We were delighted to host an executive roundtable with Chris Stark, Chief Executive of the Committee on Climate Change (“CCC”) on behalf of the IPFA this morning. The event was chaired by Caroline Lytton (Head of Power & Renewables at SMBC) and very well attended.
Chris Stark laid out the challenges and opportunities facing the UK (and the global community) in addressing climate change. With the key themes being that:
- The UK target of Net Zero Greenhouse Gas emissions by 2050 is extremely ambitious;
- The rate of technological development is reasonably positive, albeit uneven, with offshore wind exceeding all reasonable expectations and battery storage progressing well, whereas hydrogen was a long way from where it needed to be;
- Investment in EV infrastructure and adoption had the potential to generate fiscal benefits very quickly; and
- Private finance has a key role to play in delivering the energy and transport infrastructure necessary to deliver on these ambitions.
He emphasised the significance of the UK’s Sixth Carbon Budget (the “6th Carbon Budget”), which will be the first to be set with the Net Zero target in place, and is due to be published in September of this year. The 6th Carbon Budget will provide detail on the pathway to delivering on the Net Zero target and will provide a sector by sector breakdown for: Power, Buildings, Industry, Transport, Agriculture, Waste & F-Gases.
It is clear that intense capital investment will be necessary to enable the economy’s transition to net zero. Whilst that will be challenging, the CCC models show that the estimated net cost of making the transition is relatively modest at an c. 1.3% of GDP. The costs and returns of the transition will not be felt evenly by the above sectors and it is likely to need strong leadership from Government to manage the pace and priorities of this investment.
It was particularly interesting to hear that short-term investment in EV infrastructure and vehicles had the potential to make a net contribution to the economy in a relatively short time period.
Electrification is unlikely to be sufficient to meet the Net Zero targets, though, and it is likely that hydrogen as a fuel source will have a critical role to play. By the CCC’s current estimates, we will need a rough 2:1 ratio of electricity to hydrogen, and a rapid ten-fold increase in the hydrogen supply. It is clear that there are major challenges here and, whilst Carbon, Capture and Storage is seen as a major potential growth area by the CCC it may well be that policy interventions and new market mechanisms may be required to stimulate the required investment.
2020 looks set to be a critical year at the start of a critical decade for the energy transition. In addition to the 6th Carbon Budget, the Treasury is due to report on its findings on funding the transition to a net zero GHG economy this Autumn and the UK and Italy are due to co-host COP26. Successful summits in the past have followed intense political preparation and there is a risk that those preparations will be hampered by, amongst other things, the COVID-19 outbreak. On the positive side, there is evidence that the economics are starting to move ahead of the policies and it is reasonably likely that the focus will shift to the routes to achieving Net Zero goals and the role that state and non-state actors have to play in that.