Taking on the net-zero challenge

In 2019 the UK became the world’s first major econ­o­my to intro­duce a legal oblig­a­tion to achieve net-zero green­house gas emis­sions by 2050, in line with broad­er com­mit­ments made as part of the Paris Agree­ment on com­bat­ing cli­mate change.

The move sig­ni­fied a clear com­mit­ment by the UK gov­ern­ment to address Britain’s role in mit­i­gat­ing glob­al warm­ing. It also required the gov­ern­ment to set out para­me­ters by which the UK cre­ates an equi­lib­ri­um between the amount of green­house gas­es it emits ver­sus those it removes from the atmos­phere, oth­er­wise known as achiev­ing net zero.

While this might sound rel­a­tive­ly straight­for­ward, for a coun­try whose emis­sions rank 36th in the world per capi­ta and 17th over­all, reach­ing this ambi­tious tar­get will be any­thing but.

On the face of it, decar­bon­is­ing the econ­o­my is a her­culean task that touch­es almost every sin­gle sec­tor and indus­try. And while ear­ly signs of progress are begin­ning to show, off the back of his­tor­i­cal gov­ern­ment ini­tia­tives, it is clear that with­out dras­tic inter­ven­tion, achiev­ing net zero by 2050 may be impos­si­ble.

“You have to do the maths and work back­wards from the long-term tar­gets to work out what this means for the next five years or ten years,” says Pro­fes­sor Char­lie Dono­van, exec­u­tive direc­tor of the Cen­tre for Cli­mate Finance and Invest­ment at Impe­r­i­al Col­lege Busi­ness School. “And when you do the maths, you find that a dra­mat­ic change has to start today or even yes­ter­day.”

The cen­tral prob­lem is that such chal­leng­ing tar­gets require a con­sol­i­dat­ed, cross-sec­toral approach to a degree nev­er before seen in the UK. By their very nature, these tar­gets neces­si­tate both updates to pre-exist­ing infra­struc­ture and the devel­op­ment of new sys­tems at the same pace as tech­no­log­i­cal inno­va­tion.

Put plain­ly, when it comes to achiev­ing net zero, the abil­i­ty of every sin­gle sec­tor to meet its tar­gets hinges on the avail­able infra­struc­ture being one step ahead of demand; it’s the base­line upon which every­thing else depends.

Accord­ing to Dono­van, the key chal­lenge in all this is for pol­i­cy­mak­ers. “They must prop­er­ly price the costs of cli­mate change, man­age the risks the pri­vate sec­tor can­not man­age for itself and pro­vide a strate­gic direc­tion for all sec­tors, but espe­cial­ly infra­struc­ture. That’s not just long term, but also speaks to the abun­dance of short-term actions required.”

The green industrial revolution

Anoth­er sig­nif­i­cant and unique chal­lenge for infra­struc­ture is that it’s a sec­tor that depends pre­dom­i­nant­ly on fixed assets, whether that’s elec­tric­i­ty dis­tri­b­u­tion, charge­points for elec­tric vehi­cles (EVs) or off­shore wind farms. Upgrad­ing pre-exist­ing struc­tures there­fore needs to be care­ful­ly planned to min­imise dis­rup­tions to the wider econ­o­my.

At the same time, new infra­struc­ture must be devel­oped to enable areas of inno­va­tion, such as hydro­gen, car­bon cap­ture and stor­age, and this infra­struc­ture needs to be under­pinned by a reg­u­la­to­ry frame­work set by the gov­ern­ment. In many cas­es, this is still pend­ing.

As a nod to the scale of the task, the gov­ern­ment recent­ly set out a ten-point plan for what it calls the Green Indus­tri­al Rev­o­lu­tion, detail­ing the key areas of focus and an out­line for what needs to be done. Accord­ing to Dono­van, although it pro­vides a good start, the government’s guid­ance has not yet gone far enough and needs more detail. “Do I see suf­fi­cient align­ment across the var­i­ous lev­els of gov­ern­ment?” he asks. “Not yet.”

The net-zero investment problem

So how much will this cost? Accord­ing to PwC’s recent Unlock­ing Cap­i­tal for Net-Zero Infra­struc­ture report: “£40 bil­lion per year is required, on aver­age, to be invest­ed in new low-car­bon and dig­i­tal infra­struc­ture over the next ten years, with sim­i­lar lev­els there­after, to meet the UK’s net-zero tar­get by 2050.” In terms of the dis­tri­b­u­tion of any invest­ment, the report iden­ti­fies the key areas of invest­ment as the pow­er sys­tem, trans­port, indus­tri­al and res­i­den­tial build­ings, and dig­i­tal infra­struc­ture.

For Dr Peter Bird, man­ag­ing direc­tor of con­sul­tan­cy BRG, there are two key pri­or­i­ties before any­thing else. “The first chal­lenge is to replace all fos­sil fuels with clean ener­gy and the sec­ond is to ensure there are enough pow­er-gen­er­a­tion facil­i­ties to meet the increased demand,” he says.

There is per­haps no organ­i­sa­tion that plays a greater role in this in the UK than the Nation­al Grid, giv­en that clean ener­gy will under­pin the suc­cess of every oth­er area.

“In the UK, we are in the mid­dle of a trans­for­ma­tion, with the ener­gy we use increas­ing­ly com­ing from clean­er green­er sources,” says Graeme Coop­er, project direc­tor at Nation­al Grid. “The Nation­al Grid is at the heart of that ener­gy trans­for­ma­tion, invest­ing around £1.3 bil­lion each year to adapt and devel­op our trans­mis­sion net­work to con­nect new sources of low-car­bon and green ener­gy to our homes and busi­ness­es.”

Dono­van says the great­est obsta­cle is not a lack of avail­able cap­i­tal, but a need for pol­i­cy­mak­ers to derisk invest­ment oppor­tu­ni­ties and update the struc­tures in place to match investors with projects. “There’s a dis­con­nect between the vol­ume of cap­i­tal that needs to flow into infra­struc­ture and the way cap­i­tal mar­kets are set up to do that,” he explains.

“We’re in a sit­u­a­tion in which we’re try­ing to cap­ture what could be the great­est eco­nom­ic oppor­tu­ni­ty of the cen­tu­ry, but the dif­fi­cul­ty is infra­struc­ture as a long-term invest­ment prospect pos­es a lot of chal­lenges for cap­i­tal mar­kets that are increas­ing­ly focused on the short term.”

Dono­van believes clear strate­gic pol­i­cy guid­ance from the gov­ern­ment is need­ed to achieve this. Bird agrees: “A full and detailed roadmap to net zero has yet to be estab­lished and that has to be a first step.”

Putting consumers at the centre

None of this inno­va­tion will deliv­er progress with­out the help of con­sumers. The great­est chal­lenge of all is ensur­ing they are incen­tivised by gov­ern­ment ini­tia­tives and ease of access to switch to green­er sources of pow­er in their day-to-day lives.

Ofgem, the ener­gy reg­u­la­tor, agrees that con­sumers must be at the cen­tre of any net-zero strate­gies. “We’re work­ing to deliv­er a green­er, fair­er ener­gy sys­tem for con­sumers,” says Akshay Kaul, direc­tor for net­works at Ofgem. Their pri­or­i­ty, he says, is “mak­ing sure the invest­ment made by the monop­oly ener­gy net­works will deliv­er clean­er ener­gy at the low­est cost to con­sumers.”

And beyond cost, it also needs to be easy for con­sumers to use, says Patrick Reich, co-founder and chief exec­u­tive of Bon­net, a new app with fund­ing from Porsche that aims to address the frag­ment­ed charg­ing infra­struc­ture for EVs, mak­ing it eas­i­er for con­sumers to charge them.

He argues that, as well as being read­i­ly avail­able, access to infra­struc­ture must be a trans­par­ent and easy process because the more com­pli­cat­ed it is, the less like­ly peo­ple are going to use it. In the case of EV charg­ing, Reich believes dri­vers “should be at the cen­tre of any strat­e­gy if it is going to be suc­cess­ful”.

One thing is clear, in a frag­ment­ed mar­ket, the abil­i­ty of the UK to deliv­er on its net-zero tar­gets rests large­ly on the government’s abil­i­ty to draw togeth­er efforts in a con­sol­i­dat­ed way, with close input and over­sight between pol­i­cy­mak­ers, investors, tech com­pa­nies and con­sumers.

In the con­text of the sus­tain­able inno­va­tion hap­pen­ing all over the UK, the chal­lenge for pol­i­cy­mak­ers is find­ing a way to draw all these dif­fer­ent approach­es togeth­er in a clear and co-ordi­nat­ed way. With­out this, the country’s abil­i­ty to meet the legal com­mit­ments it has made with the net-zero chal­lenge is in per­il.