James Alexander: UK ‘at risk of losing out on tens of billions’ of green investment
Chief executive of the UK Sustainable Investment and Finance Association calls on British government to respond to the threat from the US Inflation Reduction Act and the proposed EU Net Zero Industry Act.
The UK is potentially missing out on tens of billions of pounds of green investment due to capital being diverted to the US to take advantage of subsidies and tax credits available via the Inflation Reduction Act.
James Alexander, chief executive of the UK Sustainable Investment and Finance Association (UKSIF), told Net Zero Investor that some of his members had “time and again” reported a trend of investment beginning to cross the Atlantic as a result of this “era-defining” piece of legislation.
‘We've heard from a number of investors that have been working with companies on large-scale investments in the new sustainable industries, such as hydrogen. As soon as the Inflation Reduction Act came in, some projects basically upped sticks and moved to the US where the investment system made much more sense,” he said.
“The reality is that we could be losing tens of billions of investment that are essential for creating the sustainable economy that we want.”
We've heard from a number of investors working with companies on large-scale investments in the new sustainable industries. As soon as the Inflation Reduction Act came in, some projects basically upped sticks and moved to the US.
Landmark legislation
The Inflation Reduction Act, is a landmark piece of legislation signed by President Biden in August 2022. It provides $369bn to confront the climate crisis by expanding tax credits for clean energy and electric vehicles, boosting energy efficiency, establishing a national climate bank and supporting climate-smart agriculture.
In combination with two other pieces of legislation – the Infrastructure Investment and Jobs Act and the CHIPS Act – the Inflation Reduction Act is creating an environment in the US that is extremely favourable to sustainable investors.
“[The three acts] are going to make, huge strides to getting the capital where it's needed into the transition – into things like hydrogen and electric vehicles. The question is not how do we stop this, because this is a very positive thing. But how do we get similar private sector investment into the UK, and we think there are lots of things that government can do.”
Alexander is calling on the UK government to create an improved investment environment – one where companies such as electric vehicle (EV) battery start-up Britishvolt can thrive rather than collapse into administration. He wants to see investment plans for each sector of the economy, reform of the planning system and a stable regulatory environment.
UKSIF represents financial services firms in the UK and has more than 300 members managing over £19trn in assets. Along with the chief executives of the Institutional Investors Group on Climate Change and the Principles for Responsible Investment, Alexander wrote an open letter to the UK government last year calling on it to set out a “clear delivery plan for the transition of the real economy and financial services”.
That is where, at the edges, the Inflation Reduction Act in the US is dangerous because it could slip into protectionism.
Davos debates
The wider consequences of the Inflation Reduction Act were noted at the annual meeting of the World Economic Forum in Davos. At one session, Jonathan Hausman, executive managing director of the Ontario Teachers’ Pension Plan, described the impact as a “sucking sound” of green energy investments flowing to the US.
According to the FT, he said: “It’s a very powerful signal to [global] investors that this is where it’s happening.”
Similarly, UK business secretary Grant Shapps called at Davos for open trade flows, and added: “That is where, at the edges, the Inflation Reduction Act in the US is dangerous because it could slip into protectionism.”
And it is not just the US that is threatening green growth in the UK. Also speaking at Davos, European Commission president Ursula von der Leyen announced the EU’s Green Deal Industrial Plan, which includes the Net Zero Industry Act. This aims to increase funding for clean energy technologies across member states, and is seen as a direct response to the Inflation Reduction Act.
Capital flows to EU
Alexander suggests that, in some ways, the threat from the EU is more acute, because of its proximity to the UK and the operation of a similar regulatory environment. “I can see huge amounts of capital flowing into the EU if they create the strong response that they are talking about,” he said.
Competition from both the US and EU has been highlighted by the CBI business lobby in the UK. Its latest research warns that, in the past two years, the UK lost market share equivalent to the potential value of £4.3bn by 2030 in EV battery production and hydrogen alone.
In a recent speech, CBI director general Tony Danker said: “We’re on the verge of being relegated from the Champions League by the Americans and the Europeans: both in an arms race to win global market share. Not only are they spending money, they’re abandoning regulatory barriers including state aid to win the prize.”
Alexander stresses that time is of the essence and “the next decade will define the winners and losers of the future economy”.
“If the winners of the next industrial revolution are not yet decided, we've got to do everything in our power to make sure that we [the UK] come out on top.
“Sitting back and watching other countries put huge amounts of investment, subsidy and regulation in place to drive that revolution, whilst we sit back and do nothing, is a recipe for us to be no longer a relevant global, high-level economy.”
