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Driving Change: Transport Policies for growth and climate

September 22, 2024

Top policies to stimulate UK green investment and cut transport emissions.

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Labour’s mission led government has the historic opportunity to stimulate green growth. It shouldn’t squander it.

The UK’s transport sector is at a critical juncture. Transport is the nation’s largest source of greenhouse gas emissions but also presents a significant opportunity for green industrial growth and the creation of high-quality jobs. The Zero Emission Vehicle (ZEV) mandate for cars and vans has already demonstrated the potential, driving £22 billion in investment over the last three years and boosting electric vehicle (EV) sales to nearly a quarter of the market in August. However, other key sectors—such as heavy-duty vehicles (HDVs), shipping, and aviation—are lagging behind. Without urgent action, the Labour government risks missing out on economic opportunities and the chance to secure the UK’s leadership in new green industries.

Implementing strong regulatory frameworks to decarbonise key transport sectors is crucial for attracting green investments. Clear regulations provide the certainty needed to de-risk investments, unlocking capital for green innovation by offering a clear regulatory pathway to meeting the UK’s climate goals. In contrast, the lack of regulation, especially when regions like the EU and California are already setting ambitious targets for reducing emissions for trucks and shipping, or providing large direct subsidies like the U.S. diminishes the UK’s competitiveness as an investment destination.

The new mission driven Labour government must act now to seize green growth opportunities or risk falling behind global competitors. Most importantly the Government needs to:

  • Set an ambitious ZEV mandate for trucks and buses to replicate the success of the car and van ZEV mandate in attracting green investment into the UK and getting EVs on UK roads.

  • Expand the UK Emission Trading Scheme (ETS) to cover all of the UK’s share of shipping emissions. This could generate £1 billion in tax revenue annually, money which could be invested into UK production of green maritime e-fuels crucial for reducing emissions from the shipping sector.

  • Apply fuel duty to aviation fuel, last year the Treasury missed out on up to £6 billion of tax revenue by failing to tax aviation fuel properly, some of which could have been invested in production of green aviation e-fuels needed to reduce emissions from aviation.

  • Maintain the car ZEV targets up to 2030, regulatory certainty is key for ensuring that UK investments in EV and battery manufacturing go ahead as planned. To ensure this, the ZEV targets up to 2030 should not be included within the upcoming car ZEV mandate consultation.

As well as the key policies above the government should also:

  • 1

    Implement ZEV targets for fleets of 20 or more trucks to speed up the transition to zero-emission HDVs. This policy accelerates emissions reductions while giving smaller operators more time to adapt, also reducing their electrification costs.

  • 2

    Introduce a legally-binding mandate for zero-emission, hydrogen-based marine fuels to set clear targets and provide investment certainty for sustainable marine fuel production in the UK.

  • 3

    Initiate the Revenue Certainty Mechanism for sustainable aviation fuel (SAF) production by the end of 2025 to attract investment and stimulate UK production. Support should focus solely on 100% renewable hydrogen-based e-fuels to maximize environmental and climate benefits, with funding sourced from a kerosene tax.

  • 4

    Tackle non-CO2 emission from aviation by trialing smart flight planning on transatlantic routes and mandating jet fuel quality standards. These can deliver a large climate impact with minimal cost to airlines and consumers.

  • 5

    Develop a comprehensive industrial strategy for battery manufacturing and its supply chain, focusing on targeted industrial support—such as investment, trade policy, and sustainability rules—to prioritize local manufacturing, including of cathodes and recycling. This will maximize the UK’s economic opportunities from the battery value chain.

  • 6

    Establish a UK-EU joint battery supply chain alliance to enable the seamless tariff- free export of refined lithium, cathodes, batteries and EVs to the EU without trade barriers.

  • 7

    Increase road fuel duty by 5p in the autumn budget and a further 5-10p next year to close the £22 billion budget shortfall. The historically high levels of retailer’s fuel margins suggest that they could absorb at least some of the fuel duty rise.

  • 8

    Allow charge point operators to generate and sell credits to fossil fuel suppliers by amending the Renewable Transport Fuel Obligation (RTFO). This will support investment in UK public charging infrastructure for cars and trucks, especially in currently underserved areas.

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