The UK Public Believe That Local Authorities Are Well Placed to Address the Climate Crisis but Surveys Suggest Funding Streams Remain Insufficient

Local Authority control extends to 82% of UK emissions but funding still remains a challenge for abatement to flourish. Innovate UK and the Green Finance Institute suggest that private public partnerships could provide the solution

Published

August 2, 2022

The critical role of local authorities in net zero transitions

A recent report from Innovate UK and the Green Finance Institute (released on the 21^st of July 2022), reports that the UK government’s own net zero strategy asserts that 82% of emissions in the UK are within the range of local authority (LA) control.[i] In the context of their report this statistic highlights what should be a starring role for councils across the country. Over 300 councils in the UK have declared a climate emergency since April 2019, demonstrating how vital local governments are to this cause.[ii] Recognising the necessity of ambition, leadership and engagement, UK100 comprises 102 councils, whilst commitment varies across the coalition, leaders within it have committed to pursue the most aspirational of climate targets.[iii] Each of the councils engaged in this partnership have pledged to reach net zero ahead of the national 2050 target.[iv] In UK100’s 2022 progress report on delivering net zero at a LA level, they arrived at the following recommendations based on the year’s developments[v]:

All governmental structures must integrate Net Zero decision-making. There are many UK100 members working on this key topic, but it is essential that all levels and areas adopt the same strategy.
"A floor, not a ceiling", on ambition is required. Government-introduced standards must promote LAs' advancement rather than impede it.
LAs may be able to make more progress if they combine long-term, non-competitive funding, capacity development, and assistance with a defined plan for local net zero delivery.
Enhancing LAs' capacity to obtain private financing has to be a top concern because it has been identified as a barrier in all industries.

Calls for increased funding are echoed by a May 2022 survey of LAs across the country. Carried out by Cluttons & AESG the survey was aimed at LAs who had set a long-term net-zero target, covering their own emissions and/or area-wide emissions. The results showed that 71% described funding issues as a their most challenging element, also in the top three issues raised in the survey were ‘a lack of in-house skills’ and ‘a lack of resources’.[vi]

Private Public Partnerships highlighted as a solution to current funding gaps

According to a BBC report from summer 2021, despite cuts across services, LAs are likely to face a budget shortfall of £3 billion by the 2023-24.[vii] This is a concerning statistic given the 82% of emissions that are under the control of these same LAs and has led to calls for both private and public investment that are outlined in the GFI and Innovate UK.

Current pursuit of investment for local authorities covers the whole spectrum of action on climate change. Firstly, and on the brighter side of climate positive LA investment is Cotswold District Council that introduced ‘community municipal investment’. In their own words Cotswold District Council describes the initiative as follows:

‘We want to see climate and ecology solutions developed with and supported by people. We want to help take communities on our journey rather than being ‘done to’; this means involving communities in our carbon zero journey. To this end, we are giving Cotswold residents the chance to invest directly in actions that tackle the climate and ecology crises.’^[viii]

Investments from within the community, starting from as little as £5, will fund projects like the installation of EV charging points, updating lights to LED and insulation installation.[ix]

Spelthorne borough council’s investment portfolio, both conversely and controversially, sit on the other side of the climate positive spectrum due to its inclusion of a £392m BP campus within its holdings.[x] The council is reported to have borrowed upwards of £400m from the Public Works Loan Board (PWLB) to fund the deal, but questions remain over the long term sustainability (in both a temporal and climatical sense) due to the risk of a termination or renegotiation of lease after the 20 year term is up. Further, a long-term lease to an oil giant that will spill into the most important decades of net zero pursuit comes with a risk of its own.

At a more strategic level scale, important participants in the local climate finance conversation are actively looking for pooled and blended finance intermediation structures to help enhance the amount of money that is available to local authorities.[xi] Permanent institutions or 'special purpose vehicles' (a subsidiary set up by a parent firm to isolate financial risk) are the most typical types of these provisions. Some of the biggest financial institutions in the UK were gathered by the Green Finance Institute in late 2021 to discuss how they felt about the viability and allure of a place-based green finance program.[xii] PPPs (Public Private Partnerships) could be advantageous for local governments with significant project potential, such as land available for development or ownership of assets in need of redevelopment to protect against long-term obligations and produce sustainable income.[xiii] PPPs give local governments with financing or resource shortfalls the capacity to attract foreign investment by bringing in capital as well as project-related complementary skills and assets that may realise a shared public-private vision. But There are also limitations to PPPs. PPP ventures subject local authorities to long-term financial expenses and risks, therefore they are least likely to benefit from them if their local assets, skills, and chances for economic growth are restricted. Risks may include project overruns and the ensuing costs to the community; shifting markets that could result in budget and resource constraints; a lack of alignment of interests among local stakeholders; and the financial stability of the delivery partners.[xiv]

Due to these factors, PPPs are typically only utilised for large projects (infrastructure, development, regeneration, etc.), but there is no reason they cannot be applied to initiatives that are aligned with the net zero standard in the appropriate situations. For PPPs to be successful, the public and important stakeholders must align with the partnership's community interests and be able to sustain that alignment throughout the relationship.[xv]

The limitations of PPPs, a widely lauded method of reaching the potential of LAs to deliver in net zero, demonstrate that the capacity of LAs to exploit them will vary across the country. LAs that are lacking in the assets of larger councils will take on far more risk and this perhaps validates the mission of U100 to present a unified approach that facilitates conversation between councils driving discussion wherein their collective power can be unleashed.