Category Archives: Energy

The Green Deal Industrial Plan, the Inflation Reduction Act, and what they mean for the UK

GK consultant Milo Boyd takes a look at the significance of both the EU’s Green Industrial Plan and the USA’s Inflation Reduction Act, and assesses what these mean for the UK’s climate competitiveness. 

It’s no secret that the Inflation Reduction Act (IRA) has been framed by the incumbent Democrat administration in the United States as one of their big successes (or failures, depending on who you ask). To make it this far, the Act has battled internal Democrat opposition, as well as big-spending averse, influential Republicans who have sought to rein in spending commitments from central government. Despite this, the IRA has put the US on a path to meet its Nationally Determined Contribution (NDC) as set out in the 2016 Paris Agreement and achieve a 50-52% reduction in its carbon emissions by 2030. Of importance to European nations, the Act also contains provisions to benefit US domestic industries. Fearful of the influence that the IRA could wield over the clean tech and net-zero sectors, the European Commission has recently published its own strategy to avoid European industry marching into the welcoming arms of the US – the Green Deal Industrial Plan.

The net-zero transition, the acceleration of which has been stimulated by the ongoing energy crisis due to the conflict in Ukraine, has resulted in considerable shifts in economic, industrial and geopolitical planning throughout both the UK and the EU. With the release of the Green Industrial Plan, the EU has made clear its intentions as to how it aims to take advantage of the accelerated transition to net-zero and strengthen its industrial footing. Fronted by the EU Commission President Ursula von der Leyen, the Plan confirms that the EU will propose a Net Zero Industry Act, which promises to provide a regulatory framework to enhance the competitiveness of the EU’s low-carbon and net-zero industries, including the provision of tax-breaks for companies that support those ambitions.

The plan aims to build on ongoing initiatives, such as REPowerEU – released in May 2022 – and at its centre provides a more predictable and streamlined regulatory environment for clean teach by loosening the limits on subsidies provided by EU member governments to struggling businesses. The hope by the EU is that this will help ensure that Member States are able to provide more ‘state aid’ to prop up businesses that are lagging behind. The Plan has received mixed responses in EU circles, with some figures going as far as describing the plan as ‘Marx on steroids’, amid fears that the stronger EU economies will be able to spend their way to internal economic dominance, and subsequently influence. As described by Von der Leyen, “the next decades will see the greatest industrial transformation of our times”, clearly setting out how the EU views the scale of the opportunity. Evidently, both the Green Deal Industrial Plan and the Inflation Reduction Act will be cornerstones of decision-making on both sides of the Atlantic, with clear transparent efforts to tempt businesses to invest and take root in each respective economy.

So what do both of these plans mean for the United Kingdom? The UK cannot afford to lag behind and lose out to international big hitters, especially now that green industries are understood to be critically important to the UK economy. Lacking the pure economic firepower of both the EU and the US, it is vital that the UK remains agile enough – Brexit benefit anyone? – to spot opportunities as they emerge and quickly take advantage of them, optimising its regulatory and planning landscape to do so. Restrictive planning policies and a 13-year backlog of grid connections for renewable projects have been the Achilles heel of the UK economy throughout the 2010’s, and to date remain overly drawn out and cumbersome, rightly being identified by the Skidmore Review as some of the UK’s biggest weaknesses. Despite generally performing quite well on low-carbon energy, the UK should prioritise speeding up the planning and consent processes to ensure a steady stream of new green projects in the pipeline. Doing so would encourage external investment into the UK economy and secure the continuation of the UK’s position as a global climate leader.

GK Strategy are experts at helping companies navigate the UK’s changing policy landscape, get in touch with milo@gkstrategy.com for more information.

GK Insight: What does the Liz Truss premiership mean for the UK’s net zero agenda?

GK consultants Sam Tankard and Milo Boyd assess the potential ramifications of a Liz Truss government for the UK’s net zero commitments, and what conclusions can be drawn from the ministers appointed at the Department for Business, Energy and Industrial Strategy. Take a look at the analysis here: What does the Liz Truss premiership mean for the UK’s net zero agenda?

Demystifying ‘net zero’: How to invest in the future

‘Net zero’ has become very topical and an increasingly mainstream issue. As one of the Government’s flagship policies, the Net Zero Strategy and related initiatives, such as the Heat and Buildings Strategy, may encourage many businesses and investors to look more closely at Government activity in decarbonisation and energy efficiency.

Last month, GK Strategy hosted a roundtable discussion with keynote speaker, Dr Alan Whitehead MP, Shadow Minister for Energy and the Green New Deal. As ESG specialists, GK pride ourselves on working with investors and organisations that value and demonstrate the importance of sustainability policies.

We strongly believe that the investment community has a vital role to play in the net zero agenda.

GK co-founder and executive chairman, Robin Grainger, asked Dr Whitehead and other participants some important questions about what ‘net zero’ looks like practically, how the investment community can help the Government achieve its targets, and what is the new Government’s take on the net zero agenda.

Beginning the discussion, it was clear that net zero policies are here to stay. The shadow minister expressed his desire for a greater adoption of net zero as a ‘state of being’ rather than simply being an aspiration. He said that it should become a constant in the economy, and ultimately the basis upon which the entirety of the economy operates.

Dr Whitehead outlined where he thought the UK was doing well and where it was lagging behind. He said that one area which required much more attention was that of land use, and land use change, to ensure that food systems were resilient to shocks.

He went on to say that the UK was generally performing quite well on low carbon energy, partly due to some very ambitious plans from the Government. He also noted that the UK was beginning to develop a more effective carbon capture and storage economy, which would be particularly important for high-emitting industries in the future and could eventually be used to support hydrogen production.

The Government came in for criticism on its attitude towards infrastructure, arguing that it was not realistic enough, and did not account for the need to have necessary infrastructure in place well before the net zero goal of 2050.

The Labour frontbencher stated he believed that the UK is also ‘woefully deficient’ with regard to its grid system as a result of the historic focus on fossil fuel-orientated energy, which has meant that the increasingly necessary transmission of clean, renewable power from the British coastlines to inland regions is made more difficult.

We also heard Dr Whitehead explain Labour’s proposals for net zero, which were firmed up at the recent Labour Party Conference in Liverpool last month. Labour would support the current landscape by:

  • creating a £180 billion green investment fund that would drive development of infrastructure, lead the electric vehicle (EV) revolution, and help Britain lead the world in hydrogen;
  • giving more of a focus to the demand side of energy, seeking to use energy in a smarter way through a big retrofit programme;
  • joining up more of the thinking currently emerging from Government, simultaneously aiming to ensure that projects could be run at the local level.

Comparing this to the new Conservative Government under Prime Minister Liz Truss, there seems to be a greater Labour commitment to the net zero agenda. These measures targeting investment, especially in the demand side of energy, and associated job creation, seem like a good start.

With the Truss Government’s approval rating, and that of the whole Conservative Party, declining sharply in recent weeks, it would be useful for investors and businesses to begin, or continue, their dialogues with influential Labour policymakers.

The discussion last month cemented the fact that net zero policymaking is here to stay, even under a pro-fracking Truss Government, and certainly under a Labour administration. Private equity firms and other investors should take government policies seriously and consider investing in the ‘green transition’. Dr Whitehead advised against investing in the ‘brown economy’ and into areas that are likely become stranded assets.

He concluded that it will hardly be a ‘feast or famine’ situation for the investment community as the UK continues to transition to a fully green economy. In his view, there would undoubtedly be many opportunities that will arise with the advent of a green economy, with new markets opening up and new technologies to support.

GK provide expert advice for investors and business leaders looking to take advantage of the green economy; to learn more about it and the transition to net zero, please contact milo@gkstrategy.com.

About GK Strategy

GK Strategy is a political consultancy based in the heart of Westminster. We support private equity in their due diligence process by advising on deals and producing political due diligence reports, identifying any risks to an asset in the deal process.

GK Strategy also provide strategic communications support to companies once the deal process is complete.

Energy Policy Spotlight

Is abandoning Net-Zero the cost for energy independence?

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Negotiators at the end of the COP26 climate summit in Glasgow in November 2021 felt a fragile sense that real progress had been achieved as the final deal between 197 countries contained an agreement to draw down fossil fuel subsidies. Despite a fierce argument over whether coal should be phased down or phased out, the direction of travel was clear, said COP26 President Alok Sharma, who hailed that “the end of coal is in sight.”

Four months on, the global energy picture has shifted significantly; and not completely in the direction sought by Sharma and other COP negotiators. The monumental shift by western allies away from their previous Russia-reliant policies and towards new energy strategies puts their individual Net-Zero policies at risk.

The questions now are whether such a shift can happen rapidly enough to allow the world to meet its tenuous climate goals — and if the economic instability of the Ukraine war will prove to be a long-term setback, rather than an incentive towards a green transition.

As things stand, the US and the UK have both announced bans on Russian oil imports, while the EU has published a plan for more gradual independence from Russian fuels – cutting its reliance on Russian gas by two-thirds by the end of this year. Responding, Russian Deputy Prime Minister Alexander Novak warned that Western countries risk oil prices of $300-plus per barrel if they follow through on cutting off Russian supplies.

The UK Government is poised to announce its new energy supply strategy, which would make the UK more independent in its energy supply, in the ‘coming days’. The strategy will be a real watershed moment – determining whether the conflict has lent a new sense of urgency to the task of transitioning away from coal, oil and gas or, alternatively if fossil fuels are here to stay, as long as they’re not sourced from Russia. There have, for example, been calls for renewed North Sea exploration and exploitation, as well as a U-turn on fracking. Additionally, UK Prime Minister Johnson is currently lobbying United Arab Emirates and Saudi Arabia to increase oil production and attempt to secure major investment in green energy.

Johnson has already announced that the new strategy ‘maximises [the use of] renewables’. However, figures from the Department for Business, Energy & Industrial Strategy shown that the UK’s reliance on Russian gas has doubled in the past four years. Although this only represents 4% of the UK’s total energy supply, it is still a step in the wrong direction.

At this stage, it seems reasonable to assume that the UK will increase energy production from a variety of sources, including gas and oil, but to start a new era of energy policy, the Government could look to pull the levers at its disposal that would set in motion full-scale system transformation. Each of these can help to secure the UK’s future energy security, shield consumers from the worst energy price volatility as a result of foreign influences, whilst further strengthening the UK’s low carbon credentials. Some of these have already been pulled, including the ramping up of renewable energy through schemes like annual contracts for difference, but there are real opportunities to go further.

Gas heating of homes remains one of the UK’s biggest sources of emissions, with 85% of residential buildings connected to the gas grid. Although costly, any Government decision to improve domestic energy efficiency and untangle ties to the European gas markets intrinsically linked to Russia would result in tangible benefits for both the UK and hard-pressed consumers over the longer term and help to offset the seemingly unavoidable rise in fossil fuel production. A rapid scale up of other sources that makes use of the UK’s existing renewable credentials – such as the gradually increased deployment of hydrogen – or a delay to the planned closure of several nuclear power stations would also considerably reduce the pressure on the system.

In the immediate term, there are increasing suggestions that the UK Treasury – led by Chancellor Rishi Sunak – will have to produce COVID-scale market interventions to, first, save the UK from an energy crisis and, second, markedly soften the associated ‘cost of living crisis’ for British voters.

More broadly, the energy-related challenges facing the British Government are more serious than at any time since the oil crisis of the early 1970s or the year-long miners’ strike of the mid-1980s. Reducing emissions already represented a huge task, but now the Government needs to increase, simultaneously, the UK’s energy independence. The challenge will be enormous – but the opportunities for renewable energy providers could be equally huge. The ‘dash for gas’ is certainly over; a sprint for additional solar, nuclear and wind-power (including, significantly, onshore) seems certain to begin.

To discuss this issue further, please email our consultant Dani Schmidt-Fischer  and Milo Boyd on daniele@gkstrategy.com and Milo@gkstrategy.com