Welcome, everybody. My name is Freddie Fuller and I’m the Product Specialist on the RBC European Equity Team. In this episode, we will be examining whether the United Kingdom (U.K.), fresh from a long four years of political turmoil, can emerge as a global leader in green or clean technology. And to discuss this, I’m joined again by James Jamieson, a portfolio manager on the desk.
Good morning. Well, yes, Brexit is finally done, so this is a defining moment for the U.K. in many ways. The “what now?” as it were. In the global context, there is the question of which direction the country will go both commercially and politically, while domestically Boris Johnson and his government actually have to deliver on policies that are going to determine the economic and social future. Clearly, decarbonization presents a plethora of opportunity on many of those fronts and the government do seem to appear to have recognized this.
Absolutely. And to your points, there is a big political need to execute this successfully. And being diplomatic about it, there may be an element of surprise in some corners at the Prime Minister’s sudden evangelical commitment to this cause given previous stances. But the underlying currents are compelling, and on a domestic front there is the post-Brexit reset, the leveling-up agenda, and now increasingly an important need for return to growth after the pandemic. And then on an international level, there is a recognition that there is a huge amount of investment and a valuable IP in this space. And then finally, it doesn’t hurt that this aligns strongly with the views of the Biden administration just as free trade agreement negotiations are ongoing.
Yes, too true. The question, Fred, is whether it’s all just sensationalism or if, indeed, the country can establish itself as a green leader.
For the point of our discussion, the recently announced Ten Point Plan is a very good point of reference against which to begin making these assessments.
Yeah. Sorry. So this was announced at the end of 2020 and consists of, as you say, and as it says on the tin, Ten Points for a “Green Industrial Revolution” …
That will really accelerate this journey to net zero. And it consists of over GBP12 billion in investment from the government, but importantly targets three times that amount in private sector investment.
Exactly. Now, a roadmap is always a good starting point. And of that GBP12 billion sterling you mentioned, GBP3 billion of that is actually net new money to this cause which is great. But as a point of comparison, Germany and France have earmarked EUR40 billion and EUR30 billion in their respective budgets, so it would seem that these numbers in the U.K. really need to be upsized in order to deliver on the task at hand and then, ultimately, to be internationally competitive.
Absolutely. The other positive aspect here is that the plan also addresses the need for job creation in the U.K. with 250,000 targeted by 2030 in the plan’s current guise.
And establishing green industry is a great way to create jobs in general, but in the U.K. it is likely that it will be the more deprived regions, mostly sort of post-industrial, that are perhaps most ripe to lay down these foundations, which really amplifies that political will that you spoke of.
Yeah. And in fact, we’ve already seen this dynamic to great effect in places like Grimsby and Hull, both of which have undergone significant regeneration thanks to the offshore wind boom up in the northeast of England.
So it might be helpful at this point to just dive down into a sort of few of the highlights of the plan.
And you’ve mentioned offshore wind there. You know, we could start with the generation of energy. The government has announced a target of 40 gigawatts of offshore wind by 2030, which is a quadrupling of current levels, a very big statement. And importantly, something that the government expects to generate around GBP20 billion of private investment in as well.
Offshore wind is certainly an area where the U.K. does have a leading edge and as the incumbent are number one by capacity, we start from a position of strength. That 2030 target for 40 gigawatts of capacity has actually increased from 30 previously. And so this suggests to me that the government understand the country is a credible contender. And from my perspective, they are sensibly leaning into this particular area.
And if we go from energy generation to perhaps the other end of the spectrum, the area that’s also worth looking at is carbon capture usage and storage, and this topic, you know, really continues to divide people. But I think what is becoming increasingly clear, certainly in the long term, is that every route to net zero should be explored. Now, 10 million tons of carbon per year may not appear a lot; it’s the equivalent of about 4 million cars. But when compared with the impact of other projects, it’s not insubstantial.
Yes. I’m not convinced on this one. As you allude to, capture and storage is integral to all of the assumptions underpinning the world hitting the Paris trajectory, but it’s going to take much more than this to address because the technology requires work, but also the logistics are really very complex. The oil majors have a joint venture in Norway called the Northern Lights Project.
Okay. And the process entails capturing carbon on the shore, transporting it offshore to their terminals which are managed remotely, then injecting it two-and-a-half kilometres below the seabed, and storing it in these special encasements within the Norwegian Continental Shelf. So a billion pounds, it seems woefully inadequate.
Yeah. And as you say, incredibly complex logistics here. Finally, another one that’s very high up on people’s list really is mobility. So, by this, we mean public transport, zero emissions of vehicles, et cetera. And here, it appears the U.K. is being very aggressive.
And as it stands, we will see a sales ban on all new petrol and diesel cars by 2030. And to get all of this moving, the government are investing in charging infrastructure and coupling it with a broader move towards transport electrification, and funding for this is in the tens of billions according to government. But I guess the question here, James, is that this is a serious change, a step change in the way that people will get around and is this the right way to go about it?
Well, we need the infrastructure to solve the chicken and egg conundrum for EV adoption. So the explicit GBP1.3 billion within the Ten Point Plan is welcome. The combustion engine ban you mention was brought forward from 2040 and something you didn’t mention is that they’re even banning the sale of hybrids from 2035, which is absolutely standout. So both strong commitments and both good initiatives to accelerate the transition, but there are still easy wins being missed. For example, why aren’t there more arduous requirements for housing developments to install a certain number of charging points on-site rather than them invariably having to be retrofitted at a much greater cost?
Yeah. That’s a good point. And the thing that noticeably binds the three points we’ve mentioned, and indeed the rest of the plan together, is this real focus on future research and development which is an important thing to note in this context.
Sure. But, you know, as per my earlier point on carbon capture, we need to see much bigger numbers.
Now, don’t mistake it. It’s not to say there aren’t already encouraging early R&D developments. One success that comes to mind is the world’s very first liquid air energy storage plant up near Manchester, which is effectively a giant rechargeable battery that is both cheaper than comparables and also lasts up to 40 years longer. And then on the development side, there’s low carbon hydrogen farm plan in and around Liverpool among numerous other places.
I suppose one thing we need to ask here is how are we going to pay for all of this?
Now the U.K., admittedly a little late to the party, has announced that it would be issuing its first ever sovereign green bond in 2021, which will go some way to furthering the spending commitments. And as we have flagged repeatedly, private investment will play a key role here. And there’s an element here of the U.K. needing to play to its strengths with the private sector doing a lot of this heavy lifting, and that includes the investment community.
And there, there appears to be an appetite. Now the Investment Association, which is the trade body representing the U.K. asset management industry, which itself represents over GBP8.5 trillion in assets, has publicly called for the government to bring further action to cement the U.K.’s green future. So there are certainly positive moments. So, to conclude, James, maybe we should come back to the original question which is does all of this mean the U.K. has a positive green future? And, if so, can it position itself as a world leader in this regard?
It seems that there are some credible signs of intent, and certainly some genuine momentum is coming through which ultimately could see the U.K. competitive in the future green arena. By the same accord, there’s still a lot more to do and, unfortunately, leadership is a relative idea and there are many other countries with their eye on the prize. So I wonder perhaps the way for the U.K. to become a true world leader in context of what is relatively small size, is to select fewer technologies where there is a genuine structure advantage and then commit more fully to it.
Yeah, interesting. Well look, that’s all we have time for today. Thank you very much, James, for joining us again. And thank you to our listeners for tuning in.