How the UK’s Changing Energy Landscape Affects Corporate Investment

The UK has long been seen as a leader in the transition to a low-carbon economy. However, recent policy decisions signal a potential step back from the country’s net-zero commitments. Here we explore what this means for the corporate sector and investors, and why clarity in policy is crucial for long-term planning and sustainable investment.

An Uncertain Policy Landscape

Despite contributing to less than 1% of global emissions, the UK has historically been responsible for around 3% of total CO2 emissions since the industrial revolution. Recent moves by Prime Minister Sunak’s government have created uncertainty around the UK’s stance on climate and energy policy.

These developments include:

• A Contracts for Difference (CfD) auction that failed to attract bids for offshore wind projects, signalling a poorly-designed policy framework.

• A delay in the ban on new petrol and diesel cars, attracting widespread criticism from businesses.

• The scrapping of policies aimed at forcing private landlords to improve property energy efficiency, and the disbanding of a home energy efficiency taskforce.

• The government’s continued issuance of oil and gas licences, even as the UK stands as the second-largest North Sea producer.

• Volatile pricing in the UK Emissions Trading System, making domestic producers vulnerable to additional administrative costs for EU exports.

A Glimmer of Hope: Positive Developments

Before delving into the implications and in the interests of balance, it’s crucial to acknowledge some recent positive steps:

• A review of electrical grid planning aimed at removing bottlenecks, a priority acknowledged in our own research.

• Pledges to allocate more public funding and grants for boiler-to-heat pump replacements, though questions about administrative capacity remain.

• The launch of Great British Nuclear and advancements in Small Modular Reactor (SMR) technology, supported by public financing. However, concerns about costs, permitting, and construction time persist.

Implications for the Business Sector

This set of decisions sends mixed signals to investors and the business community. The lack of consistency poses several challenges:

• Regulatory Risk: The government’s contradictory moves have increased regulatory risk, a top concern for businesses and investors alike.

• Market Signals: A wavering policy landscape contradicts market and technology trends, such as the accelerating adoption of electric vehicles.

• Missed Opportunities: Unclear policies may result in missed opportunities in green technologies and jobs, compromising the UK’s competitiveness on the global stage.

Why the Cumulative Impact Matters

Taken at face value, the negative side of the ledger does outweigh the positive elements. There are two principal reasons for this negative assessment, neither of which, in themselves, are about reducing emissions: one concerns the UK’s standing in the world, and the second involves the investment community’s perceptions.

Internationally, the Prime Minister’s speech on 20 September was met with unfavourable reactions from global leaders and commentators. The timing of this speech, coinciding with the UN Secretary-General’s Climate Ambition Summit in New York, was unfortunate. The UK’s absence from the summit’s invitation list also added to the impression that it no longer occupies a leading role in the global climate conversation.

Investors focus on what these governmental decisions mean for their capital allocation, both geographically and by sector. At a minimum, the Government is sending contradictory signals for several reasons:

• Disregarding advice from their own Climate Change Committee, described as “worryingly slow” in scaling up climate action.

• Creating confusion in the wind industry by altering a previously successful Contracts for Difference model.

• Ignoring market trends, as evidenced by the reversal on the ban of new petrol and diesel cars.

• Amplifying concerns about stranded assets, particularly in the context of increased North Sea oil and gas production while promising to meet net-zero commitments.

A Path Forward: What Businesses and Investors Need

To foster a favourable business environment, the government should adhere to several key principles:

• Clarity: Clear, straightforward messaging devoid of contradictions.

• Coherence and Stability: A stable policy landscape that businesses can rely on for long-term planning.

• Investor Certainty: Policies should be designed to provide long-term assurance to investors.

Conclusion

The government has an opportunity to set the record straight in its upcoming Autumn Statement. If it fails to do so, it risks not just falling short on its climate commitments but also missing out on the economic opportunities presented by the green transition.

At Inteb, we are committed to helping businesses and property owners navigate these complex policy landscapes. If you’re looking to make sense of these changes and strategise for a sustainable future, get in touch with our experts today.