UK100                            FSUK0027

Written evidence submitted by UK100

 

Submission from Zoe Roberts, Communications and Campaigns Assistant at UK100, on behalf of UK100 on 30/06/22.

 

Executive Summary

 

UK100 is a network of local authorities that have pledged to shift their communities to Net Zero ahead of the government’s legal target. They do this to demonstrate their ambition, make the case for rapid change, and enable a fast and fair transition.

 

The network provides local leaders opportunities to learn from each other, agree priorities for legislative and regulatory change, engage with national decision-makers and businesses, and develop a better understanding of how to build consent and support for rapid climate action in their communities.

 

We are responding to this consultation to highlight the need for the UK Government and the financial sector to partner with local authorities, in order to scale up investment into renewable energy and low-carbon technologies and projects. Local authorities are key to opening up the investment opportunities to enable a significant investment of private finance into low-carbon projects. Local authorities can offer a route to market for private capital looking to invest in low-carbon and socially beneficial projects. At UK100 we called for the establishment of a Net Zero Development Bank in 2020 and welcomed the UK Government’s announcement of the UK Infrastructure Bank (UKIB) in May 2021. We have been working with colleagues at UKIB to ensure that the bank’s Net Zero mandate is realised and that the potential of its local authority lending and technical support for local authorities is maximised, to enable local authorities to develop a pipeline of investable low-carbon projects. We have convened workshops between local authority members and UKIB staff and produced research on, such as our report An Opportunity for the UK Infrastructure Bank to Accelerate the Pace of Net Zero Investment in our Cities. We also provide the Secretariat for the APPG on Sustainable Finance, which works to help parliamentarians to understand issues around greening finance and financing green.

 

UK100’s written evidence

 

  1. The effectiveness of the financial sector, including through alliances such as GFANZ, in encouraging the decarbonisation of the economy in time to limit global temperature rises to 1.5°C depends on:

 

●        The phase out of private investment from fossil fuels, including an urgent end to financing of new fossil fuel expansion. The International Energy Agency and the UN IPCC have warned that there must be no more investment in new oil and gas fields and coal if we are to reach Net Zero emissions by 2050.

●        A significant expansion of finance for renewable energy and low-carbon technologies and projects. The Climate Change Committee argues that to achieve Net Zero, extra capital investment in the UK will need to grow fivefold from £10bn per year in 2020 to £50bn in 2030, and stay at around £50bn each year through to 2050.

 

  1. Local authorities are key to opening up the investment opportunities needed to meet the latter GFANZ requirement highlighted above - for a significant expansion of finance for renewable energy and low-carbon technologies and projects. Our Economic Benefits of Local Climate Action report highlights that there is no shortage of private capital with an interest in investing in low-carbon projects, but rather the blocker for a rapid upscaling in private investment in the Net Zero transition is the limited number of investable low-carbon projects. We believe that the role of local authorities in driving economic development and attracting private investment aligns with the task of rewiring the UK’s financial system to deliver Net Zero. Many local and combined authorities have high ambition to drive the large available global pools of capital into local Net Zero projects, but they often lack the technical capacity to take projects forward. This includes both engineering and commercial resources needed to develop the business case in order to secure the necessary investment approvals. Advancing investable propositions for local Net Zero projects requires high time demands on already stretched officers and financial risk for local authorities that suffer from stretched budgets. Financial support and guidance from the UK Government and the UK Infrastructure Bank is needed to build capability and capacity for local authorities to develop investable projects for private finance to partner with them on.

 

  1. As we argue in our report Accelerating the Rate of Investment in Local Energy Projects, it would be possible to unlock over £100 billion of investment in local energy systems by 2030 through private-public partnership, with industry and private capital working with local authorities to scale up investment initiatives. This would require initial development funding of around £5 billion from the UK Infrastructure Bank and funding for local authorities to increase capacity to manage and coordinate such large capital projects. We outline three cities with significant pipelines of projects that could be delivered over the next five to ten years with appropriate support from the UKIB, in our report An Opportunity for the UK Infrastructure Bank to Accelerate the Pace of Net Zero Investment in our Cities.

 

  1. As was highlighted in a recent report by PwC and UKRI, a place-based approach to Net Zero, in with local leaders choose the most socially-cost effective combination of low-carbon measures based on local characteristics, will require far less investment than a place-agnostic approach, where low carbon measures are adopted uniformly across places. Their economic analysis found that a place-agnostic scenario to Net Zero would require an estimated £195bn of investment across the UK to meet targets set out in the Sixth Carbon Budget by 2035, which would be partly offset by £57bn of energy savings; whereas a place-specific scenario requires just £58bn investment between now and 2035 which is significantly offset by £108bn of energy savings. They found that the place-specific investment of £58bn generated wider social benefits of £825bn - the economic value brought by cleaner air, warmer homes and healthier people, compared to £444bn of wider social benefits in the place-agnostic approach.

 

  1. To expand the financial sector’s current and planned investment in renewable energy generation, distribution and storage, it is necessary to ensure that private finance can gain predictable revenue streams from investment in such technologies and projects, and that these markets are sufficiently re-risked for private finance to invest at scale. The CCC argues that inconsistent UK government policy has made it hard to create an investment environment that is sufficiently de-risked to attract private investment into some low-carbon technologies and projects. Net Zero projects have to compete with other calls on capital for investment and the reduction of Government support for renewable energy has made the economics of investing in clean energy projects more challenging. To ensure that the private sector provides the investment that is needed, the Government needs to share some of the financial risks in early-stage development of new low-carbon markets, provide sufficient funding for research and innovation in low-carbon technologies and send clear signals to the market about the direction of travel - including phase-out dates for all fossil fuel technologies. As an example, to drive private finance into the decarbonisation of homes, the Green Finance Institute recommends that 0% interest finance and concessional finance is offered through the UKIB: with the UKIB providing blended finance which would help to crowd-in private finance.

 

  1. In terms of pathways to reduce investment in fossil fuel extraction - public opinion is in support of this - demonstrated in our research Rural attitudes to climate change, which found that support for high-carbon industries such as fracking is decreasing every year, most of all in areas with high employment in oil and gas. People do not want more fossil fuel investment, whereas support for solar energy is at 90%, wave and tidal energy at 85%, off-shore wind at 84% and onshore wind at 80%. To reduce investment in fossil fuel extraction, the Government could hold financial institutions accountable to the transition plans that they will be required to set out from 2023 - and ensure that these include short and long-term targets to phase out investment in all fossil fuel extraction.

June 2022