It is certainly an admirable and necessary position. The effects of climate change on our environment are increasingly evident: the past six years have been the hottest on record and the frequency of extreme weather events around the world has increased.
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At a recent climate summit, Johnson put pressure on other governments to “make this decade the moment of decisive change in the fight against climate change” and highlighted the benefits for growth and jobs long-term.
With the UK set to host COP26 this fall, the government is certainly determined to speak up. But behind the positive rhetoric and well-meaning plans, is it working?
What is behind the words?
The reality facing the government is one that will require a concerted effort and deep pockets. The Climate Change Committee says to reach net zero, £ 50 billion will need to be spent annually by 2030.
The private sector has an important role to play in this need for investment. Attracting this will require either top-down regulation, such as a ban on the sale of gasoline and hybrid cars after 2030, or a carbon price that discourages pollution and encourages alternatives. Either, or a combination of these, are essential to justify investing in the net zero transition.
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Government support to date has mainly focused on the production of renewable electricity through income subsidies, such as solar and wind power. While these sources are still necessary and have proven to be effective in reducing emissions from the power generation sector, ambitious decarbonization commitments must be matched with support for other activities.
We need to encourage investment in more niche areas that also need to be carbon-free, such as heating, energy efficiency and vehicle electrification, each of which reduces the demand for fossil fuels.
Emissions from agriculture and industries such as glass, steel and cement must also be reduced. The UK Emissions Trading Scheme, introduced as a replacement for the EU scheme, has the potential to help if sufficiently high prices are achieved and the scheme is extended to cover a wider range of emitting sectors .
This transition will have to include investments in asset classes that remain at an early stage of their maturity. The White Paper on Energy, published in December 2020, underlines that carbon and hydrogen capture and storage play an important role in a net zero world in 2050. Support for the development and commercialization of these technologies is needed. necessary.
The price to pay
Supporting niches, which may not convey the same easy-to-wrap public message that suited politicians in the past, will be essential if the UK is to meet its obligations and achieve its expressed ambitions.
Decarbonization will not happen without significant costs, whether in research and development, investment or consumer choice about what they eat.
For investors, it is in these areas that there are the most opportunities. Investing in the infrastructure that enables the shift to less carbon intensive activities can reveal great opportunities.
New ideas and new technology seem best positioned for long-term future growth, especially now that the direction of travel has been clearly defined.
This is a chance to support real change, and the world’s appetite for private investment is clear, but proper support from a government claiming to be the spearhead of our green revolution would accelerate and boost that investment and that interest.
Clear policy is needed to promote the billions of pounds of investment that are needed, especially in areas where this may not be happening naturally at the required pace.
Johnson’s ten-point plan, the recent white paper on energy and the industrial decarbonization strategy are all encouraging, but they all suffer from a glaring lack of detail on how the change will be brought about in practice.
There is a kind of shortage of supply in the space, with demand exceeding the available investment opportunities. We need more wind farms, but also significant investments in many other areas.
The government must face reality and match its big plans with more action.
Phil Kent is Director at GCP Infrastructure Investments
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