Time to go full speed – how UK Labour can accelerate investment in the energy transition

As the dust settles on another General Election, politicians, policy makers, the private sector and the public begin to ask themselves the inevitable question – what happens now?

Election campaigns are often whirlwinds of big ideas and important conversations about reform and priorities.

Central to Labour’s campaign was their mission to make Britain a clean energy superpower and in the fine print they called out the need mobilise ‘trillions of pounds in private capital to address the greatest long-term challenge of our age’.[1]

A strong start

The global energy transition needed to tackle climate change also represents one of the most significant investment opportunities of our lifetime. In the UK alone, achieving net zero will require investment on a massive scale – around £50 billion a year will be needed by 2030 to meet the country’s climate goals.^[2]

The sheer scale of investment needed to reach global Net Zero means two things. Firstly, the UK government cannot fund achievement of the UK’s decarbonisation targets alone and need to attract private capital. Secondly, there is a global competition for that capital.

So where is the UK sitting in the race for private capital and what can a Labour Government do to achieve a podium finish?

The UK has a long-standing reputation as a global climate leader and a hub for the green technologies of the future, as well as being an early mover in transitioning off coal and towards renewable energy.

After such a strong start, more recently that leading edge has been lost as the US and the EU have raced ahead in terms of supportive policy measures. A lack of urgency has slowed the pace of policy reform, including in areas such as demand-side policy, land use and planning.

Remedying this will require putting the energy transition at the centre of the Government’s agenda, which the incoming government has pledged to do. They have also committed to establishing the £7.3 billion National Wealth Fund which will be invested alongside private capital.

These are important steps forward which will help the UK retake the lead position but as with all election commitments, the implementation task that comes after a victory will be crucial.

Roadmap required

From a long-term investor’s perspective, long-term stable returns and certainty are key and seeing the new government develop a long-term ‘roadmap’ of priority decarbonisation areas, alongside investment plans and policy reform, could go a long way towards unlocking investment.

This is where the incoming government could take a leaf out of Australia’s book, where the Government has identified 6 priority sectors in the economy including industry and waste, electricity and energy and transport.

The Government is working on plans to identify opportunities to achieve emissions reduction, the which technology may be deployed, how public and private finance needs to support these pathways and any barriers to implementation, while not forgetting social matters like skills and opportunities for women.

Following that approach and creating net zero transition and investment plans would be a big step forward and help unlock long term capital.

The public sector and institutional investors, including pension funds, have an opportunity to collaborate in new ways, including through building trust and capacity and engaging on the design of public vehicles to attract private finance.

To offer an example of how that could look: in Australia, IFM joined with eight pension funds, representing over AUD$1 trillion in capital, to put policy recommendations to the government to unlock investment in the energy transition.

The Australian Government welcomed those recommendations and committed to working through them at their Treasurer’s Investment Roundtable, with some of the measures starting to come to life through their most recent Budget.

Here in the United Kingdom, last year IFM signed a Memorandum of Understanding with the Government, signalling the firm’s intention to invest £10 billion in the country’s energy transition and infrastructure by 2027. . An open dialogue between the new Government and investors via the British Infrastructure Council will further support progress in this area.

With a new Government comes an opportunity to go full speed in a race where there is zero time to spare. Through a strong reform agenda, long-term vision and collaboration with the private sector there will be every opportunity to drive the investment needed and accelerate the United Kingdom’s transition to net zero.

[1] Labour’s Manifesto, https://labour.org.uk/change/make-britain-a-clean-energy-superpower/

^[2] Climate Change Committee, 6th Carbon Budget, Dec 2020