UK and EC drag themselves towards net zero emissions

In both London and Europe, the effort to reduce emissions summons up a picture of a person, put on a diet by a doctor, eying a cream pie: the head knows it shouldn't eat it, but the body has to be dragged kicking and screaming away from the table.

 A version of this piece appeared on The Fifth Estate six days ago.

That's the picture I get after studying three recent developments – in the UK's climate change legal framework, the EU's Energy Performance of Buildings Directive, and its Climate Action Regulation.

All three developments embody the praiseworthy aspiration to reach net-zero greenhouse gas emissions around the middle of the century (in line with the Paris Agreement on climate change), but the fine words are not yet backed up by measures that will achieve that goal.

UK sets aim for 'net zero'

Claire Perry

The UK's Energy and Clean Growth Minister Claire Perry made a significant and unexpected announcement that she will ask the country's Committee on Climate Change (CCC) for ideas on how to adopt the goal of the Paris Climate Agreement to limit global warming to below 2oC above pre-industrial levels, with an aspiration to keep it below 1.5oC. This means achieving net zero emissions by 2050.

She made the announcement at a meeting of the Commonwealth Heads of Government last week. "After the IPCC report later this year, we will be seeking the advice of the UK’s independent advisers, the Committee on Climate Change, on the implications of the Paris Agreement for the UK’s long-term emissions reduction targets," she said.

The independent Committee on Climate Change (CCC) exists to set five year plans for the UK to meet its legally binding target under the Climate Change Act (2008) of reducing carbon emissions by 80% by 2050 compared to 1990. It then monitors and reports on the UK's progress.

Perry's announcement was welcomed by the low carbon industry and campaign groups, but they cautioned that legislation is needed soon.

Dustin Benton, policy director at thinktank Green Alliance said, "The Government has made real progress on some issues, such as diesel cars and offshore wind, but there are glaring holes in areas such as energy efficiency and onshore renewables," adding waste, housing and transport to the list.

Greenpeace executive director John Sauven said this would mean the end of plans for a new runway at Heathrow. "No new runway at Heathrow will fit inside our carbon budget. The data show that the challenges posed by emissions from transport – land, sea and air – and our reliance on gas for heating will have to be confronted as a matter of urgency."

The CCC itself recently challenged the Government’s policies, saying that they do not go far enough even to meet current targets.

They want to see "urgent action" on the Clean Growth Strategy (published in October 2017), and to see detail on a long list of ideas that have been adopted by the government  to reduce emissions but which are not accompanied by substance on strategy.

These include: phasing out sales of petrol and diesel cars and vans by 2040, increasing the energy efficiency of homes by 2035 and the energy efficiency standards of new buildings, how to phase out installation of gas and oil, to generate 85% of the UK’s electricity from low-carbon sources by 2032, and deploying carbon capture and storage technology.

They highlight also a need for new policies to close the remaining ‘emissions gap’ in the fourth and fifth carbon budgets.  Even if delivered in full, existing and new policies, including those set out in the Clean Growth Strategy, miss the fourth and fifth carbon budgets by around 10-65 MtCO2e – a significant margin.

The CCC says, "There is a particular risk around meeting the fourth carbon budget which begins in just five years’ time, including completion of Hinkley Point C nuclear power station". This is looking increasingly unlikely due partly to EDF's problems on completing a similar reactor at Flamanville.

Energy Performance of Buildings Directive

Meanwhile, on 17 April, the European Parliament approved the Energy Performance of Buildings Directive. This will target the renovation of buildings, and the creation of smarter energy systems for new buildings, acknowledging that around 75% of buildings in Europe are currently energy inefficient and that buildings are the largest single energy consumer in Europe, using around 40% of final energy.

The revisions to the previous version of the Directive form the first of eight proposed steps towards the EU’s Energy Union ambitions and include advocating the use of smart technologies to introduce automation and control systems which could ensure buildings operate efficiently, the use of a 'smart readiness indicator' which can measure a building’s capacity to integrate new technologies, support for the introduction of new infrastructure for e-mobility in new buildings, and a path towards zero-emissions buildings by 2050.

There are also mechanisms to create the investment needed to renovate existing buildings to make them more energy efficient: at least 40% of infrastructure and innovation projects financed by the European Fund for Strategic Investments should contribute to the Commission's commitments on climate action and energy transition in line with the Paris Agreement. There is also funding under the European Investment Bank's Smart Finance for Smart Buildings Initiative. This aims to unlock a total of €10 billion in public and private funds between now and 2020 for energy efficiency projects.

The European Commission Vice-President for the Energy Union, Maroš Šefčovič, said: "As technology has blurred the distinction between sectors, we are also establishing a link between buildings and e-mobility infrastructure, and helping stabilize the electricity grid.”

The Council of Ministers have yet to finalise agreement of the Directive before it enters into force. Member States will have to transpose the new elements of the Directive into their national laws within 20 months. If the UK eventually Brexits, it will not have to.

I have already reported here and here on how the Directive has been watered down compared to what it might have been.

New EU Climate Action Regulation

A new European Climate Law is also edging closer. The Climate Action Regulation (formerly known as Effort Sharing Regulation) covers almost 60% of all greenhouse gases and establishes annual carbon budgets between 2021 and 2030 for each EU country, covering sectors like surface transport, buildings, agriculture, small industry and waste, as follows:

How effective it is as will depend on the policies adopted by each Member State, who, in the coming months, are supposed to develop National Energy and Climate Plans to show how they expect to meet their commitments under the directive.

The European Council already has an overall GHG reduction target for the EU, of reducing emissions 40% by 2030 compared to 1990, with a subtarget for sectors not included in the emissions trading system (ETS) of 30% reduction compared to 2005. The CAR gives each country an individual target to implement that target. France and Germany have by far the highest targets. Eastern European and other less industrialised countries such as Greece and Portugal will be able to continue to increase emissions [for the full list see the table on page 5 of this analysis.

This is not as straightforward as it might seem. The CAR is meant to contain flexibilities to let nations meet targets more cost-effectively, but, according to separate analysis by three think tanks (Sandbag, T&E and Öko Institut), this means it is full of loopholes that allow countries to get out of their commitments, meaning it will only lead to 25-26% reductions compared to 2005. Furthermore, they say, it does not provide the incentives to put the EU in line to fully decarbonise these sectors by 2050.

In respect of action on reducing emissions, the UK was one of the EU's high performers. With it out of the Union, the rest will have to try harder to achieve that 40% target. However, T&E says they won't make it. "Countries that will not meet their 2020 targets will be rewarded by being allowed to emit even more".

It cites the example of Ireland, whose emissions since 2011 have steadily increased. Rather than the CAR giving it a baseline starting point for emission reductions of the 2020 target of 20% relative to 2005 levels, it is being given a 2018 level, which means, because it is failing to reduce emissions to badly, it has to achieve just 5% relative to 2005 emissions. Austria, Belgium or Finland could also be among the countries that will benefit from this starting point.



To return to the picture described in my opening paragraph, at least the head has drawn up rules; whether it can implement and enforce them effectively is another matter entirely.

David Thorpe's two new books are Passive Solar Architecture Pocket Reference and Solar Energy Pocket Reference.  He's also the author of Energy Management in Buildings and Sustainable Home Refurbishment.

Financing industry gears up to bankroll a more sustainable future

Emmanuel Macron, Valdis Dombrovskis and Michael Bloomberg

A version of this article first appeared on The Fifth Estate website on 27 March.

Efforts to close the urban green investment gap need to be urgently scaled up to provide access to technical support and financing for low-carbon infrastructure for thousands of cities, the European Union’s High Level Conference on Sustainable Finance has heard.

The conference saw a first-of-its-kind call made by a powerhouse of individuals and bodies: French president Emmanuel Macron; the Global Covenant of Mayors; Michael Bloomberg, philanthropic financier, former NYC mayor and UN climate change special envoy; European Commission vice-president for the Energy Union Maroš Šef?ovi?, the presidents of the European Investment Bank; the European Bank for Reconstruction and Development and the World Bank Group.

The aim is to raise awareness among local authorities, civil society organisations, businesses, private investors and philanthropies about the investment needs for climate action in urban areas and the available financing solutions; and to provide dedicated advisory services and foster the financing of urban climate action projects.

European Commission vice-president for financial stability Valdis Dombrovskis said: “There are two reasons why we should climate-proof our investments, and foster a broader view of risks: first, the impact of climate change can threaten financial stability and lead to major economic losses through floods, land erosion or draughts. And second, because of the risk of stranded assets. If we wake up too late to the reality of global warming, many of today’s investments could end up being redundant.”

Three months ago, at the One Planet Summit hosted by President Macron, Global Urbis was launched, which is a global initiative to provide cities with financing and technical assistance to mobilise private capital. Urbis is a dedicated advisory platform for investment support to cities. The call for interest will be piloted at the Global Climate Action Summit in San Francisco in September this year.

The European Commission’s Sustainable Finance Action Plan, meanwhile, will make it easier to meet the estimated €180 billion (AU$289b) a year price tag for achieving the EU’s climate goals – an investment requirement that rises to €270b (AU$434b) if energy, transport, water and waste sector are also included. The plan comes hot on the heels of a call from top European financiers to the EU to get radical on financing green projects.

The EU’s climate and energy targets are by 2030 to reach a minimum 40 per cent cut in greenhouse gas emissions compared to 1990, at least 30 per cent (pending finalisation) energy savings compared with business-as-usual, and at least a 27 per cent share of renewables in final energy consumption.

Meeting the challenge

With over €100 trillion (AU$161t) in assets, the financial sector must be part of the solution. There is huge potential for green investments. However, the EU has recognised that engaging private finance requires systemic changes to its own financial eco-system.

Following the engagement of a high-level expert group, the plans announced are for far-reaching reform to its system, reform that Mr Dombrovskis said at the launch “could set the global benchmark for sustainable finance… to support a sustainable future for generations to come”.

The Commission will also establish a new single investment fund to provide financial support for sustainable investment for all EU policies.

The action plan will address five key challenges to the provision of sustainable finance:

• there is no common definition of sustainable investment, and so a universal classification for sustainable activities will be developed
• to avoid a risk of “greenwashing” by banks of existing or other investment products, standard labels between financial products will be established to give investors certainty
• to stop banks and insurers giving insufficient consideration to climate and environmental risks there will be a study to discover if capital requirements should reflect exposure to climate change and such risks
• to reduce the likelihood that investors might disregard sustainability factors or underestimate their impact, the duties of institutions will be clarified to make sure they consider environmental, social and governance (ESG) issues in their investment decision processes and are more transparent towards their clients
• to address the fact that too little information is often provided to shareholders on corporate sustainability-related activities there will be efforts to encourage non-financial information disclosure in company reports.

In total, these amount to the provision of more reliable information for investors, sustainability and risk management.

Furthermore, to combat short-termism in investment decisions, the Commission is inviting the European Financial Supervisory Authorities to collect evidence of undue short-term pressures in capital markets on corporations and consider whether steps need to be taken to combat these.

Green bonds and ecolabels

Most of this work will take about a year and so by the third quarter of 2019 the European Commission is expected to adopt acts on the content of the prospectus for issuing green bonds and produce an EU ecolabel for financial products based on the previous highly successful EU organic label and the EU product eco label.

It will also provide benchmarks for institutional investors and asset managers that are harmonised across the EU and a list of measures to be taken to require greater disclosure of non-financial information in company reports and to incorporate sustainability in prudential requirements.

An EU sustainable taxonomy would mean a uniform and harmonised classification system for green investment. This is seen as essential to determine which activities can be regarded as sustainable across the EU and to strengthen banks against economic shocks, improve risk management and ultimately ensure financial stability.

It would provide appropriate signals to economic players on which activities are considered sustainable.

This will all help to create certainty for investors who want to invest with sustainability objectives in mind.

The European Investment Advisory Hub – the EU’s gateway to investment support – is providing technical assistance to the development of projects. This helps to build capacity for projects that are often technologically, economically and legally complex. It also has a role co-operating with local partners such as promotional banks across member states to provide more match-making and increase local accessibility.

David Thorpe’s two new books are Passive Solar Architecture Pocket Reference and Solar Energy Pocket Reference. He’s also the author of Energy Management in Building and Sustainable Home Refurbishment.

What are G20 members really doing about climate change?

This article first appeared on The Fifth Estate website on 6 Sept.

How are the members of the G20 rich nations club performing in their efforts to meet the challenge of climate change? A new report prepared for a recent G20 summit says: “Not enough. Must do better.” It urges them to drastically improve energy intensity and phase out support for fossil fuels.


Amid the plaudits for China and the US ratifying the Paris Agreement is the knowledge that the world’s greenhouse gas emissions are still rising, and that the G20 is responsible for three quarters of these emissions.

A new report from Climate Transparency, a conglomeration of global NGOs dedicated to urging climate action, analyses the relative performance and investor-readiness of the world’s richest economies in moving to a low-carbon state.

It challenges them all to submit plans by 2018 detailing how they will decarbonise by the middle of this century and to commit to basing their infrastructure investment on keeping the global average temperature increase to well below 2°C, and to encouraging green investment.

Climate Transparency says that to achieve these aims a realistic price for carbon is vital, whether achieved through a tax, levy or emissions trading.

Absolute emissions by G20 countries must be drastically reduced in the near future; between 1990 and 2013 their energy-related CO2 emissions actually increased by a depressing 56 per cent.

Per capita emissions in the G20 nations.

If global emissions are averaged on a per person basis, then in 2013 everyone in the world was responsible for 5.7 tonnes of carbon dioxide-equivalent emissions a year.

The report says that to keep global temperature increase below 2°C this must be reduced to around two tonnes per person – in other words we must each have our emissions cut by two thirds.

The G20 scorecard

How G20 members perform in climate action in six key indicators.

So, how do the individual members of the G20 size up in the race to reduce emissions? Here are the headline results:

• All of them, except Brazil and Russia, are reducing the energy intensity of their economies.
• The UK has the lowest energy intensity, mainly because its economy is predicated largely on its services and financial sectors. Countries with large manufacturing sectors face greater challenges.
• Australia, Canada, Saudi Arabia and the United States have the highest per capita energy-related carbon dioxide emissions.
• India and Indonesia have the lowest emissions per person, but Brazil’s and India’s are rising as they develop.
• All G20 countries except Argentina and Saudi Arabia have implemented policies to encourage energy efficiency in buildings and emission performance standards for vehicles.
• Only half of the G20 members have published plans for reducing greenhouse gas emissions, or expect to do so.
• Only the UK and Japan have exceeded the climate policy framework specifications for boosting performance.
• G20 governments collectively provided almost AU$92 billion in subsidies for fossil fuel production between 2013 and 2014. Of these, Russia subsidised its sector by a whopping $31 billion, the United States over $26 billion and Australia and Brazil $5.8 billion each.

The urgent need to cut fossil fuel subsidies

In 2009 G20 leaders promised to phase out these fossil fuel subsidies.

Other NGOs put the figure for the G20’s subsidising of fossil fuels even higher. The Overseas Development Institute (ODI) and Oil Change International say it is more like AU$583 billion a year.

Insurance companies worth over $1.2 trillion last week demanded that G20 governments commit to phasing out these subsidies by 2020. Aviva, Aegon NV and MS Amlin, along with the Institute and Faculty of Actuaries and Open Energi, all signed a statement to this effect.

One of the main obstacles for decarbonisation continues to be plans for new coal-fired power plants. Amongst the most worrying of these is Australia’s commitment to supporting these in the Far East with dramatic expansions of coal mining that threaten the Great Barrier Reef.

G20 members’ support for coal.

South Africa and China both rely almost 70 per cent on coal for their energy, but others are also guilty: Australia (at 37 per cent), Germany (at 26 per cent) and Japan (at 25 per cent).

If all the plans for new coal-fired power stations were implemented it would double the world’s existing capacity. This must be halted, says Carbon Transparency.

G20 members’ support for renewable energy.

Renewable energy on the other hand is a big success story in the G20. It increased by 18 per cent since 2008. Leading countries are: Brazil, Canada, Italy, India, South Africa, Turkey and the EU.

Guess in which G20 country renewable energy actually declined between 2008 and 2013? Well, it was Mexico. That is expected to change.

How investor-ready is the G20?

The G20 countries score table for investor-readiness.

So if the G20 is to shift from brown to green energy, then countries must become what is termed “investor-ready” for renewables and energy efficiency.

The Carbon Transparency report ranks countries on their investment-readiness. It finds China, France, Germany, India, the UK and the United States are already attractive to investors.

What counts in this respect is the coherence and reliability of energy and climate policy, which provides confidence to investors. For example, Germany is now seen as not quite as attractive as it was because it has introduced caps on subsidies for renewable energy.

The least investor-ready countries are Russia, Saudi Arabia and Turkey. Both offer little support for renewables and their national grids are not yet adapted to their integration. Since President Erdogan took power in Turkey, energy policy has favoured coal at the expense of renewables.

Under global climate agreements eight developed countries in the G20 are supposed to offer cash to other countries to develop their low carbon economies.

But this is not yet sufficient. In 2013-14, France, Germany, Japan, the UK and the US each provided between US$1.2-8.4 billion.

Although that sounds like a lot of money, in relation to GDP it is low. If you look at it from this angle, Japan (at 0.18 per cent) and France (at 0.12 per cent) have the highest ratio of providing international climate finance per head of population.

At the bottom of this table are Canada (0.0008 per cent), Australia (0.001 per cent) and Italy (0.0003 per cent).

Reducing carbon intensity

If we are to move to a low or zero carbon economy and improve the living standard of everybody on the planet then carbon intensity must reduce equally everywhere. This means producing more with less polluting energy.

Carbon intensity varies wildly amongst the members of the G20. The least efficient is South Africa (at 925 gCO2 /KWh). It is followed by India, Australia and Indonesia, who all have electricity emissions intensities of over 800 gCO2 /KWh.

G20 members’ carbon intensity compared.

At the top of the electricity emissions intensity table are: Brazil (at 100 g CO2/kWh), Canada (at 161 g CO2/kWh) and France (at 67 g CO2/kWh), but Brazil and Canada can attribute their success to their large hydropower sectors and France to its high share of nuclear power.

None of them perform so well when compared with Norway, which beats the world with just 8g CO2/kWh.

So what are they all doing about it?

For the Paris climate summit all G20 states submitted Intended Nationally Determined Contributions. These were supposed to show what they were going to do about climate change.

However the emissions reductions stated in these documents only cover 15 per cent of those needed to reach under 2°C. To achieve that, the G20 members need to ramp their climate action ambition up to 2030 by six times.

Among the tools needed, besides climate finance, is carbon pricing. Common pricing makes it more expensive to pollute than not to pollute when producing energy.

Australia’s emissions trading system introduced this year is criticised because its baselines are so high that they don’t not require any emissions cuts. And it repealed its comprehensive carbon price mechanism in 2014.

Throughout the world, carbon prices vary significantly from below one US dollar a tonne of carbon dioxide to US$130 a tonne, with the majority (85 per cent) priced at less than US$10 per tonne. Ideally, the world needs to move to a harmonised system of carbon pricing.

Looking forward, here is a table of how the countries compare in their planned investments in energy:

G20 planned investments in energy

Conclusion: the transition is happening but the speed is yet too slow.

David Thorpe is the author of:

• Best Practices and Case Studies for Industrial Energy Efficiency Improvement (with Oung, K. and Fawkes, S. UNEP, 2016)
• A London Conversation: Business Briefing on Green Bonds (The Fifth Estate, 2015)
• The One Planet Life (Introduction: Jane Davidson. Routledge, 2015)
• Earthscan Expert Guide to Energy Management in Buildings (Earthscan, 2013)
• Earthscan Expert Guide to Energy Management in Industry (Earthscan, 2013)
• Earthscan Expert Guide to Solar Technology (Earthscan, 2011)
• Earthscan Expert Guide to Sustainable Home Refurbishment (Earthscan, 2010)

UK energy and environment sectors face post-Brexit uncertainty

[note: Originally published in The Fifth Estate, on 28.6.16.]

The UK energy market and the prospects for environmental safeguards face an uncertain future following the country’s referendum vote to leave the European Union.

One-fifth of British business leaders said they were considering moving operations abroad after the vote, according to a survey by the Institute of Directors. One in four also planned to freeze recruitment and over a third said it would cause them to cut investment.

Immediately following the announcement of the result, Greenpeace UK executive director John Sauven commented: “Many of the laws that make our drinking and bathing water safe, our air cleaner, our fishing industry more sustainable and our climate safer now hang by a thread… The climate change-denying wing of the Conservative Party will be strengthened by this vote.”

Jacob Hayler, the executive director of the Environmental Services Association, which represents the UK’s resource and waste management industry, also voiced the opinion that the result would “extend and intensify the uncertainty around both our industry and the UK more generally”.

“The danger now is that the waste and recycling sector is placed at the bottom of the government’s in-tray.”

He promised to “make the case for the circular economy within the UK”.

The effects on investment prospects are likely to be negative for these sectors. Last year the National Grid commissioned research from Vivid Economics on the impact of Brexit on the British energy sector, which concluded that investment costs would increase due to the “uncertainty arising from Brexit negotiations” at a time when the country is “undertaking a historic level of investment in energy infrastructure”.

This view was echoed following the announcement by Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management, who said that energy companies could be most exposed to the effects of a Brexit. Plans for capital intensive projects such as offshore wind and new nuclear power stations are particularly vulnerable.

Although EDF chief executive Jean-Bernard Lévy said the UK’s decision would have no impact on EDF Energy’s strategy to build Hinkley Point C – the first new nuclear power station built in the UK in almost 20 years – this was contradicted by Fiona Reilly, PwC’s global head of nuclear capital projects and infrastructure. She said the decision to leave the EU “could have a significant impact on our nuclear program”, citing “access to capital and investor confidence”, but also the need to “renegotiate our involvement in the Euratom Treaty and our 123 Agreement with the US”.

Jonathan Grant, director of PwC sustainability and climate change, called the result “a major setback for the type of collaboration needed to tackle global environmental issues like climate change”, and said “there is a risk that it could kick EU ratification of the Paris Agreement into the long grass”.

Professor Steve Cowley, chief executive of the UK Atomic Energy Authority, the country’s nuclear research agency, told the BBC that over 1000 clean energy exploration jobs may be lost. Scientific research benefits greatly from EU partnerships and funding. Researchers are afraid, he said, that £55 million (AU$99m) in annual European Commission funding would be withdrawn.

While the decision to leave will not affect the UK’s climate change goals, as they are enshrined in law at a national level under the Climate Change Act 1998, there will still be implications. The UK’s own emissions will have to be deducted from the EU’s, which count together under the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement.

The deduction could impair the EU’s perceived performance since, as the UK is a relatively high performer, it helps to counteract the lesser performance of other member states. The UK will also have to submit its own Nationally Determined Contribution to the UNFCCC process, since at present all member states are covered by a single document.

Christiana Figueres, before the vote, had already said that a pro-Brexit result would mean the Paris Agreement “would require recalibration”. Following the vote, Ian Duncan, the only Conservative MEP for Scotland and the British lead MEP on the bill to revise the Emissions Trading System, resigned. In his letter he said: “It is with quite some regret that I take this step. I believe passionately in the need to address climate change.”

Whether the UK will continue to participate in the EU Emissions Trading Scheme is uncertain. European carbon prices fell over 15 per cent following the Brexit vote. If negotiations result in Britain adopting the EEA + EFTA model, then, like Norway, Lichtenstein and Iceland, it will do so. Otherwise, arrangements will have to be made to compensate those companies which hold a surplus of emission allowances under the cap and trade scheme.

Also, the country will be free of the targets set by the EU Renewable Energy Directive and the restrictions under EU state aid, which could free the government to curtail renewable energy support regimes, as long as it still kept within the Climate Change Act’s restrictions. Many right-wing politicians would like to see this Act withdrawn, however.

But any subsidies must still comply with the World Trade Organisation’s subsidy regime – which arises from the same principles as EU State aid rules.

It’s unlikely that Brexit will reprieve the death sentence hanging over the UK coal-fired power stations and many older gas plants. The law stipulating that their greenhouse gas emissions are too high to permit them to continue was the EU Industrial Emissions Directive 2010, which passed into national law. The UK Government is anyway proposing (subject to consultation) to close all unabated coal-fired power stations by 2025.

A particular area of concern is the future of Europe’s ambitious plan to liberalise and harmonise its energy market and grids, known as Energy Union. The UK Government has always pushed the European market to be more liberal. Regardless of Brexit, cooperation with the EU internal energy market will still be necessary because of the electricity interconnectors and gas flows between the British Isles and the continent.

So whatever rules the EU opts for in the Energy Union market will have to be complied with by the UK without it having been able to participate in their formulation – unless the UK succeeds in negotiating to remain a member of the bodies that write the rules, such as ACER, ENTSO-E and ENTSO-G.

Karel Beckman, editor-in-chief of Energy Post, commented that policymakers in Brussels should reconsider the Energy Union and opt “for more realistic forms of market integration”.

Energy and the environment hardly figured in the public debates during the referendum campaign. But the vote’s legacy could have a much greater impact on both.

David Thorpe is the author of:

• Best Practices and Case Studies for Industrial Energy Efficiency Improvement (with Oung, K. and Fawkes, S. UNEP, 2016)
• A London Conversation: Business Briefing on Green Bonds (The Fifth Estate, 2015)
• The One Planet Life (Introduction: Jane Davidson. Routledge, 2015)
• Earthscan Expert Guide to Energy Management in Buildings (Earthscan, 2013)
• Earthscan Expert Guide to Energy Management in Industry (Earthscan, 2013)
• Earthscan Expert Guide to Solar Technology (Earthscan, 2011)
• Earthscan Expert Guide to Sustainable Home Refurbishment (Earthscan, 2010)

Politicians strive to reassure infrastructure investors following Brexit vote

[note: Originally published on The Fifth Estate, on 5.7.16.]

The outlook for investment in housing, infrastructure and green energy projects in the UK remains uncertain following the referendum decision to leave the European Union, but politicians are now seeking to reassure industry and investors.

Over double the number of industry professionals (60 per cent vs 28 per cent) believe that Brexit will have a negative rather than positive long-term effect on the UK construction industry, with 12 per cent unsure, in an ongoing online poll among those in the UK building industry.

But looking closer, the picture becomes different for different sub-sectors and projects, with infrastructure projects, housing projects and green energy projects each facing differing challenges following the vote.

Infrastructure

The UK has plans for several big infrastructure projects, not least HS2 – a new high-speed rail link from London to the north – and Hinkley C nuclear power station, plus a number of offshore wind farms, Crossrail 2, numerous housing projects and the so-called “northern powerhouse” – a plan to rebalance the economy of Britain by investing in the North of England.

If any projects are to fall by the wayside they are likely to be HS2 and the expansion of Heathrow airport, both of which require substantial amounts of public money. Hinkley is also in serious doubt, but for quite a few additional reasons, not least the precarious nature of energy company EDF’s status and uncertainty about the technology chosen for the reactor.

Also at risk are smaller regeneration infrastructure projects (often road improvements) in England worth in total about £5.3 billion (AU$9.3b), according to the Local Government Association.

In Wales, which, unlike Scotland, London, Northern Ireland and Gibraltar, did vote Leave, the future of the £500 million (AU$882m) annual grant Wales receives from the EU is in doubt.

Welsh government’s first minister Carwyn Jones, calling Leave campaigners “clueless”, says major projects are “in difficulty” because of the Brexit vote, and there are “hundreds of vital EU-funded projects right across Wales whose future is now in the balance”. Funding had been allocated to improve main roads and build the South Wales Metro rail link, a project with a £2 billion (AU$3.5b) price tag that would have received £150 million (AU$265m) from the EU.

House building

Housebuilders suffered a big drop in share prices – an average of 18 per cent – following the referendum result, but there has been some recovery since then. Tony Williams, an analyst at Building Value, says he still expects a slowdown in building, but the underlying momentum will still be strong because of the chronic under-supply of homes in the UK. The devaluation of the pound could actually attract foreign buyers to buy bargain property, particularly in London.

As to how sustainable these homes of the future will be, UK Green Building Council policy adviser Richard Twinn pointed to the fact there is nothing in UK legislation saying it has to meet a sustainability target, except for a requirement in the Housing and Planning Act for the secretary of state to “undertake a review” of energy efficiency measures, with no actual action required by UK law.

The UK’s chief energy efficiency policy is derived from the EU’s Energy Performance of Buildings Directive, which requires all new buildings to be nearly zero-energy buildings from 2021, and may now be scrapped.

Other environmental protections at risk that derive from important European Directives protect birds and natural habitats. Developers have often found these a hindrance, but any attempt to roll back such protection will prompt vociferous opposition from environmentalists.

Green energy

The UK green energy sector last year had a market value of £16b (AU$28b) and employed around 117,000 people, according to the Renewable Energy Association. So far, no projects have been cancelled, and the sector is cautiously optimistic.

Marianne Wiinholt, chief financial officer for Denmark’s Dong Energy, which is building some of the UK’s largest offshore wind farms, says the UK’s energy policy is based on the need to replace old coal-fired power stations. She says any subsidies the UK government disburses to assist the construction of offshore wind farms are enshrined in private contracts “and will thus not be affected by the outcome of the EU vote”.

Many turbine blades for North Sea wind farms are made in Hull, on the north-east coast of England. These factories are not currently under threat, at least in the short term, says factory owner Siemens. Most of these big companies have hedging plans in place to cosset them from currency fluctuations.

Terri Wills, chief executive of the World Green Building Council, says that because the economic and environmental case for tackling climate change has in many ways already been won amongst policymakers, Brexit will make little difference.

“There is a sense that the green agenda is good for business, good for retaining amazing staff, good for us being strong corporate citizens looking to the long term and good for making sure corporations are resilient. So there is a business case for this. I think the market just wants to see that the government recognises that.”

The government has gone some way towards providing this recognition by last week adopting the 2050 emissions reduction target recommended by the Committee on Climate Change and agreeing with its damning report on its own progress, showing that it continues to be committed to the UK’s Climate Change Act and remain a leader on climate action.

Confidence building

Politicians have, in the last few days, been taking other steps to rebuild confidence in British investment plans.

Government infrastructure commissioner Sadie Morgan attempted to calm fears by saying she has “every confidence” projects will go ahead – because infrastructure spending is critical to lifting the country out of the Brexit crisis.

“As far as the [National Infrastructure Commission] is concerned, it’s business as usual,” she told a House of Commons reception for the construction industry.

“If anything is going to get us out of this hole it’s infrastructure.”

MP Conor McGinn, chair of the All Party Parliamentary Group on Construction and Urban Development, told those at the gathering that the country was entering “really challenging and unprecedented times” so it was crucial for the government to “work in partnership” with construction firms to overcome the challenges.

Chancellor George Osborne on Monday set out a five-point plan that includes a proposal to set the level of corporation tax at under 15 per cent – the lowest of any major economy – to stimulate investment including in the north of England. The decision to leave the EU potentially threatens the UK’s relationship with China, which Osborne had been at pains to build in order to attract inward investment. Osborne has said he will reassure China and other countries that Britain is still open for business.

He will be encouraged by a bounce back in the value of the top British shares index on Monday, led by mining stocks, and with the blue-chip FTSE 100 index at its highest level since August 2015, following a slump after the referendum result. The Sterling’s weakness since then has, reports investing.com, provided a cushion to the FTSE 100, “since many of the index’s international companies can benefit from a weaker pound which would help exports”.

Finally, one of the contenders for the leader of the Conservative Party, Stephen Crabb, has proposed a £100bn “Growing Britain Fund”. This would use government borrowing to fund infrastructure investment and invest in projects such as flood defences, a national fibre-optic broadband network, Crossrail 2, social housing, school buildings and new prisons.

European reaction

Further afield, the inward looking referendum result has jolted confidence around the world in the values formerly associated with not only Britain but the whole of the EU: pluralism, non-discrimination, tolerance, justice, solidarity, equality and a commitment to sustainable development and poverty eradication globally.

EU leaders who gathered in Brussels for a crisis summit last week were almost unanimous in their opinions about how the EU needs to change as a result. There can no longer be ‘business as usual”, they said. “Europe needs change.”

“Nothing would be worse than the status quo.”

But there has been no sign yet of these feelings being translated into action. The first post-Brexit vote decision made in Brussels was to bow to corporate lobbying and extend the licence of the controversial toxic herbicide glyphosate for another 18 months. This “shows the executive is failing to learn the clear lesson that the EU needs to finally start listening to its citizens again,” said Bart Staes, a Belgian Green MEP.

This was a view even felt by the Commission itself, and is a result of the complex, often remote and unaccountable way in which decisions can be made at the European level.

Until this changes, the public in many other member countries will continue to demand their own referendum, like Britain’s, putting the European project, which has brought peace, stability and prosperity to the continent for the last 50 years, under threat.

All in all, it seems that investors are going to have to live with uncertainty for some time to come.

David Thorpe is the author of:

• Best Practices and Case Studies for Industrial Energy Efficiency Improvement (with Oung, K. and Fawkes, S. UNEP, 2016)
• A London Conversation: Business Briefing on Green Bonds (The Fifth Estate, 2015)
• The One Planet Life (Introduction: Jane Davidson. Routledge, 2015)
• Earthscan Expert Guide to Energy Management in Buildings (Earthscan, 2013)
• Earthscan Expert Guide to Energy Management in Industry (Earthscan, 2013)
• Earthscan Expert Guide to Solar Technology (Earthscan, 2011)
• Earthscan Expert Guide to Sustainable Home Refurbishment (Earthscan, 2010)

INFOGRAPHIC: How investment in efficiency has reduced fuel consumption & GHG emissions since 1990

 Here is proof of how energy efficiency is the first fuel. Investment is cost-effective and reduces energy demand, therefore the need for investment in generation plant, and reduces greenhouse gas emissions.

Click for higher resolution.

New Package Will Change Investors' Attitude To The $6 Trillion Energy Efficiency Market

A new package is to be made available to investors, building owners and the low carbon sector that will make investing in energy efficiency as easy as investing in renewable energy. Backed by €1.92 million of European Commission grant-aid, it is hoping to build demand by giving these clients greater confidence and a standardised approach that will reduce the present high transaction costs impeding greater uptake of energy efficiency in buildings.

The scheme is being developed by the Investor Confidence Project (ICP) Europe, a project of the EnvironmentalDefense Fund in the USA, where it is already attracting big name investors in the banking world.

The intention is to build a marketplace for standardized energy efficiency projects by increasing the reliability of projected energy savings. The individual projects can then be aggregated and traded by institutional investors on secondary markets – just like mortgages or other profitable asset-backed securities. As a result, ICP will be of interest to building owners, project developers, finance and energy service providers, insurers, local authorities and utilities.

Steven Fawkes

The scheme is being fronted in Europe by Steven Fawkes (above), descendant of Guy, who is also a member of the Investment Committee of the London Energy Efficiency Fund and comes with 30 years experience of energy efficiency.

"We want to make energy efficiency become an indispensable part of every institutional investor's portfolio. It is potentially the biggest value opportunity on the planet," says Steven. "The world spends $6 trillion on energy so saving one third would equate to $2 trillion savings. And don't forget the co-benefits – real and measurable ones such as improved productivity, health, life-saving and jobs, which often are not considered in the cost-benefit equation.

The European Commission alone puts the size of the investment required at around €100 billion per year. The key to unlocking access to this market, Steven explains, is the ICP System, that standardizes how energy efficiency projects are developed and measured, in the savings projections and underlying investment yields, via a series of Investor Confidence Project Protocols.

"These are equivalent of the standardised approaches investors use when looking at investing in energy supply projects," he says. "Quality is guaranteed through independent assurance, the application of monitored best practice standards to each phase of a building retrofit, and by contracting the work to industry-leading professionals. The result is Investor Ready Energy Efficiency projects."

For investors, the near-term benefit of this will involve a significant increase in deal flow. Increasing the number of fundable projects will in turn result in significant long-term benefits including:

• reduced transaction costs;
• lower costs of capital;
• increases in available credit;
• actuarial data sets.

 From the investors' point of view, limited actuarial-quality project data and industry fragmentation have been discouragements to putting their cash into energy efficiency. To remedy this, ICP Europe is forging strategic alliances with the financial and efficiency sectors to develop renovation projects and industry standardization and embed the Protocols into their financing process.

"At the same time, we're collaborating with government and civil society groups to facilitate the necessary public policies and education activities to support adoption of our products and services," he says. Initially ICP is working in Austria, Bulgaria, Germany, Portugal and the U.K., but the project will later be rolled out across Europe. In the UK alone, it could create over 100,000 direct and indirect jobs, quickly and across the UK.

There's a human angle too – 7 millionpeople live in fuel poverty in the UK, causing poor health and premature death. "26,000 people die of the cold each year, with at least one-third of these deaths due to people living in cold homes," says Ingrid Holmes of E3G.

ICP is backed by the European Commission, whose report, Energy Efficiency – the first fuel for the EU Economy, was published last February by the Energy Efficiency Financial Institutions Group (EEFIG), a group of over 100 organizations, including Deutsche Bank, ING, Allianz and BNP Paribas. Its new Financing Energy Efficiency web site lists ICP Europe as a recommended initiative and the only initiative listed that's independent from the European Commission.

Fawkes concludes: “Energy efficiency has provided more energy services over the last 40 years than any other energy resource, and we did that without really trying.  Imagine what we can do if we make a real effort! In buildings it has high returns without subsidy, is quick to implement and completely clean”.  

Anyone interested in knowing more should join the ally network by visiting http://www.eeperformance.org/europe-allies.html.

Cleantech sector expects greater profits in next 12 months

Leaders of cleantech firms around the world are more optimistic than their counterparts in other sectors, a new survey has found.

A survey by Grant Thornton, published on Monday, of business leaders' attitude in the sector, finds the sector expects to continue rapidly expanding, despite the world's pervading economic uncertainties.

It finds that 68% of cleantech businesses expect revenues to increase over the next 12 months. This compares with 52% of businesses in general feeling the same way.

The International Business Report also finds that 62% in the cleantech sector expect profit to rise over the next 12 months, compared to just 38% of businesses in general.

Furthermore, these business leaders appear to be investing in the long-term growth of their businesses.

52% say they will increase research and development spending over the next year. 51% plan to invest more in plant and machinery. Both of these figures are well above the global averages for business in general.

The reason for that optimism is not hard to find. It is because the sector has already been expanding rapidly over recent years: by 31% per year in 2009 and 2010.

Although this rate of growth slowed to 10% in 2011, this is still well above average GDP growth rates.

Even in the United States, the sector expanded by 17% between 2010 and 2011, to $46.3 billion, while China experienced a rise of 77% between 2008 and 2011. The sector there is now worth over $72 billion.

Nathan Goode, global leader of cleantech at Grant Thornton, commented: “The cleantech sector continues to demonstrate remarkable rates of growth.

"Global economic uncertainty is weighing on short-term business growth prospects but the data suggests that dynamic businesses in the cleantech sector are willing to invest in bold growth plans to boost competitiveness."

Constraints on expansion

Regulations and red tape are cited by business leaders in the sector as being the major constraint on expansion. This was mentioned by 41% of respondents, compared to the all-sector average of 34%.

The second constraint is a shortage of skilled workers, mentioned by a further 38%, 10 percentage points above the all-sector average.

This is affecting pay levels in the sector: 79% of businesses are offering workers pay rise over the next 12 months, compared with only 68% of businesses in general.

“Demand for cleantech products and services is fairly robust. China, the United States and Europe account today for around 50% of total global output, but their share of cleantech output is nearer to 75% so we would expect them to drive future innovation and growth," said Nathan.

He added that this is still a relatively young sector, “so it's not surprising to see innovation outgrowing talent. However, with unemployment rates high, rapid growth in the sector clearly offers an opportunity for economies to boost employment and output."

He cited South Korea as an example of how policies the government has put in place are encouraging our R&D and manufacturing industries. There, there are incentives and targets for energy efficiency and renewable energy to attract investment.