooding risk in the UK. - NAP 2018−23 priority areas (6 priority areas identified): 1. Flooding and coastal change risks to communities, businesses and infrastructure — High priority 2. High temperatures risk to health, well-being and productivity — High priority 3. Shortages in the public water supply for agriculture, energy generation and industry — Medium-low priority 4. Risks to natural capital including terrestrial, coastal, marine and freshwater ecosystems, soils and biodiversity 5. Risks to domestic and international food production and trade 6. New and emerging pests and diseases and invasive non-native species affecting people, plants and animals ### Public infrastructure, investment scale, and climate implications - Ownership and operation of infrastructure: - Infrastructure assets critical for government service delivery are held in public and private hands; private sector often operates infrastructure under license and regulatory oversight. - Public infrastructure as a share of GDP was 44.6 percent in 2019 compared to an advanced country average of 55.7 percent. - Planned investment scale and climate alignment: - Government announced in March 2021 plans to invest more than GBP 600 billion in gross public sector investment over the next five years. - The CCC estimates capital investment required for a low-carbon energy system will rise from around GBP 10 billion in 2020 to around GBP 50 billion in 2030, and remain at approximately this level until 2050. Major drivers include electricity supply, fuel supply, energy networks, surface transport, buildings, and land use, land-use change, and forestry. - The CCC indicates aggregate operating cost savings from a low-carbon energy system could, if planned and executed well, match the annual investment necessary; savings will mostly arise in the transport sector, and to a lesser extent in electricity supply and low-carbon buildings. - Climate risks to infrastructure: - Weather and climate impact infrastructure performance, leading to disruption or loss of service with implications for economic activity, equity, health, and well-being. ### Climate Public Investment Management Assessment (Climate PIMA) - Climate PIMA covers five key public investment management practices from a climate perspective: - C1. Climate-aware planning: Is public investment planned from a climate change perspective? - C2. Coordination between entities: Is there effective coordination of decision making on climate change-related public investment across the public sector? - C3. Project appraisal and selection: Do project appraisal and selection include climate-related analysis and criteria? - C4. Portfolio management and oversight: Is climate-related investment spending subject to active management and oversight? - C5. Risk management: Are fiscal risks relating to climate change and infrastructure incorporated in budgets and fiscal risk analysis and managed according to a plan? - Detailed assessment highlight: - C1. Climate-aware Planning — Strength: High - National and sectoral public investment plans are aligned with the UK’s climate objectives. - Planning Act (2008) requires explanation of how national policy statements relate to mitigation and adaptation. - Principal strategy documents: the 2017 Clean Growth Strategy (CGS) until 2021, and the Net Zero Strategy (NZS) in 2021 which summarizes key sectoral policies and programmes for meeting the Sixth Carbon Budget. - The 2020 Spending Review set out multi-year capital programme settlements for climate change policies, including those announced in the Net Zero Strategy. - The NAP sets out adaptation targets in response to the CCC’s CCRA; NAP primarily covers England. _Italic: Source: IMF staff summary of "1gbrea2022011 - 1. The UK has a strong climate change framework emanating from the Climate" (PDF chapter)._ ### 23. The Net Zero Strategy provides indicative pathways for key sectors and estimates ### 1gbrea2022011 - 23. The Net Zero Strategy provides indicative pathways for key sectors and estimates ### NZS overview and investment framing - The Net Zero Strategy (NZS) provides indicative pathways for key sectors and estimates the combined private and public investment requirement to meet the Carbon Budgets. - Substantial expected reductions in emissions are outlined across six key sectors, contributing to an indicative delivery pathway to achieving the carbon budget targets and the nationally determined contribution. - For each key sector, policies and total public and private investment requirements are described, and the revised NZS pathway is estimated and presented (Figure 7). - The NZS highlights investment decisions equivalent to around GBP26 billion that have been taken as part of the Ten-Point Plan for a Green Industrial Revolution and some future key investments that are likely to be required. - The Strategy does not provide a detailed roadmap of public investment requirements to achieve Net Zero but: - promotes a “systems approach” to policymaking and the consideration of future public investment, and - provides a framework for considering the different roles of public and private investment in achieving the Net Zero targets. - A multi-year capital programme for investments under the range of newly announced sectoral plans is yet to be presented. ### Sectoral and cross-government planning documents - Public investment plans consistent with the Net Zero targets and the NAP are outlined in several government publications, including: - The Ten-Point Plan for a Green Industrial Revolution and the accompanying National Infrastructure Strategy. - The National Infrastructure Strategy commits to making infrastructure resilient to future climate change and requires that expected effects of climate change are fully considered at the design stage for major projects. - The Energy White Paper supports the Ten-Point Plan and includes commitments to support at least one power CCS project by 2030 and the goal of a final investment decision on one nuclear power plant during the current Parliament. - The Transport Decarbonization Plan sets out the path to net zero transport and related commitments and investments. - The National Planning Policy Framework aligns central and local government actions in housing and community development with sustainable development. - The Heat and Buildings Strategy sets out the government’s plan to cut carbon emissions from homes across the United Kingdom. - The Hydrogen Strategy provides a roadmap to support development of a hydrogen economy. - Other sectoral documents include the Industrial Decarbonization Strategy, the North Sea Transition Deal, and the Peat and Trees Action Plan. ### Spatial planning, building regulations, and planning reform - Spatial planning: - The National Planning Policy Framework (NPPF) sets out planning policies for England including mitigation and adaptation guidance covering flood risk, coastal change, water supply, biodiversity, landscapes, and overheating risk. - The Planning and Compulsory Purchase Act (2004) requires planning applications be determined in accordance with the development plan; the NPPF must be taken into account in preparing the development plan and is a material consideration. - Building regulations: - Part L of the Building Regulations 2010 (England and Wales) sets requirements relating to the conservation of fuel and power to raise energy performance of buildings. - Consultations began on a Future Homes Standard in 2019 and a Future Buildings Standard in 2021, targeting low carbon heating and high energy efficiency in new homes and new energy and ventilation standards for existing homes and buildings. - These future standards are unlikely to be in place before 2025. - Planning reform: - The new planning bill and revised NPPF are expected to address climate change mitigation and resilience more clearly. - Proposal 15 of the 2020 White Paper intends to ensure the planning system can effectively play a role in mitigation and adaptation. - Proposal 18 outlines plans to facilitate ambitious improvements in energy efficiency standards for buildings to help achieve the Net Zero target. - The CCC has criticized the Planning Bill as missing an opportunity to ensure developments and infrastructure are compliant with Net Zero and appropriately resilient to climate change. ### Guidance, capacity, and implementation challenges - Centralized guidance: - BEIS has provided supplementary analysis to the Green Book on quantifying and valuing direct and indirect impacts of energy use and greenhouse gases in project planning. - DEFRA has provided supplementary guidance to ensure policies, programmes, and projects are resilient to climate change and that effects are considered during appraisal. - The Project/Programme Outcome Profile guides officials on contributions to priority outcomes, including Net Zero or adaptation priorities, creating a ’golden thread’ from strategic priorities to project delivery objectives. - Capacity constraints: - The NZS notes that action is required at unprecedented scale and that specialist skills and expertise are needed; a capacity gap remains across the public sector. - The NZS outlines government actions to build capacity, including an expanded training offer for civil servants specific to climate change and inclusion of climate considerations in the professional development framework of the Civil Service. - HMT provides training on the application of the Green Book, but capacity for long-term climate-relevant strategy development in departments and agencies is, in some cases, lagging demand. - Limited capacity for key agencies such as DEFRA to deliver training or capacity development on climate-related planning remains, despite efforts to ramp up capacity. ### Coordination and governance - Central government coordination: - The Prime Minister’s and Cabinet Office are central to the climate change governance framework. - Since 2020, two cabinet committees have been established: - The Climate Action Strategy Committee (CAS), chaired by the Prime Minister, focuses on delivery of the UK’s domestic and international climate strategy. - The Climate Action Implementation Committee (CAI), chaired by the President for COP26, focuses on net zero and building the UK’s climate resilience. - Decisions by these Cabinet committees are binding on the entire Cabinet; executive leadership of all relevant departments participate. - BEIS is the primary department for mitigation policy and related investments; DEFRA leads on domestic adaptation. - Interdepartmental working groups and the Infrastructure and Projects Authority (IPA) support integration of climate priorities into major projects; the IPA reports to the Cabinet Office and HMT. - HMT is integrating climate change into capital decision-making, including net-zero review, green financing framework, and including CC impact assessment in the Spending Review process beyond CCA requirements. - Devolved authorities and local government: - Scotland, Wales, and Northern Ireland represent roughly 20 percent of the total UK’s CO2-emissions. - Devolved administrations create climate policy and investments for their areas and must help implement UK-wide climate policies; each has its own adaptation programme. - Before laying a draft statutory instrument containing an order setting a carbon budget, the UK government must take into account the CCC's advice and any representations by the devolved administrations. - The CCC reports the role of devolved authorities is increasingly important, especially as mitigation progress extends into devolved sectors. - Local governments: - Local authorities are directly responsible for only 2–5 percent of total GHG-emissions, but hold policy levers—capital spending and assets, legal powers, local knowledge, and stakeholder networks—that can drive GHG reductions and resilience. - Many local governments are making climate commitments; over one third have developed strategies and actions to deliver targets by 2040 and 2050. - According to the CCC, over 300 local government councils have declared climate emergencies. - NAO research identified climate mitigation commitments by 232 local authorities; the assessment included 152 single- and upper-tier authorities, 10 combined authorities, the Greater London Authority, and a sample of 69 out of the 181 district councils in England. ### Local government climate commitments and funding - Table: United Kingdom: Local Government Climate Action — Carbon neutrality and net zero commitment (Percentage of local governments) - Before or by 2030: 38 percent - Between 2031 and 2050: 33 percent - No target date: 3 percent - Total: 73 percent - Local funding and reporting issues: - Local funding for climate action is fragmented across grants, support schemes, borrowing, and private finance. - The NAO identified 22 net-zero related grant schemes from the UK government for local governments. - The NZS recognizes consolidation of fragmented funding and longer-term funding certainty could enhance innovation and investments, reduce bureaucracy, and encourage integrated budget decision-making; the Government committed to exploring consolidation where this provides the best approach to net zero funding. - Local governments’ locally financed capital spending strategies are not fully included in central government capital spending analyses because local reporting mechanisms do not require reporting of all climate-change-related investment strategies or projects to the UK government. - Central government influences local climate-related capital spending through sectoral policies, national building and spatial standards, and conditionalities on capital transfers; for example, the UK government is allocating more than GBP 12 billion for local investment in decarbonizing local transport systems. ### Recommendations (from the source) - Recommendation 1.1: Build strategy and planning capacity across government agencies to ensure national and sectoral investment strategies are adequately designed to achieve climate targets and are effectively implemented (BEIS and DEFRA in consultation with HMT). - Recommendation 1.2: Build government capabilities to deliver regular advice, guidance, and training on the incorporation of mitigation and particularly adaptation objectives in the design of public investment-related programmes and projects (BEIS and DEFRA in consultation with HMT). *Source: IMF staff.* ### 43. The current climate change related public investment framework does not deliver ### 43. The current climate change related public investment framework does not deliver ### Overview and key challenge - The framework "does not deliver the clearest overview of the guidance given to and the delivery roles of local governments." - Complexity of climate change investments, limited information exchange about climate change related plans and projects, and the informality of policy networks can pose challenges for local governments developing cost effective climate change related public investment strategies. - Annex 7 provides an example from Netherlands of a formal coordination mechanism designed to ensure that local government develop local grown energy transitions strategies that—at an aggregate level—sufficiently contribute towards achieving renewable energy targets. ### Intergovernmental coordination (national–local) - Intergovernmental coordination of national-local capital spending is described as "informal and fragmented." - Despite numerous initiatives and cooperation arrangements (e.g., with the Local Government Association (LGA)), authorities did not indicate the existence of a well-coordinated framework through which the UK-government and local governments develop their climate-change-related public investments. - Net Zero Strategy (NZS) commitments: - Announced increased support to all local governments in developing and delivering zero delivery plans and adaptation. - Intention to set clearer expectations for local authorities, provide resources for local places and support capacity and capability building at the local level. - Aims to build on existing engagement with representative bodies such as LGA and ADEPT. - BEIS will have overall responsibility for improving coordination with local government and other local actors. - Commitment to create a new Local Net Zero Forum to embed climate considerations into local decision-making processes and to "ensure that local public investments do not lock in assets that are not aligned with UK-wide climate change targets." ### Public corporations (PCs): institutional design and reporting - Sponsoring departments execute PC-ownership functions (approving investment strategies, performance monitoring) per PC-specific framework documents; they may use advice from UKGI, BEIS, and Defra for climate expertise. - Regulatory and reporting environment: - PCs in the UK are subject to climate-change relevant market regulations and reporting standards such as minimum standards for energy efficiency and the UK ETS. - "By 2025, the UK will require climate risk disclosures in line with the Task Force of Climate-related Financial Disclosures (TCFD) by all public corporations." - Green Government Commitments (GCG) policy paper (October 2021) commits the UK government to reduce the GHG-emissions of the government and develop organization specific Climate Adaptation Strategies; it is unclear whether all PCs are subject to this requirement. - Gaps in ownership and oversight: - "The current framework for PC ownership and oversight lacks a single and UK government-wide ownership policy that requires compliance of PC capital spending plans with CC targets." - No formal requirement for all PCs and sponsoring departments to assess new PC-investment projects or programs for impacts on climate mitigation and exposure to climate change risks. - No formal requirement that all PCs and sponsoring departments incorporate climate objectives, targets, and indicators in PC ownership instruments (e.g., performance agreements) and monitor performance against these targets. - Authorities indicated that climate change is becoming more integrated into ownership instruments over time via periodic framework reviews and updates to long-term capital strategies. - Reporting practice: - Many PCs are developing corporate strategies in the context of national climate change targets and policies and are publishing information about climate commitments and climate adaptation relevant to their operations. - Some annual reports include reflections on contribution to the Sustainability Development Goals. ### Recommendations (from the source) - Recommendation 2.1. "Develop a regional and local government delivery and accompanying reporting framework with clear climate change-related investment responsibilities, actions and requirements, to ensure that subnational capital spending plans are informed by UK-wide climate change policies and capital spending plans." (BEIS, DEFRA, DLUHC) - Recommendation 2.2. "Develop guidance and communicate to shareholder ministries how to integrate climate mitigation and adaptation into their shareholder ownership and oversight functions and activities" (HMT, BEIS, DEFRA). ### C.3 Project Appraisal and Selection — overview - Strength assessments in text: - C.3 Project Appraisal and Selection (Strength: Medium) - C.3.a Project Appraisal (Strength: High) - C.3.b Public Private Partnerships and the Private Finance Initiative (Strength: Medium) - C.3.c Project Selection (Strength: Medium) ### C.3.a Project appraisal: frameworks, guidance, and transparency - Business case development: - Infrastructure projects are required to incorporate climate analysis in progressively more developed business cases as they pass through gateway reviews. - Business cases follow the "five case model" documented in the Green Book, Better Business Case Guidelines and related supplementary guidance (Strategic Outline Case, Outline Business Case and Full Business Case). - Whole-of-government methodologies, templates, tools and examples are generally publicly available; support is available from HMT and some departments (DfT has "Transport Analysis Guidance"). - The Green Book and related guidance are used by devolved administrations either directly or in amended form updated in line with the Green Book. - Accounting for climate change: - "Accounting for The Effects of Climate Change: Supplementary Green Book Guidance" (originally 2009, updated late 2020) sets out how project development, appraisal and decision making should take into account climate change and identifies key points at which climate change is to be incorporated into the project development process. - Green Book Review actions and capability: - In the Green Book Review, the Government committed to commence publication of summary business cases from April 2021 within four months of projects having reached final approval. "The first publications under this policy are expected soon and will be a useful increase in transparency." - The assessment team found it difficult to find public examples of business cases that incorporated climate impacts and were not provided with examples by government agencies. - Mixed levels of capability across government to prepare robust appraisals that take into account a wide range of relevant climate impacts. - Some measures announced in the Green Book Review have been implemented, including revisions to the Green Book in December 2020 and the introduction of the project outcome profile. - "A review of the discount rate for environmental valuation (committed to in the Green Book Review) was completed in September 2021 and concluded that no change was necessary." - Further technical advice still to be developed (e.g., valuation of biodiversity in project appraisal). - Effectiveness improvements: - Publication of business cases would improve effectiveness by (i) improving information for developers and evaluators, and (ii) through external scrutiny incentivizing higher quality appraisals. - Investing in capacity building for appraisals that include climate mitigation and adaptation impacts and strengthening the network of business case professionals across government are recommended. ### C.3.b Public Private Partnerships (PFI/PPP): legacy management and guidance gaps - Legacy PFI contracts and scale: - UK Government halted the use of PFI contracts in 2018. "At that time more than 700 projects had been executed with a capital value of GBP 57 billion (2.7 percent of GDP), which were to run to the end of the contract period." - Management of legacy contracts at the national level is supported by IPA’s PFI Centre of Excellence. - IPA has been examining how contract management can contribute to climate mitigation and adaptation goals and is working with sectors including health, education, waste and street lighting. - Main opportunities include: (i) allowing project reserves to be invested in reducing GHG-emissions or improving adaptation readiness without requiring contract amendments; and (ii) appealing to partners to make amendments to demonstrate environmental outcomes. - "In 2020, the NAO estimated that assets to be transferred back to the central government in the period to 2026 are valued at GBP 3.9 billion." - Guidance gaps and procurement rules: - Historical PFI guidance and the Green Book did not explicitly cover management of climate risks in long-term PPP contracts (risk allocation, exposure to projected climate change, handling PPP asset exposure). - Devolved governments continue to use PPPs and have their own modalities; devolved guidance does not appear to include explicit advice on coverage of climate risks outside Green Book requirements. - Some procurement legislation carried over from EU frameworks includes relevant considerations: - Concession Contracts Regulations 2016 provides scope to consider environmental and social objectives. - Utilities Contracts Regulations 2016 notes whole of life cycle cost "may include the cost of emissions of greenhouse gases and of other pollutant emissions and other climate change mitigation costs." - Table summary (jurisdictional approaches — as presented in the source): - England: PFI scheme no longer in effect; PPP Annex in Green Book provides general guidance; "No specific rules for allocation of climate risks in PPPs is provided." - Northern Ireland: Proposals follow Better Business Cases NI and must follow the Green Book; "No specific rules for climate are included in the PPP rules outside of Green Book requirements." - Wales: Welsh Mutual Investment Model requires community benefits; proposals must follow joint HMT-Welsh Government Better Business Case Guidance. - Scotland: Managed investment model contracts and Non-Profit Distributing PPP models overseen by Scottish Futures Trust; "Specific guidance relating to climate impacts has not been identified." - Forward actions: - Plans to improve operational and expiry management of PPP contracts by including climate adaptation and mitigation outcomes would boost institutional design and effectiveness. - IPA’s plans to systematize this work "are worthwhile and should be completed." - For Devolved Authorities, updating guidance for new PPP contracts to reflect climate-specific considerations of long-term PPP contracts is advised. - Consideration of climate impacts and risks in service concessions and projects under RAB models (e.g., the forthcoming Hinkley Point C decision) as renewals or new arrangements are established is recommended. ### C.3.c Project selection and spending review alignment - The contextual framework enables budget decisions to be taken in consideration of climate mitigation impacts. - Comprehensive Spending Reviews set medium-term expenditure ceilings in October and align spending with government priorities; Spending Reviews are the primary means of determining budget allocations for major public investment projects (Box 1), with approvals a blend of project specific decisions and capital allocations. - "Emphasis has been placed on the inclusion of climate data in the Spending Review 2021 process, particularly on mitigation." - "Spending Review 2021 commenced in September 2021 and was released on October 27," *Source: IMF staff summary of the IMF Public Investment Climate-related assessment (content unit: 1gbrea2022011 - 43).* ### 2021. The Review’s focus on mitigation, and the achievement of the net zero target, was ### 1gbrea2022011 - 2021. The Review’s focus on mitigation, and the achievement of the net zero target, was ### Integration of climate mitigation and net zero in Spending Review processes - A letter from the Chancellor of the Exchequer to all Secretaries of State at the commencement of the 2021 Spending Review reinforced the Review’s focus on mitigation and the achievement of the net zero target. - HMT advised that climate impacts, particularly on mitigation, is a key criterion for political-level decision making on budget allocations. - Templates for information to be used by Ministers in making Spending Review decisions include information on climate change mitigation. - HMT worked with departments to improve the carbon impacts information provided at Spending Review 2021, in line with Green Book guidance; HMT advises that the coverage of returns increased significantly. - Spending Review 2021 investment decisions were informed by data and evidence on the expected contribution of proposals to meeting net zero carbon emissions by 2050 and assessed within the context of the broader suite of policies set out in the Net Zero Strategy. ### Timing and governance of capital spending decisions (Box 1) - The majority of capital spending decisions are taken in the context of Spending Reviews that are typically taken on a three-yearly basis and provide departments with a funding envelope for capital and recurrent spending over a three-year-period.1/ - Spending Reviews make allocations for: (i) continuing projects, (ii) new projects selected in the Spending Review process, and (iii) projects still to be allocated in each of the spending departments. - Spending Review decisions are made by the Chancellor of the Exchequer, in consultation with the relevant Minister and, at times, with the Prime Minister. - Projects can be considered for funding regardless of the stage and maturity of the business case; guidelines outline a reduced options analysis when project announcement precedes full business case development. - There are examples of budget-funded investment projects not proceeding if subsequent business case development suggests the project is not of sufficient value for money. - Footnote: Government changes and COVID-19 meant that spending reviews were done in three successive years, 2019, 2020 and 2021. The 2019 and 2020 reviews covered only one year given their exceptional nature. ### Project assurance, the 5 Case model, and climate tests - The final investment decision is part of the 5 Case model that guides project progress to delivery and actively embeds climate adaptation and mitigation in decisions to proceed. - The assurance process overseen by the IPA applies tests as projects seek approvals to move through the gateway process in Figure 8. - Gate Review Workbooks include high-level tests for net zero and climate adaptation.31 - Tests intend to achieve early consideration of climate mitigation and adaptation, biodiversity and wider environmental targets; embed the use of relevant Green Book and Supplementary Guidance; ensure strategic alignment with departmental or sectoral strategies and plans; ensure consistent estimation, measurement and reporting of GHG emissions, where applicable; and proportionality in application of relevant tests. - Projects that receive a positive final investment decision at Gate 3 are generally funded from within budget allocations made within spending reviews. ### Recommendations (extracted verbatim) - Recommendation 3.1: Improve the transparency of business cases: - Publish key information from business cases in line with commitment in the Green Book Review (HMT in consultation with government agencies). - Publish business cases retrospectively for already approved major projects. (HMT in consultation with government agencies). - Recommendation 3.2: Improve training and support on the incorporation of climate impacts in business cases: - Include climate elements in training courses on business case preparation and assessment. (HMT in consultation with DBEIS and DEFRA) - Increase DEFRA's capacity to support business case assessment of adaptation impacts (DEFRA). - Recommendation 3.3: Establish a framework for the management of legacy PFI contracts and the eventual return of assets to the public sector that embeds consideration of climate mitigation and adaptation: (IPA) - Recommendation 3.4: Devolved authorities implementing PPPs should update their guidelines to provide advice on the allocation of climate risks. (Devolved Administrations in consultation with IPA) - Recommendation 3.5: Include information on adaptation impacts to the highest-level decision makers during spending reviews so that they impact final decisions. (HMT) ### Budgeting, reporting, and visibility of climate-related spending (C.4.a) - Annual budget documents include information on capital spending inputs for each major policy area but limited details on outputs or expected outcomes of climate-related public investment expenditures and projects. - The Main Estimates presented in April each year contain information by department on capital spending in the budget year under each of the government’s main policy areas.32 - Examples of budget lines: - BEIS’s Estimates: ‘Taking action on climate change and decarbonization’ (and same line for the Department’s Arm’s Length Bodies). - Defra: a broad line for capital spending on flood protection by its ALBs. - DfT: capital spending for ‘sustainable travel’ and lines for two High Speed Rail projects. - The Budget and Estimates lack information on climate-related spending at the output level and contain only limited information at the major project level. - Main Estimates present details of contingent liabilities, including some climate related (e.g., related to the nuclear power industry).33 ### Spending Review 2021 (SR21) climate investments and coverage (Box 2) - SR21 confirmed that since March 2021 the government will have committed a total of £30 billion of public investment for the green industrial revolution in the UK to support the Ten Point Plan. - SR21 included targeted investments to tackle climate change in the period to 2024−25, including: - £620 million of new investment over the next three years to support the transition to electric vehicles and increased funding for walking and cycling. - £416 million R&D funding for programs to commercialize low and zero emission transport technologies, including trials of three zero emission HGV technologies, a multi-year Clean Maritime Demonstration Competition, and £180 million to kick-start development of commercial-scale UK sustainable aviation fuel (SAF) plants and a SAF clearing house. - £3.9 billion to decarbonize buildings, including £1.8 billion to support tens of thousands of low-income households to transition to net zero while reducing energy bills and £1.4 billion to help decarbonize the public sector estate in England. - £1.5 billion to fund net zero innovation and invest in nuclear technologies and offshore wind, including £1.7 billion to enable a final investment decision for a large-scale nuclear project in this Parliament, £120 million for a new Future Nuclear Enabling Fund, and £380 million for the offshore wind sector. - Confirming £1 billion for Carbon Capture, Usage and Storage (CCUS). - Up to £140 million to support hydrogen producers and heavy industry adopting CCUS through the Industrial Decarbonization and Hydrogen Revenue Support scheme. - Expansion of the Nature for Climate Fund to ensure total spending of more than £750 million by 2024-25 to help meet the commitment to plant at least 7,500 hectares of trees every year in England by 2025 and restore 35,000 hectares of peatland. - SR21 contained Departmental Settlements that present broad information on inputs with some references to specific projects but without project-level allocations. ### Outcome Delivery Plans, Project Outcome Profile, and departmental reporting - Departments publish annual Outcome Delivery Plans containing details of priority outcomes set by SR20, strategies for delivering outcomes, outlines of projects/programmes/workstreams contributing to priority outcomes, and an outcome evaluation plan. - The government launched the Project Outcome Profile tool to support clearer linking of projects and programmes to priority outcomes.36 - SR21 calls for departments to report publicly on the delivery of their Outcome Delivery Plans in their Annual Reports and Accounts. ### IPA, GMPP, and carbon measurement in major projects - The Government Major Projects Portfolio (GMPP) in 2020-21 comprised 184 projects with a total Whole Life Cost of £542bn, including climate-related projects by BEIS, Defra, DfT and their ALBs.37 - IPA Annual Report contains an Annex with a detailed 5-level Delivery Confidence Assessment for each major project. - IPA has been strengthening assurance tests on net zero and climate resilience and supports consistent measurement and management of GHG emissions in the Construction Playbook and IPA Benchmarking Guidance 2021. - Twenty-four GMPP projects reported using a carbon calculator in the 2020−21 Annual Report and a further 7 plan on using one in the future. - The IPA noted that achieving net zero requires greater focus on carbon measurement and management and increased focus on understanding and monitoring environmental outcomes of investments. - Departmental and ALB annual reports describe policy actions and associated results; example: Highways England’s 2020 Annual Report stated since 2014 it has contributed to a 48 percent reduction in its corporate carbon footprint and a 48 percent reduction in the risk of flooding in 260 locations. - It is generally difficult to link reported outcome information in Annual Reports to projects and outputs. ### Green Gilts, Green Register, and eligible expenditures (Box 3) - The UK issued its first sovereign green bond in September 2021 and is setting up systems to select, track, and report on expenditures financed from the bond proceeds.38 - Eligible green expenditures include climate change mitigation and adaptation together with other environmental expenditures. - The Government’s Green Financing Framework aligns with the 2021 International Capital Market Green Bond Principles covering use of proceeds, transparent project evaluation and selection criteria, tracking and attestation of net proceeds, and regular reporting on spending and impacts.39 - HMT will set up a dedicated tracking process within its internal information systems known as the Green Register to track allocations against Eligible Green Expenditure categories. - A second Green Gilt, with a longer (32 year) maturity, was issued in October.40 - Box 3 details: - Eligible Green Expenditures can include direct or indirect investment expenditures, subsidies, or tax foregone and selected operational expenditures; limited to government expenditures no earlier than 12 months prior to issuance, the budget year of issuance, and the two budget years following issuance. - HMT will allocate at least 50 percent of net proceeds to current and future expenditures. - HMT intends to publish an allocation report on its Eligible Green Expenditures annually and an impact report at least every two years. - Reporting will be informed by the Green and Magenta Books and HMT intends to align the Framework with the UK’s developing classification of environmentally sustainable economic activities. - Ministries and departments will collect allocation and impact information related to their Eligible Green Expenditures. - Examples of intended environmental impact metrics: - Clean transportation: annual GHG emissions reduced/avoided in tons of CO2 equivalent; project lifetime GHG impacts in MtCO2; reduction of specific air pollutants. - Climate change adaptation: number of flood defenses and number of properties better protected. ### Green budgeting, disclosure options, and definitional challenges - A growing number of countries are initiating Green Budgeting to disclose linkages between fiscal policies and climate change and other environmental domains; some exercises disclose expenditures promoting mitigation and adaptation, others cover wider environmental domains or report both positive and environmentally harmful expenditures. - Annex 7 summarizes main elements and features of green budgeting as identified by the European Commission, the IMF and the OECD in the joint report “Green Budgeting: towards common principles.”41 - The UK could consider a disclosure approach confined initially to climate-related public investment spending in budgets and SRs, or a more comprehensive approach incorporating a wider range of fiscal policies and environmental domains. ### Limitations in transparency and line of sight to Carbon Budgets - The effectiveness of budgeting for climate-related investment spending would be strengthened by initiatives providing a ‘line of sight’ between Carbon Budgets and the government’s budget. - It is difficult to trace the consistency of new public investment decisions with the Net Zero Strategy (NZS) and appropriate adaptation. - Calls for more transparency of climate-related spending and impacts have come from the CCC and the NAO; an assessed general lack of transparency exists with respect to major public investment projects (Resolution Foundation 2020). - The lack of an operational definition of climate related spending restricts the line of sight between carbon budgets and the government budget, limiting transparency and effectiveness of climate change policies. - While Green Gilts will establish systems to tag and report spending financed by green bonds, and climate-related programs are identified in BEIS, Defra and DfT budgets, it will still not be possible to identify all climate-related investment spending in the rest of the government’s budget. - There is little information on anticipated outcomes of climate-related investment spending (though this will be published for expenditures financed by Green Gilts). - The NAO recommends Government monitor total spend on delivering its environmental goals alongside the benefits achieved as part of developing performance indicators reporting against the Plan. - The IPA has noted that achieving net zero requires more investment in carbon measurement and management as well as increased focus on understanding and monitoring environmental outcomes of investments. *Source: 1gbrea2022011 - 2021. The Review’s focus on mitigation, and the achievement of the net zero target, was* ### 71. There is a well-developed regulatory framework and guidance on the conduct of ### There is a well-developed regulatory framework and guidance on the conduct of ### Regulatory framework and guidance on evaluation and VFM audits - Guidance on the conduct of project evaluation is contained in Chapter 8 of the Green Book and in the Magenta Book on evaluation in government. - The Magenta Book is aligned with the revised HMT Green Book which sets out the economic principles that should be applied to both appraisal and evaluation. - Planning of monitoring and evaluation for spending proposals is required to follow the HMT Business Case guidance for programmes and projects. - The NAO has a mandate to conduct Value for Money (VFM) audits and portfolio reviews of public investment projects (Box 4). ### Ex post reviews, Gate 5 Reviews, and publication requirements - There is a formal requirement for evaluation of the outcomes of major projects including mitigation and adaptation outcomes. - The BBC Gate 5 Review: Operations Review and Benefits Realisation follows the Post Implementation Review completed by the project delivery entity. - The Gate 5 Review: - Assesses whether agreed strategic outcomes are being met. - Typically occurs when the project is about to hand over to Business-as-Usual operation, is repeated 6−12 months after handover to the new owner, and a final review shortly before the end of a service contract. - Reviews include strategic alignment (for example inclusion of Net Zero in strategic aims), procurement strategy and implementation, and a clear quantifiable demonstration of the project’s contribution to the Government’s Net Zero target. - Tests whether the project embedded the National Infrastructure Commission’s four recommended design principles including adaptation to climate change. - All major infrastructure and construction projects must publish a long-term evaluation of their social and economic benefits between five and ten years into operation. - Government policy is that evaluation reports should be published, in line with government transparency standards and the Government Social Research Publication Protocol, but in practice they have limited visibility. - The government acknowledged in SR20 the need to strengthen evaluation across government; the CCC recommended that DEFRA develop a detailed monitoring and evaluation framework for adaptation responses for each risk in CCRA3 (Figure 12). ### NAO Climate-Change Related Value for Money Audits (Box 4) — examples and findings - Managing flood risk (2020): - Covered whether current risk management arrangements provide effective oversight and direction, what government achieved in the period 2015–2021 to reduce flood and coastal erosion risks and measure progress, and preparedness for an expanded investment programme beginning in 2021. - Findings include that EA is on track to achieve 300,000 homes better protected by March 2021 within its budget of £2.6 billion; ‘Homes better protected’ is an easy-to-understand performance measure but on its own does not provide a good view of progress in tackling overall flood risk; and strict funding cycles impact the value for money of the programme. - Green Homes Grant Voucher Scheme (2021): - July 2020 announcement by BEIS for a Green Homes Grant Voucher Scheme as part of green pandemic recovery. - Conclusion: Department worked at an ambitious pace but tension between decarbonisation aims and short delivery time was never properly reconciled, leading to an overly complex scheme that could not be delivered to a satisfactory level of performance in the time available. - Reducing carbon emissions from cars (2021): - Over the past 10 years government has spent over £1 billion to incentivise take-up of ultra-low emission cars. - While numbers of ultra-low emission cars and charging infrastructure increased, carbon emissions from cars have not reduced in line with government’s initial expectations. - Lack of an integrated plan with specific milestones for carbon reductions from cars resulted in lack of clarity over expected public value; departments have not been able to demonstrate value for money from the amounts expended. ### IPA ex post reviews and performance monitoring - The IPA conducts ex post reviews and reports performance on major projects. - Its Annual Report contains an Annex with a detailed rating of progress for each major project in the form of a 5-level Delivery Confidence Assessment of a project’s likelihood of achieving its aims and objectives and doing so on time and on budget. ### Evidence base for adaptation costs and benefits - The CCC published an assessment of the evidence base for indicative costs and benefits of adaptation as part of CCRA3; the report synthesized available evidence, including for infrastructure, and fed into magnitude scoring for the CCRA3 Technical Report. - One conclusion: with the exception of a few areas (flooding and water) there is almost no evidence on current and planned adaptation effectiveness. ### Asset management — maintenance, reporting, and sustainability - The Better Business Case process assesses whether a project has plans for maintenance and resilience at project completion. - Gateway 5 Review tests: - How assets will be satisfactorily maintained over the lifecycle. - Whether sustainability targets are met or exceeded and aligned to Net Zero. - Whether management has a resilience framework in place (resilience standards in line with the NIC “Anticipate, React, Recover, Resilient Infrastructure Systems Report”), including a plan for regular stress tests and addressing vulnerabilities. - Whether ongoing management plans account for who will maintain the asset and who will run operational services. - Transport sector operators (Network Rail and Highways England) have integrated climate change adaptation into strategies and activities; technical standards for estimating maintenance needs updated to reflect increased incidence of disasters affecting funding and pricing reviews. - Network Rail’s Delivery Plan includes reducing service-affecting failures and KPIs include an Asset Management Composite Reliability Index and a Composite Sustainability Index; the Office of Rail and Road monitors operator performance. - Highways England actions: - Delivered in 2020−21 an innovative road resurfacing scheme that was the first carbon neutral minor works scheme in the UK. - Used recycled materials from existing road surface and low carbon technologies in maintenance activities. - Set a net zero target for maintenance and construction emissions by 2040 (Annex 8). ### Whole of Government Accounts and property reporting - The 2018−19 Whole of Government Accounts (WGA) comprises over 9,000 entities including central government departments, local authorities, devolved administrations, and public corporations. - Property, plant and equipment comprises 60 percent of assets in the WGA; the largest component is infrastructure assets, largely road and rail networks. - The WGA discusses valuation methodologies for road and rail networks and associated uncertainties; reports liabilities and commitments disclosed but not recognized (including capital commitments and PFI finance lease commitments); incorporates financial impact of substantial damage to assets due to climate-related disasters; presents detailed disclosures of provisions (largest for nuclear decommissioning); and discloses contingent liabilities. ### Central property register and performance indicators (Box 5) - The Climate Change Act 2008 (S. 86) requires government to report to Parliament annually on progress towards efficiency and contribution to sustainability of buildings in the civil estate. - Government organizations must record property information on the Electronic Property Information Mapping Service (e-PIMS™) to support performance reporting. - The Government Property Unit collects performance data for the annual State of the Estate Report. KPIs reported include: - the overall size of the Central Estate; - the total cost of the Central Estate; - the utilization of office space per person; - compliance with commitments to procure buildings in the top quartile of energy performance; - sustainable performance for GHG emissions, waste, and water consumption. - State of the Estate Report progress (2019−20): - Government has reduced its emissions by 50% in 2019-20 compared to the 2009-10 baseline, exceeding the 43percent target for 2020. - It is estimated that 31 percent of the reduction in emissions was due to improved management of the estate and a further 19percent was due to decarbonization of the national grid. - Government departments sent only 6percent of waste to landfill in 2019−20, exceeding the target to send less than 10percent. ### Recommendations - Recommendation 4.1: Define and publish an operational definition of what constitutes a climate change-related investment (HMT). - Recommendation 4.2: Connect carbon budgets with the government’s budget by disclosing details of the anticipated impacts of new public investment spending on net zero and adaptation objectives in annual Budgets and in Spending Reviews, either in existing budget documents or as part of a wider Climate or Green Budget Statement (HMT, supported by BEIS and DEFRA). - Recommendation 4.3: Implement current policy on publication of ex post project evaluations, increase the accessibility of evaluation reports (All government agencies). - Recommendation 4.4: Develop detailed monitoring and evaluation frameworks for climate change adaptation (DEFRA supported by HMT). ### Risk management — disaster risk, CCRA, and national planning - The government undertakes detailed analyses of climate-related disaster risks to public infrastructure and has plans for managing natural disasters. - Disaster risks are detailed in the Climate Change Committee’s Climate Change Risk Assessment (CCRA) Report and the UK Risk Register; more detailed planning is undertaken by the Civil Contingencies Secretariat in the National Cabinet Office, with a new National Resilience Strategy being developed. - The UK Climate Resilience Programme is jointly led by UK Research and Innovation and the Met Office. - The CCRA Technical Report: - Assesses extent and exposure of climate-related risks, including to infrastructure assets. - Identifies 61 high-level climate-related risks and opportunities across the economy, of which 11 are directly related to infrastructure. - Awards an ‘urgency score’ considering current and future level of risk, management of the risk, and additional benefits of further action over five years. - Finds risks to infrastructure related to flooding, temperature changes, embankment failures, and cascading effects as most urgent. - Specifically highlights risk of cascading failures beginning in the power sector as one of eight priority areas for urgent action. - The National Adaptation Programme (2018−23) provides the government’s response to identified risks; it responds to CCRA2 and outlines sector-by-sector mitigation plans for flooding, rising sea levels and extreme weather. - National Flood and Coastal Erosion Plan (NFCEP) addresses management and recovery from flooding-related disasters. - CCC findings (June 2021 Adaptation Progress Report): - Government action has not been effective enough to drive progress needed to adequately address climate-related risks. - The gap between future levels of risk and planned adaptation has widened in the past three years. - Management of climate-related risks to infrastructure was weakest around infrastructure interdependencies and cascading failures, and around design and location of new infrastructure. - CCRA3 Technical Report indicates sufficient adaptation is underway for only four out of 61 risks and that there are no plans in place at all for a further seven. ### Ex ante finance mechanisms — Contingencies Fund - The UK Contingencies Fund allows financing of urgent expenditure when postponement until funds have been voted would be inappropriate; used for advances including pandemic response in 2020 and 2021. - HMT authorizes issues out of the Contingencies Fund subject to the limit set by the Contingencies Fund Act 1974. - The limit is usually fixed at 2 percent of the total of authorized Supply expenditure (i.e., the total of all authorized departmental net cash requirements) in the preceding financial year. - Advances from the Contingencies Fund must be repaid through a Supplementary or out-of-turn Estimates in the same year as the advance, or in the following year if enabling legislation has not been passed. *Source: content unit 1gbrea2022011.* ### 88. The limit on the Contingencies Fund can be adjusted through an Act of Parliament, ### 1gbrea2022011 - 88. The limit on the Contingencies Fund can be adjusted through an Act of Parliament, ### Contingencies Fund and Disaster Financing - The Contingencies Fund Act 2020 increased the maximum capital of the United Kingdom's contingency fund from 2 percent to 50 percent in response to urgent expenditure needs during the first year of the COVID-19 pandemic. - A subsequent Contingencies Fund Act allowed a temporary increase in the maximum capital of the contingency fund to 12 percent of all authorized expenditure in the previous year. - The government does not utilize other ex-ante financing mechanisms to manage the cost of post-disaster recovery for public infrastructure beyond the Contingencies Fund. - FloodRe is a government-supported reinsurance program to support and encourage household insurance against flooding; it reduces implicit contingent liability for rebuilding private homes but does not insure public infrastructure. - Prior to withdrawal from the EU, the UK had access to the EU Solidarity Fund (EUSF), set up in 2002, which provided around €160 million to assist with managing the consequences of floods in the UK in 2007. The UK government has not established or announced a successor program to replace the EUSF. ### Fiscal Risk Analysis (Strength: High) - The Office of Budget Responsibility (OBR) prepares a Fiscal Risks Report every two years identifying and analysing risks to the medium-term outlook for the public finances and to long-term fiscal sustainability. - The 2019 Fiscal Risks Report introduced climate-related fiscal risks, drawing on the Bank of England’s framework that categorizes climate-related risks as physical risks and transition risks. - The 2021 Fiscal Risks Report substantially deepens analysis: Chapter 3 illustrates potential physical, economic, and fiscal risks from different paths for global warming; outlines the cost of decarbonization; considers implications of the transition to net zero; and presents fiscal scenarios for achieving net zero under different assumptions. ### OBR Scenario Analysis and Illustrative Quantitative Guidance - The OBR’s scenario analysis compares unmitigated climate change against a baseline of balanced budgets and historically consistent net public investment, along with recession shocks that have a fiscal impact of around 10 percent of GDP every nine years. - Unmitigated climate change scenario assumptions: - 4-degree Celsius increase in UK temperatures by the end of the century. - Cost of adaptation for each degree of warming of around 0.3 percent of GDP each year. - Scale and frequency of shocks roughly doubles by the end of the period. - Under the illustrative scenario, net debt interest payments increase from 2.5 percent to around 28 percent of revenue by the end of the century. ### Exposure and Valuation of Infrastructure Risks - The CCC quantifies exposure of infrastructure to climate-related risks in the Technical Report of the CCRA; Table 8 (extract) provides exposure of infrastructure to flooding risks across the UK. - The Monetary Valuation of Risks and Opportunities in CCRA3 provides indicative quantitative analysis of eleven infrastructure-related risks associated with climate change, expressing risks/opportunities in terms of effects on social value. - Largest valuations are for risks related to cascading failures in infrastructure networks and for risks related to flooding, with risk valuations in the hundreds of millions to billions of pounds per year. - Future DEFRA-funded work will examine the economics of adaptation, including the costs of inaction and economic benefits and costs of further adaptation. - The CCRA analysis of exposure does not provide an explicit calculation of the fiscal risk to government in the CCRA documents or in other fiscal risk documents such as the Fiscal Risks Report. ### Oversight, Guidance, and Risk Maturity - NAO surveyed Chairs of Audit and Risk Assurance Committees (ARACs): - Four out of five ARAC Chairs considered climate risks relevant to their organization. - Over half noted their organization did not have a climate or sustainability risk policy or a dedicated employee accountable for either. - Seven in ten Chairs said climate change risks had either never been discussed at an ARAC meeting or had been discussed less than annually. - The NAO guide aims to help ARACs support and challenge senior management in managing climate change risks. ### Legal Framework and Institutional Roles - The Climate Change Act 2008: - Set a binding GHG emissions target in UK law. - Established the independent CCC with clear roles and responsibilities. - Instituted 5-yearly carbon budgets and mandated transparency of adaptation risks, plans, recommendations, and government responses. - Independent institutions for fiscal risk analysis and public investment advice include the OBR, NIC, and IPA; independent oversight by NAO and the Office of Rail and Road. - Some legal framework gaps: transparency of selection criteria between alternative investment projects, publication of details of climate-related public investment spending, and limited compliance with requirements to publish project appraisals and post-project evaluations. ### Information Systems and Green Register - HMT maintains OSCAR (Online System for Central Accounting and Reporting) managing financial reporting and budget estimates and collecting key government datasets; OSCAR and GMPP databases do not currently include climate information. - OSCAR datasets include the PFI database with annual data on contract start, estimated original capital investment, and forecast future annual payments. - HMT committed to set up a Green Register to track allocations against Eligible Green Expenditure categories for green gilts reporting; the register is an opportunity to build a database supporting a wider range of reporting needs including a Green/climate budget statement. - Monitoring and managing adaptation data is more challenging than mitigation; adaptation impacts are not currently tracked and a baseline of adaptation indicators is not yet available. - ONS is leading an online portal for climate information based on a new UK Climate Framework; a prototype is planned for launch in coming months. ONS has developed the Low Carbon and Renewable Energy Economy Survey launched earlier this year, which includes estimates of public and private investment. ### Capacity Building and Guidance - Government capacity is high but stretched to align strategies and plans with climate objectives; net zero and adaptation targets require specialized planning and forecasting capacities across departments and devolved authorities. - Technical expertise in demand is limited and unevenly distributed across government and sub-national governments, creating risk that meritorious projects are overlooked. - Written guidance (Green Book supplements) exists on quantifying and valuing greenhouse gas impacts and ensuring project resilience, but little training is provided on supplement use; general Green Book training has been provided by HMT. - BEIS has over 100 officials working on mitigation policy and coordination; DEFRA’s central team for adaptation is significantly smaller and lacks capacity to provide significant guidance or training for incorporation of resilience and adaptation principles. ### Recommendations (as stated) - Recommendation 5.1: The government should act to close the gaps in progress toward planning for climate-related infrastructure risks identified by the CCC (DEFRA). - Recommendation 5.2: The government should complement the analysis in the Fiscal Risks Report on climate-related risks with fiscal stress tests of high-impact low-probability climate-related events and assess the need for alternative ex-ante financing mechanisms to cover extreme events (HMT). - Recommendation 5.3: Assess the need for alternative ex-ante financing mechanisms (such as a disaster fund or risk-transfer mechanisms) to cover extreme events (HMT). - Additional operational recommendations in the text: - Include key project level climate information in GMPP database (IPA). - Design Green Register to meet a wide range of user needs for information on climate and infrastructure in addition to green gilt reporting (HMT in consultation with BEIS, DEFRA, ONS). *Source: Excerpt from IMF content unit 1gbrea2022011.* ### 108. The Net Zero Strategy notes the capacity challenge the government faces, and ### 1gbrea2022011 - 108. The Net Zero Strategy notes the capacity challenge the government faces, and ### Capacity challenge and NZS ambition - The Net Zero Strategy (NZS) recognizes a capacity challenge the government faces in delivering climate objectives. - The NZS summarizes ambition for climate capabilities ranging from "broad essential capabilities for understanding climate interactions in policy" through to "world-leading technical specializations (Annex 9)." ### Steps summarized in the NZS to build capacity - Establishing the Government Skills and Curriculum Unit to oversee the development of better and more relevant training. - Expanding the curriculum for civil servants to include specific training on climate change. - Embedding climate considerations in the competency framework supporting professional development in the Civil Service. - Establishing a new climate focus for the training of future leaders of the Civil Service. - Note: The NZS highlights the importance of also building capacity in devolved administrations, local governments, and public corporations where much implementation will occur. ### Recommendations - Extend the ambition for government capacity summarized in the Net Zero Strategy to all levels of government and to public corporations, and develop measures to build this capacity (All levels of government). - Build capabilities and identify if staffing is adequate in relevant areas of DEFRA to ensure strategies and plans are implemented, and to deliver guidance and training on the incorporation of mitigation and adaptation objectives in public investment programmes and projects (DEFRA). - Update the curriculum of training courses on business case preparation and assessment to include and highlight the Green Book guidance on the quantification and valuation of the impact on greenhouse gas emissions and the Green Book Supplement Accounting for the Effects of Climate Change (HMT). ### Annex 1 — Action Plan (selected entries relevant to capacity and coordination) - Climate-aware planning - Build strategy and planning capacity across government agencies to ensure national and sectoral investment strategies are adequately designed to achieve climate targets and are effectively implemented. Timing: December 2022. Responsible Agency: BEIS and DEFRA, in consultation with HMT. - Build government capabilities and identify if staffing is adequate in the relevant institutions to deliver regular advice, guidance and training on the incorporation of mitigation and adaptation objectives in the design of public investment-related programmes and projects. Timing: December 2022. Responsible Agency: BEIS and DEFRA, in consultation with HMT. - Coordination between entities - Develop a regional and local government delivery and accompanying reporting framework with clear climate related investment responsibilities, actions and requirements. Timing: December 2022. Responsible Agency: BEIS, DEFRA, DLUHC. - Develop guidance and communicate to public corporations’ shareholder ministries how to integrate climate mitigation and adaptation into their shareholder ownership and oversight functions and activities. Timing: December 2022. Responsible Agency: HMT, BEIS, DEFRA. - Project appraisal and selection (training and support) - Improve training and support on the incorporation of climate impacts in business cases: - Include climate elements in training courses on business case preparation and assessment. Timing: June 2022. Responsible Agency: HMT in consultation with BEIS and DEFRA. - Increase DEFRA's capacity to support business case assessment of adaptation impacts. Timing: June 2022. Responsible Agency: DEFRA. - Update curriculum of training courses on business case preparation and assessment to include the Green Book guidance on the quantification and valuation of the impact on greenhouse gas emissions and the Green Book Supplement Accounting for the Effects of Climate Change. Timing: December 2022. Responsible Agency: HMT. - Capacity Building (summary entries) - Extend the ambition for government capacity summarized in the Net Zero Strategy to all levels of government and public corporations, and develop measures to build this capacity. Timing: December 2023. Responsible Agency: All levels of government. - Build capabilities and identify if staff is adequate in relevant areas of DEFRA to ensure strategies and plans are implemented, and to deliver guidance and training on the incorporation of mitigation and adaptation objectives in public investment programmes and projects. Timing: December 2022. Responsible Agency: DEFRA. ### Annex 2 — Climate-PIMA Detailed Scoring (selected scores) - C1. Planning Score - C1a National and sectoral planning: 3 - C1b Spatial Planning, Land use and building regulations: 3 - C1c Centralized guidance on planning: 3 - C2. Coordination Score - C2a Coordination across central government: 3 - C2b Coordination with devolved administrations and local governments: 2 - C2c Oversight and monitoring framework for PCs: 2 - C3. Project appraisal and selection Score - C3a Climate analysis in project appraisal: 3 - C3b PPP framework including climate risks: 2 - C3c Climate consideration in project selection: 2 - C4. Portfolio oversight and monitoring Score - C4a Climate budget coding: 2 - C4b Ex post review of projects: 3 - C4c Asset management including climate risks: 3 - C5. Risk management Score - C5a Disaster risk management strategy: 3 - C5b Ex ante financing mechanisms: 2 - C5c Fiscal risk analysis including climate risks: 3 ### Annex 3 — Climate-PIMA Assessment Framework (themes) - C1. Climate-aware planning: assesses consistency of national and sectoral public investment strategies with climate objectives; requirements in land use/building codes; presence of centralized guidance and support. - C2. Coordination between entities: assesses coordination across central government, coordination with subnational governments, and whether oversight frameworks for public corporations ensure consistency with national climate policies. - C3. Project appraisal and selection: assesses whether appraisal of major infrastructure projects requires climate-related analysis with standard methodology and central support; inclusion of climate elements in PPP framework; inclusion of climate-related elements among project selection criteria. - C4. Budgeting and portfolio management: assesses identification and monitoring of planned climate-related expenditures in budgets; ex-post reviews or audits of climate outcomes; whether asset management policies address climate-related risks. - C5. Risk management: assesses publication of national disaster risk management strategy incorporating climate impacts on infrastructure; existence of ex-ante financing mechanisms (contingency funds, insurance); and publication of fiscal risk analysis incorporating climate-related risks. *Source: 1gbrea2022011 - 108. The Net Zero Strategy notes the capacity challenge the government faces, and* ### Annex 4. Government Commitments vs CCC Pathway ### Annex 4. Government Commitments vs CCC Pathway 2025−35 ### Types of private involvement in infrastructure (Annex 5) - Public-Private Partnerships (PFI/PF2) - More than 700 projects were delivered by the Private Finance Initiative (PFI) launched in 1992 and the successor PF2 (2012) framework. - Contractor typically established as a special purpose vehicle comprising the successful bidder or a consortium. - In October 2018, the UK Government announced PFI contracts would no longer be used in England. - Concession-based and other user-pay models - Use project-financed structures similar to PF2 but revenue comes from user charges (used for toll roads and river crossings). - Regulated private ownership of key assets (Regulated Asset Base, RAB) - Establishes regulatory framework for long-term licensed private operator of network or utility infrastructure (water, rail, power, airports). - Allows operator to recover a regulated price based on agreed expenditures overseen by an independent regulator. - Used to deliver greenfields projects such as the 2016 GDP 4.2 billion Thames Tideway Tunnel sewage project. - In 2018, the total RAB value across the UK electricity, gas, water and airport sectors was approximately GBP 160 billion (7.5 percent of GDP). - Contracts for Difference (CfD) - UK Government provides incentives for low carbon electricity generation through CfD. - Scheme reduces risks for renewable generators by providing confidence about future wholesale prices over a15-year period. - Developers are paid a flat (indexed) rate equal to the difference between the ‘strike price’ and the ‘reference price’ for a period of 15 years. - Bids are approved in auction rounds; the fourth allocation round is expected in December 2021. - CfD supports the most recently built nuclear plant, Hinkley Point C. - Other private engagement - Contracting, private sector project integration services, and strategic partnerships for packages of small projects. - Grants and incentives for private provision - Grants to private providers of infrastructure in new sectors or disadvantaged regions (examples provided in source). - Examples include grants to private providers of electric vehicle charging stations available for public use and the GBP 1 billion mobile connectivity programme. ### Key guidance on incorporating climate impacts into project appraisal (Annex 6) - The Green Book: Central Government Guidance on Appraisal and Evaluation (HMT, last updated Dec 2020) - Establishes the broad process for project development and the five-case model used in UK government. - Sets out requirements for options analysis, cost-benefit analysis, and monitoring and evaluation. - Includes climate adaptation and mitigation examples; sections and annexes on valuation of costs and benefits; high-level references to mitigation and accounting for GHG emissions, environment, natural capital, and biodiversity. - Energy efficiency and GHG estimation were first included in the Green Book in 2007. - Accounting for the Effects of Climate Change — Supplementary Green Book Guidance (DEFRA, Nov 2020, initially 2009) - Guidance on identifying how climate impacts affect a project using a climate risk assessment (direct and indirect effects). - Supports developing alternative policy options focusing on adaptation. - Guidance on appraisal under economic uncertainty: incorporating climate change risks into baseline and sensitivity analysis; proportionate climate resilient appraisal. - Extensive guide to relevant information, data, guidance, and policy across national and devolved governments. - Valuation of Energy Use and Greenhouse Gas and Supporting Toolkit (DBEIS, Jul 2021) - Supports assessment of proposals with direct or indirect impacts on energy use and supply. - Provides an excel-based calculation toolkit to convert energy consumption changes into GHG emissions and to value these changes. - Data tables include published assumptions for carbon values, energy prices, long-run variable energy supply costs, emission factors and air quality damage costs over 2010-2100. - Enabling a Natural Capital Approach (DEFRA, last updated Aug 2021) - Chapter 3 focuses on incorporating stocks of natural capital and benefits into project appraisal and options analysis. - Guidance on 12 featured tools for assessing natural capital and environmental evaluations (including DEFRA’s biodiversity metric and environmental valuation reference inventory). - Services and Assets Databooks collate around 400 UK data sources, tools and studies for 8 natural habitat categories and 25 environmental effect categories (available to government users only). - Includes an excel template for natural capital assessments. - Construction Playbook (Cabinet Office, 2018) - Sets out policies and guidance for assessment, procurement and delivery of public works projects and programmes. - Recommends contracting authorities adopt whole life carbon assessments (e.g., PAS2080) to understand and minimize GHG emissions across project lifecycles. ### Netherlands governance approach for a nation-wide energy transition (Annex 7) - Multi-level, iterative coordination to develop a locally grown yet national carbon-neutral energy system: - All 12 provinces, 21 district water boards, and 352 local governments work with network managers and stakeholders on 30 regional energy strategies (RES). - RES aim to generate 35 TWh of renewable energy, transition the built environment from gas to electric heating, and upgrade the energy grid. - Adaptive and iterative investment coordination and planning process reviewed every two years; plan-do-check-act cycle to maintain alignment with climate- and energy legal and regulatory frameworks. - National RES Programme - Set up as process coordinator, supported by a EUR 22.5 mln. subsidy. - Develops delivery framework, builds common data and information base, supports capacity building, and develops communities of practice. - PBL Netherlands Environmental Assessment Agency reviews combined results of RESs at project stages to evaluate progress toward a carbon-neutral energy system. - If combined results are insufficient, formal mechanisms exist for compliance, up to central government judicial intervention as a last resort. - Source: Dutch National Climate Agreement (2019) ### Climate change and green budgeting (Annex 8) - Green budgeting is increasingly used to align policies with climate commitments; joint work by the European Commission, the IMF, and the OECD defined main elements and features. - Green budgeting is more efficient when: - Inserted in a strategic framework laying out a country’s climate-related national plan. - Uses budgetary policy tools to contribute to evidence-based decision-making. - Relies on an institutional design with clearly defined responsibilities and a timeline for actions. - Uses transparent reporting and independent oversight to ensure openness and accountability. - Reporting practices vary: from tables in budget plans to comprehensive reports; publication of a ‘Green Budget Statement’ is a good practice. - Examples of country reporting requirements: - Scotland’s Climate Change Act 2009 requires an assessment of the impact of proposed expenditures on GHG emissions. - Norway’s Climate Change Act (2018) requires government to state in the annual budget the expected impact of the budget on GHG emissions and how Norway can achieve the climate targets set out in the Act. - Sweden’s Climate Change Act 2018 requires the government to submit an annual climate report to Parliament in the Budget Bill. - France - In 2019 a methodology was piloted ex post on that year’s enacted State Budget. - In 2021 a ‘Report on the Environmental Impact of the State’ was presented with the budget, rating elements on a scale of -1 (unfavorable) to +3 (very favorable) with respect to each of the six environmental objectives in the EU Taxonomy of Sustainable Environmental Outcomes, resulting in three categories: green, mixed and unfavorable expenses. ### Maintenance in the transport sector: adaptation and mitigation (Annex 9) - Network Rail - KPIs for asset management and sustainability: Asset Management Composite Reliability Index (CRI) and Composite Sustainability Index (CSI). - CSI measures percentage improvement of asset sustainability vs baseline; sustainability measured by remaining life or condition score weighted by replacement value. - Launched a long-term decarbonization programme; target to reduce carbon emissions by 25 per cent by the end of March 2024. - Highways England - Identified locations vulnerable to repeat flooding; mitigating via sustainable drainage systems and natural flood management adjacent to highways. - KPI: pavement condition target that 95 percent of road surface does not require further investigation; target met in 2019-20. - Net zero target for maintenance and construction emissions by 2040. - In 2020, maintenance and construction resulted in emissions of around 734 thousand tonnes of CO2e, projected to fall to around 350,000 tonnes in 2040 with no additional action. - Focus areas: asphalt, cement, and steel sectors; use carbon management to embed lean construction and circular economy principles; digital technologies to increase capacity and minimize new construction. - Interim mitigation targets and actions account for emissions over the life cycle to avoid perverse incentives. - Highways England targets: - By 2022: specifications Manual of Contracts Documents of Highways Works integrates net zero thinking; a zero-carbon materials innovation programme launched; a 2040 zero carbon road map for concrete, asphalt and steel developed. - By 2025: commission a long-term delivery partner to design a major net zero road scheme. - By 2030: 40-50 percent reduction in emissions compared to 2020; only zero carbon plant on its sites and site cabins. - By 2040: zero carbon HGVs deliver to its sites. ### UK Government’s ambition for climate capabilities across government (Annex 10 excerpt) - Excerpt from the Net Zero Strategy indicates the UK Government’s ambition to build climate capabilities across government (full details in source excerpt). *Source: 1gbrea2022011 - Annex 4. Government Commitments vs CCC Pathway (PDF content provided).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1gbrea2022011.pdf_