The Seventh Carbon Budget: a spotlight on electrification and what this means for businesses
When the Climate Change Committee published its Seventh Carbon Budget last month, it set out 43 key recommendations to achieve a target of 535 MtCO2e, requiring emissions to be slashed by 87% by 2040 compared to the 1990 baseline.
In this blog, we explore the critical role of electrification – the driving force behind hitting this ambitious target – and its impacts on UK industry. Why does this matter and how might businesses implement their own decarbonisation strategies to meet UK targets?
Costs and investment
The cost of the energy transition is estimated to be £4bn per year, around 0.2% of GDP. This is 73% lower than the estimation in the Sixth Carbon Budget, as it now includes costs and the benefits between 2020 and 2024.
From now until 2050, when the UK is legally-bound to achieve Net Zero, the average yearly investment required to meet decarbonisation goals would be £26bn, with major investments needed in the expansion of the electricity system to meet rapidly-growing demand and drive building improvements through the wide-scale installation of low-carbon heating systems.
The Climate Change Committee (CCC) anticipates that this investment would be offset by average annual savings of £22bn in operating costs, due to improved efficiency and the decreasing cost of renewable energy, which forms the backbone of UK-wide electrification.
Current performance and the need for action
While it is for the government to set the final Budget, every CCC Carbon Budget to-date has been adopted by the government of the day. In previous Budgets, the CCC have presented a range of scenarios. In this Seventh Carbon Budget, however, the CCC offer just one – the Balanced Pathway – indicating a high level of confidence in the recommendations, and the urgent need for implementation.
While the UK has met – and overperformed – on targets set between 2008 and 2022, the CCC emphasise that “strong action is needed to deliver rapid emissions reduction during the 2020s in order to get the UK on track to meeting its existing emissions targets.”[1]
In summary, the Budget lays out five delivery routes: electricity; low-carbon fuels and carbon capture and storage; engineered removals; nature, and demand. Of these, electrification plays the biggest role,
“In many key areas, the best way forward is now clear. Electrification and low-carbon electricity supply make up the largest share of emissions reductions in our pathway, 60% by 2040.”[2]
Climate Change Committee, The Seventh Carbon Budget Report (2025)
Extending electrification across the UK
The success in emissions reduction so far has largely been achieved across the energy sector, driven by the increase in renewables and the phasing out of coal. These efforts have resulted in emissions dropping by 81% compared to 1990 levels, when electricity was the UK’s highest-emitting industry. But if the targets of the Seventh Carbon Budget are to be met – 87% lower than 1990 levels, and a quarter of the level they are in 2025 – then electrification must extend across all areas of the UK: commercial, industrial, and domestic.
The Budget emphasises the expansion of Electric Vehicles (EV) sales, both domestic and commercial (including HGVs), with projections indicating that EVs will account for three-quarters of the UK fleet by 2040 and nearly 100 percent by 2050. A further key element of electrification is the major roll-out of heat pumps – requiring an increase from 60,000 in 2023 to 450,000 by 2030, ramping up to an additional 1.5 million by 2035.
If the Budget recommendations are implemented, electrification of wider industry is crucial. Energy supply accounted for more than half of the emission reductions that met targets in the first three Carbon Budgets, but the CCC anticipates that more than 75% of reductions needed to meet targets for the Fourth (up to 2027) and subsequent Carbon Budgets will come from other sectors.
This is a pressing issue, given that the Balanced Pathway assumes that three-quarters of emission reductions should take place in the next 15 years. And, if the targets within the government’s Green Power 2030 Action Plan are to be achieved, electricity supply will need to more than double to meet demand. As Ed Matthew, director of the UK programme at E3G thinktank has noted,
“The power system is key because both heating and transport and about two-thirds of industry will need to be electrified.”[3]
Decarbonising industry
Adopting the CCC’s Balanced Pathway would see industry emissions fall by 78% relative to 2023 levels.
One of the most important ways to reach these goals is through the deployment of green technologies, which are at the heart of the CCC’s strategy. Electrification of heat processes are a major element of the recommendations, including electric boilers, electric ovens, electric furnaces in the glass industry, and electric heat pumps.
Beyond transport and heating, industrial processes also need to be electrified. Electrifying high-energy sectors, such as manufacturing and heavy industry, is necessary to meet the carbon reduction targets set out in the Budget. As businesses face stricter emissions, the need for energy efficiency technologies will also take centre stage to reduce consumption, costs and carbon footprints. This includes further investment in microgrids, renewables, energy storage and grid stabilisation solutions to support the UK’s energy transition.
The disparity between the cost of renewable power generation and the price of electricity is a potential roadblock to industrial decarbonisation. Within a marginal pricing system, whereby UK electricity prices are generally determined by gas prices, the CCC recommends the continuation and expansion of support schemes for energy-intensive industries. Industrial electricity costs must be reduced relative to the price of gas, and relative to international competitors, to ensure the competitiveness of UK industry.
Removing the barriers to electrification of industry
A thread running throughout the Budget is the issue of grid capacity – speeding up the connection process to ensure that electrification is feasible for businesses. Business models to support industrial electrification are required, to offer certainty to business. As the Budget states,
“Long-term certainty about government support for industrial electrification can also help overcome additional barriers to electrification such as the novelty of many types of electrical heating equipment, the long lifetime of industrial equipment, the cost of installation, and the lack of skills and supply chains to design and install.”[4]
The Budget estimates that offshore wind supply needs to be six times its 2023 level – up from 15GW to 88GW by 2040 – with onshore wind capacity doubling. But variable renewables present significant issues: resilience in adverse weather, and the potential this has to negatively impact grid stability.
While renewables would make up 80% of energy supply, storable energy is also vital, including firm power – 13% of generation in 2040 – and grid storage, such as batteries. The CCC considers these energy storage solutions at the macro level, but looking at businesses working towards corporate Net Zero strategies, similar principles can operate at the micro level.
A proactive response from industry: the why and how of decarbonisation
If the government follows the recommendations – and it must set the Seventh Carbon Budget by the end of June next year – this sets a clear signal that the UK is still committed to meeting the 2050 Net Zero deadline.
Energy efficiency figures in the CCC’s comments specific to decarbonising industry, contributing 60% of emission reductions by 2040. Forward-thinking companies who want to set their own targets and begin their journey to Net Zero can harness a range of technologies to contribute to decarbonisation.
Battery Energy Storage (BESS) allows for renewable energy generated on-site to be stored and used when needed. As EVs are set to make up about 75% of the UK fleet by 2040, if the current issues around grid connections are not addressed in a timely manner, then charging remains a problem. A BESS can be used to assist with charging and the high energy demands this places on existing energy supply. It can also help businesses to mitigate power resilience issues during the energy transition, particularly those of grid stability due to increased power demand and intermittent renewable energy supply.
Voltage Optimisation (VO) can reduce unnecessary energy usage, helping to lower energy bills at the same time as cutting your business’ carbon footprint. As businesses strive for carbon reduction and energy efficiency, VO can help improve the longevity and reliability of electrical reequipment.
Transformers are widely-used across all sectors of industry. Upgrading to a modern, low-loss transformers can reduce core losses by 70%, with up to 99.85 efficiency. Implementing the appropriate mix of these electrification technologies can help meet regulatory requirements, while reducing energy costs and improving energy efficiency.
The UK is committed to achieving Net Zero by 2050. Whether the government takes on board the CCC’s Seventh Carbon Budget recommendations in full or only partially, companies proactively engaging with the sustainability agenda – whatever stage they are at in their decarbonisation journey – can benefit from greater efficiency, and the opportunity to unlock new markets and appeal to new investors.
