“Businesses are the lifeblood of the British economy. From small and medium sized enterprises (SMEs) to heavy industry, they are responsible for the goods, services, and jobs that underpin our society. Companies have always adapted to change, and the transition to Net Zero is no exception.
“Decarbonising our economy is a huge task: done well, it offers businesses the opportunity to future-proof operations, save on energy costs, and play a crucial role in the frontline battle to lower emissions.”
Dhara Vyas, Energy UK, from the introduction to Full power: The role of the energy sector in decarbonising businesses
Last month the Chancellor kicked off phase 2 of the Spending Review to prioritise the use of extremely limited public spending over the course of this parliament, with all Government departments being asked to identify 5% efficiency savings. The Spending Review is due to conclude next summer alongside the finalisation of the Government’s new industrial strategy, Invest 2035. It will be vital that the industrial strategy and Spending Review are aligned to promote genuine growth and increase the number of skilled jobs across the country.
Investment in clean energy is a key driver of economic growth and enabler for the wider economy
As Energy UK highlighted in our response to the consultation on Invest 2035, the UK has a significant global competitive advantage in several low-carbon energy subsectors, particularly in technologies associated with clean electricity (offshore wind, floating offshore wind, nuclear, long-duration storage, flexibility and digital), Carbon Capture Usage and Storage (CCUS), hydrogen, heat and electric vehicles. The Government can play an important role in growing these sectors; through giving the private sector more certainty on the size of future markets for low-carbon goods and services by making important policy decisions quickly, and creating long-term regulatory certainty.
Energy also plays a vital role international business competitiveness across all sectors. Our heavy reliance on gas leaves UK consumers extremely vulnerable, demonstrated by the price shocks in 2021 and 2022, as Covid-19 lockdowns ended and Russia invaded Ukraine. As stated by the International Monetary Fund (IMF), the UK was the worst hit of any Western European country. The Energy Crisis Commission’s report found that the impact on businesses varied: some absorbed cost increases, some passed costs down to consumers, while others ceased or reduced operations. The high energy bills during the energy crisis also depleted companies’ financial balances, reducing investment.
The energy price crisis highlighted the importance of long-term contracts and risk management. While some energy-intensive businesses had long-term agreements in place, others had to agree new expensive energy supply contracts in the middle of the crisis. Small businesses, particularly those with high fixed costs and the inability to access new energy contracts or pass on costs, were also badly affected. The cost to the public purse was huge: the total amount of public spending for both the Energy Bill Relief Scheme (EBRS) and its successor the Energy Bills Discount Scheme (EBDS), both supporting non-domestic energy customers, was more than £20 billion.
Decarbonising businesses will be vital to ensure they remain competitive and carbon budgets are met
Alongside more proactively managing their energy costs, businesses will need to decarbonise to remain competitive as they face growing carbon prices and as countries introduce carbon border adjustment mechanisms. Not addressing carbon emissions will lead to higher taxes for companies exporting products and services abroad.

Energy UK analysis of DESNZ (2024), DUKES 5.1 and DESNZ (2024), Provisional UK greenhouse gas emissions national statistics 2023
Cutting emissions from business is also a key priority for climate mitigation. Businesses are responsible for a fifth of the UK’s carbon emissions, with 22% of the UK’s carbon coming from commercial and industrial activity, compared to 17% from homes. In its last progress report to Government, the Climate Change Committee flagged the lack of policy to decarbonise industry and buildings. As well as delivering on its commitments to decarbonise power, the Government needs to ensure progress is made in other sectors with usage types that are harder to tackle, such as processes using high-temperature heat. Waiting until the 2030s will be too late due to low replacement rates, long-lived assets and the need to trial new technology at scale.
Government needs to introduce new policies to drive business decarbonisation
Energy UK worked with Public First to consider how the energy and business sectors can work together to maximise growth. Full Power: The role of the energy sector in decarbonising businesses highlights the significant potential for businesses to support the development of new renewable and low-carbon electricity generation by entering into long-term contracts with developers. We’ve explored some of these ideas further and think Government needs to do more to drive the Corporate Power Purchase Agreement (CPPA) market Government should consider introducing guarantees that a wider set of businesses can invest in new low-carbon generation, helping to decarbonise the power system and providing more businesses with long-term electricity price certainty. It will also be important to reform the Renewable Energy Guarantee of Origin (REGO) and full mix disclosure systems so that consumers can invest in new low carbon projects and better match their electricity demand with the output from the renewable projects they are supporting.
Despite the urgent need to cut emissions, many businesses face huge barriers to decarbonise. Current Government policy is focused on businesses that are most exposed (energy-intensives and those that compete internationally), mainly through compensation. Support for decarbonisation is focused on those close to emerging carbon capture and hydrogen clusters and is limited to large players. Many companies, particularly SMEs, have struggled with their energy bills and need more support both in terms of funding and advice.
We have worked with other businesses, energy trade associations and specialist organisations to review the policy landscape, finding that all types of businesses, even those currently helped by Government policy, are struggling. More needs to be done to enable the companies powering our economy to prepare for a low-carbon market and protect them from future price shocks. The review identifies the barriers to businesses including challenges around electricity network charging and connections, and the policy solutions required.
One of the key challenges is that of the various costs are placed on energy bills, more are placed on electricity than gas. This makes electricity relatively more expensive than gas, with a ratio of around 5:1 in 2024, up from around 3:1 in 2012.[1]
In turn, this reduces incentives for businesses to invest in new equipment that enables them to generate heat with low carbon electricity.

DESNZ (2024), Quarterly Energy Prices
The Spending Review provides a unique opportunity to accelerate business decarbonisation
The Spending Review needs to help all businesses to decarbonise by including funding for:
- Reducing policy costs charged to electricity users – it will be essential to reduce the price of electricity relative to gas to enable businesses to move away from gas to low carbon heating systems based on electricity. This could be achieved by shifting funding for legacy renewable support schemes from electricity, to some combination of gas use and general taxation, mindful of the need to balance fiscal considerations, fairness and international competitiveness.
- Support for SMEs – the Business Energy Scotland programme provides free assessments and interest-free loans of up to £100k for SMEs, cutting participant energy costs by up to 60%. Expanding this scheme into England and Wales will help more businesses cut bills and decarbonise.
- Support for business decarbonisation – the Government has suggested it may stop funding the Industrial Energy Transformation Fund (IETF) that has been providing capital funding for businesses to decarbonise and undertake feasibility studies. Whilst there are small changes needed to improve the scheme needs to be improved it is vital that continuous and long-term funding is available that works with business investment plans.
- Electrification business model – the electrification of industrial processes is technically viable for a growing range of processes and is suitable for businesses in all locations however businesses require support to cover upfront costs and higher running costs. As well as supporting hydrogen and CCUS, the Government needs to introduce an electrification business model to enable businesses to electrify where it makes most sense.
There is a critical need for businesses to adopt decarbonisation strategies to remain competitive in an evolving global market. As other countries rapidly transition to low carbon operations, UK companies risk falling behind. Volatile energy costs driven by a dependence on fossil fuels underline the economic necessity of adopting low carbon and energy efficient technologies, and the climate imperative is clear, however without support in place there remain numerous challenges and little incentives for business to invest. Continued and expanded support for decarbonisation will not only future-proof businesses and make them more competitive in the long-term, it will also reduce the need for future Government support to cover high non-domestic energy prices, freeing up public expenditure to be spent elsewhere.
There are obvious and direct benefits to cutting emissions from businesses; reduced energy bills and protection from price shocks, less pollution and cleaner air. But it goes beyond that; taking a long-term view in supporting businesses to decarbonise will boost the success of UK companies on a global stage, reduce the price of the products and services we buy and increase how much budget there is for public services. Supporting businesses to decarbonise is money well spent.
[1] DESNZ (2024), Industrial energy price indices