(Bloomberg) -- This is from the Green Daily newsletter.  Sign up to receive it in your inbox.

The European Union and UK have been world leaders for implementing policy to promote clean energy technologies, but their crown is starting to slip.

The EU and UK have taken the top spots in BloombergNEF’s ranking of the Group of 20’s low-carbon policy regimes since the first edition in 2021, and this year was no exception. But what was unusual was that neither of them improved their score, averaging a decline of 1.1 percentage points compared with the 2023 ranking. Even the US fell back this year, in spite of the momentum it had created with its landmark Inflation Reduction Act. 

The weakening climate ambitions of the world’s biggest economies is increasing uncertainty among consumers, industry and investors — a subject that will likely set the tone for many discussions at BNEF’s summit in New York this week.

There are a number of reasons top ranked G-20 members lost points on BNEF’s ranking. In some cases, governments scrapped low-carbon programs with little warning. For example, in December 2023, Germany announced unexpectedly that it would accept no further applications to the electric vehicle purchase subsidy program, which had been due to end in 2024. As a result EV sales dipped 16% in 2023 compared with a 14% increase across the EU as a whole.

Read More: Politicians Sense Opportunity in Railing Against Climate Action

The last year has also seen European policymakers weaken or backtrack on low-carbon regulations. EU lawmakers reached a provisional deal at the end of 2023 to allow an exemption to the rules on mechanisms to ensure sufficient electricity generation capacity. This would effectively mean that national governments can continue to subsidize coal-fired power plants until at least 2028. The bloc and its member states also lost points for weakening measures to promote low-carbon farming and proposing to change the green conditions imposed on agriculture subsidies into a voluntary system.

In addition, these countries pushed back key policy dates: France delayed its coal phase-out by three years to 2027. Meanwhile the UK deferred its bans on sales of new vehicles with an internal combustion engine and on fossil-fuel boilers. It also postponed the start of the Clean Heat Market Mechanism, which will set a quota for heat-pump sales for a certain number of fossil-fuel boilers. The US lost points for the delays to the rules regarding the Inflation Reduction Act incentives, causing low-carbon project developers to put final investment decisions on hold.

Governments justified these moves by pointing to factors like stretched public budgets. UK Prime Minister Rishi Sunak called it a “new approach to net zero” in September 2023. While these rollbacks may give some companies short-term relief, they also increase uncertainty among industry players and consumers, hinder planning and investment and call into question policymakers’ overall commitment to climate action. 

More broadly, to limit global warming to 1.5C, it will be especially important for developed economies to take the lead by implementing increasingly ambitious regulations and mandates on emissions-intensive technologies and practices. All G-20 markets need more support in “harder-to-abate” sectors where cleaner options are limited or very costly, especially industry, buildings and agriculture. Their policy regimes averaged 57% for clean power support and 51% for road transport — where economic low-carbon solutions are more readily available — compared with 41% for the other sectors evaluated in BNEF’s Scoreboard. These hard-to-abate areas need a mix of incentives and regulations, especially to build up demand and ensure any required infrastructure is built.

There are concrete actions that policymakers can take in the short to medium term — and many of them would have limited impact on national budgets. These include everything from fast tracking permits for renewable projects on suitable land to banning or taxing difficult-to-recycle materials. They could also use carbon pricing as a way to raise funds for low-carbon incentive programs. With overall momentum at a standstill, governments are going to need to act quickly if they want to reach net zero by mid-century. 

©2024 Bloomberg L.P.