Renewable Energy: Is the Law Doing Enough?

Ben Sheppard, Partner in the Energy & Infrastructure Team at Walker Morris LLP, discusses whether the law is doing enough to encourage renewable energy in the UK and tackle climate change.

 Climate Change is a global challenge and renewable energy is but one element of the solution.  The UK is bound by the Climate Change Act 2008, which introduced binding obligations to secure reductions in carbon emissions by 2050.  Initially, this was to be a reduction of 80% of the 1990 baseline, but last year was increased following recommendations by the UK Climate Change Committee to an obligation of 100% reduction (‘net zero’) – thus ending the UK’s contribution to greenhouse gases by 2050. France, Norway and New Zealand are other countries that have committed to this target. Although a global issue, over 50% of all emissions come from 3 major economies: China, USA and the EU.

Are the UK’s renewable energy efforts enough?

The UK is one of the leading economies in tackling climate change. Since 1990, the UK has reduced its emissions by 42% while growing the economy by 72% with an increasing emphasis on clean growth and green skills – integral to the nation’s current economic strategy.

As recently as 18 months ago, the UK was predicted to fall short of this requirement

Energy production in all its forms amounts to 75% of greenhouse gas emissions. To understand the role of clean energy in tackling emissions, the current rankings are:

  • Production of electricity and heat – 31%
  • Transport – 15%
  • Agriculture – 11% intensive techniques, 6% forestry
  • Manufacturing – 12%

In terms of renewable energy, the 2020 target was for 20% of the UK’s energy to be provided from renewable sources.  As recently as 18 months ago, the UK was predicted to fall short of this requirement.  However, renewables now represent over 30% of energy generation, well on the way to a target of 50% by 2025.  Offshore Wind has been a game changer in terms of cost and quantity of renewable energy, with biomass, nuclear and solar being the other major contributors. There is increased attention on biofuels and alternative fuels such as hydrogen for all types of transportation, and hydrogen usage for domestic heating. Carbon Capture Use and Storage (CCUS) is also expected to be key.

Climate change is a global issue and requires a global response.

Whether the UK’s efforts in renewable energy are enough depends upon your perspective of the role of renewables as but one of the range of technologies and policy measures necessary to achieve net zero.  It is clear, however, that public support for climate action is growing. Moreover, political and economic commitments to net zero are becoming firmer and more challenging, including support for renewables in recognition of its key role.

How does this fare to other jurisdictions?

The COP26 climate summit in Glasgow, which has been postponed to next year, is expected to see greater commitments from other countries notwithstanding the USA giving notice that it will withdraw from the Paris Agreement later this year.

Climate change is a global issue and requires a global response. In the run up to the Paris Climate Change Summit in 2015 over 150 countries submitted their national climate action plans, representing over 90% of global emissions. How countries can contribute is influenced by the strength and industrial make-up of their economies as well as their geography – for example being able to access plentiful solar power.  The COP26 climate summit in Glasgow, which has been postponed to next year, is expected to see greater commitments from other countries notwithstanding the USA giving notice that it will withdraw from the Paris Agreement later this year.

It also requires huge technological and policy changes, and supporting renewables alone will not be enough.  Globally $129 billion is spent each year subsidizing solar and wind energy, yet these sources meet just 1.1% of our global energy needs. The IEA estimates that by 2040 – after $3.5 trillion has been spent on additional subsidies – solar and wind will still meet less than 5% of our needs.  Fossil fuels currently meet 81% of our global energy needs. Even if every commitment in the 2015 Paris climate agreement is achieved by 2040, they will still deliver 74% of the total.[1]

However, more funding is needed to decarbonise heat and to upgrade the energy efficiency of the UK housing stock.

One way that more could be done on a global level, therefore, is through an increase in spending on green-energy research and development so that clean energy sources eventually become cheap enough to outcompete fossil fuels.

Is the government doing enough?

The pace of delivery in renewable energy is heavily influenced by the mechanisms the UK Government puts in place: incentives, taxation measures, trading and support mechanisms affecting generation, supply and consumption.  However, more funding is needed to decarbonise heat and to upgrade the energy efficiency of the UK housing stock.

The future of personal transport (car, public, electric, hydrogen, autonomous etc) also requires a clearer policy and investment strategy.

The messaging for economic renewal post-pandemic relies on ‘building back better’ – targeting support on companies that commit to climate action, investing in skills, training and jobs that will deliver low-carbon infrastructure.  Areas, where the Government can do more in policy and financial support, include promoting smart grids, decentralised energy, heat networks, building efficiency standards and a radical re-think of the medium to long term value of expensive retrofitting – the nation’s building stock.  The future of personal transport (car, public, electric, hydrogen, autonomous etc) also requires a clearer policy and investment strategy.

Green investment in 2020 so far  

With the global pandemic severely affecting the major economies, CO2 emissions have fallen dramatically with consequent improvements in air quality, particularly in the major cities with reduction in car traffic.  Electricity consumption across Europe has fallen by over 15% in this period and with a wave of good weather, the production of renewable energy has risen dramatically, occasionally leading to periods where the network paid consumers to take electricity out of the grid: minus £84 MWh at 1 pm on the 21 April.

Inevitably, with much of industry shutdown and recession looming, appetite for investment in energy has been impacted but will return once the economic forecasts are better understood.

The pandemic has perhaps heightened appreciation of climate impacts and the value of renewable sources, though fossil fuel energy production will remain an unavoidable part of the fuel mix for some time.  However, in terms of investment risk assessment, its future looks increasingly challenged from a regulatory, fiscal and consumer preference perspective. Fracking looks particularly at risk whilst nuclear – which provided around 45% of Europe’s power in recent weeks – is costly. Recent developments in the use of mine water for heat recovery may offer ‘at scale’ opportunities for cost effective heat networks which are not reliant on technological innovation.

Inevitably, with much of industry shutdown and recession looming, appetite for investment in energy has been impacted but will return once the economic forecasts are better understood.  This is not assisted by Government’s reduction in spending to support climate action noted by the Environmental Audit Committee in May, which found that a series of Government policy changes had caused a fall in clean energy investment.  It noted that more detail was required of the Government to plug the policy gap and secure the investment required (both public and private) to meet climate targets.

Aiding investment in green technology

The ability of the largest corporations to influence consumer trends – and not just react to them – is substantial and their commitments to buy 100% renewable energy is to be welcomed.

Investors require a stable economic and regulatory environment – this requires not just all-party commitment to the targets (which exists) but also the roadmap and associated funding strategy.  These latter elements are now required to avoid piecemeal investment and failing to deliver at the scale required.

This is likely to require a comprehensive, game changing package of regulatory change, targeted subsidies, penalties, and allowances to encourage sustainable infrastructure and simplified models of generation and delivery that are responsive and resilient.  This is not likely to be forthcoming until after the pandemic recedes and the demands of leaving the EU have been addressed.

Are major corporations pledging to buy 100% renewable energy enough?

Major technological and policy changes, including increased spending on R&D in green-energy technology, will be needed to replace fossil fuels and to offset any irreducible emissions.

The ability of the largest corporations to influence consumer trends – and not just react to them – is substantial and their commitments to buy 100% renewable energy is to be welcomed.  Cascading requirements through supply chains at all levels will further embed the climate change journey into the world economy and consumer spending choices. However, it will not be enough.

Major technological and policy changes, including increased spending on R&D in green-energy technology, will be needed to replace fossil fuels and to offset any irreducible emissions.

Should it be the law to ensure big corporations are doing more?

The scale of the challenge and the required pace of change go a long way beyond what big corporations are doing. But there will be a role for a stronger and more extensive package of policy, regulatory and fiscal incentives to steer the behaviour of business and consumers.  The current sense of the market is that all participants in the global marketplace now see action on climate change as increasingly important for the financial performance of their business as well as an essential part of being a responsible business.

 

Ben Sheppard

Ben is a partner at Walker Morris LLP and in the Infrastructure & Energy, Group with twenty years’ experience advising public and private sector clients on energy and infrastructure projects. Ben leads the Group’s commercial work in the resources and energy sectors including waste, energy-from-waste, bio-resources, renewables and low carbon energy.

 

 

[1] https://www.marketwatch.com/story/your-electric-car-and-vegetarian-diet-are-pointless-virtue-signalling-in-fighting-climate-change-2019-12-26

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