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Can Small Business Afford Net Zero?

Even if you live on a remote rock in the middle of the sea you’ll have heard of COP26 – the conference on climate change which has just ended in Glasgow. It ended not with a global commitment to reduce carbon emissions, but with what more sceptical observers have described as a ‘huge win for coal,’ as India and China forced a significant change in the final agreement. Instead of a commitment to ‘phase out unabated coal power,’ COP26 ended with a commitment to ‘phase down’ the use of coal – a very significant difference.

Nevertheless, the drive to net zero (balancing the greenhouse gases going into the atmosphere with those taken out of the atmosphere) will continue, with UK Prime Minister Boris Johnson having nailed his colours very firmly to the green mast. It does, though, pose some pertinent questions. Who will pay for the drive to net zero? Will the burden fall on small businesses? And is there any benefit to them in achieving net zero?

According to the UK Government’s own figures the capital required to transition to net zero will be £650bn. Only 4% of this is being provided by the Government, meaning that the balance – the small matter of £624bn – will need to come from private sector finance and investment. According to reports, the amounts involved in the US – and the amount contributed by Government – are equally staggering.

Clearly business will only invest these amounts if it sees them as a profitable use of company funds. Government will unquestionably demand that businesses show how they are going to achieve net zero, with the Treasury requiring big businesses to show (by 2023) how they will achieve their climate change targets.

That’s fine if you’re a bank. If you’re HSBC and you’ve just made $5.4bn (£4.02bn) in the third quarter the cost of transitioning to net zero won’t make a significant impact on you.

Supposing you’re Pete the Plumber? Presumably the Government will at some point demand to know how you’ll achieve net zero. But, as we all know, tradesmen need their vans. They need to travel to people’s house – and frequently disappear halfway through the morning for supplies. They won’t be able to do that on public transport. As they’re businesses recover from the pandemic they may very well not be able to afford an electric van. And they may see the benefits of transitioning to net zero as questionable at best.

If we’re changing banks then we may take the bank’s ‘green audit’ into account. If we need a plumber at six in the morning well… We’ve always dealt with Pete, he’s never let us down and right there and then we don’t care if he’s got an electric van or not.

As several commentators have pointed out, it is easy to see this coming apart very quickly. Without state subsidies Pete is going to pass the cost of his new electric van onto his customers. And if he does receive a subsidy to pay for his new van, the consumer will pay for it anyway in the shape of higher taxes.

When you look at it in practical terms it is going to be very difficult for small businesses to justify the investment the Government is demanding – or to see the benefits of making that investment.

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