The government has been urged to dispel Brexit-related uncertainty over the investment prospects for low carbon generation by beefing up its emissions reduction plan.
In a new report published today as the UK triggered the Article 50 process to quit the EU, the Institutional Investors Group on Climate Change (IIGCC) said Brexit increases uncertainty surrounding decisions in low carbon investment projects in the UK, the recent growth of which has been underpinned by the EU’s climate change policy regime.
The paper, which has been published by the IIGCC to inform the UK’s upcoming but long-delayed emissions reduction plans (ERP), states: “To protect investor confidence and maintain the long-term health of the UK low carbon sector to source low-cost capital from international institutions, the UK will now need to strengthen its long-term decarbonisation ambitions as it prepares to leave the European Union and make stronger ambitions a key facet of its ERP.”
“The UK’s ERP must reinforce the Climate Change Act 2008 by delivering long-term clarity of direction on the UK’s policy direction once it has left the EU.”
As an example, the report says that investors remain concerned about the continued commercial basis for interconnector projects with other European countries post-Brexit.
The group, the membership of which includes many of the City of London’s biggest investors like insurance giant Legal & General, warned the replacement ERP should set out an “unequivocal timetable” for developing a comprehensive strategy to meet the 2050 net zero emissions target signed up to by the UK at the 2015 Paris climate change conference.
In order to guide infrastructure investment decisions, the key features of this timetable should include clear commitments on carbon reduction targets from power generation, buildings and road transport, which between them generate two thirds of total emissions. Another feature should be confirmation that the UK will have an effective carbon pricing mechanism when it leaves the EU.
The report also recommends that the levy control framework should be extended until 2030, when the review of the clean power subsidy regime announced in the Budget earlier this month takes place.
The group says that time limits on the LCF, as well as caps on the amount of generation that it can support, has “hampered” the development of low carbon projects which have yet to reach the construction stage.
The report says an extension of the ERP cut off point would support fresh investment in onshore wind power.
And it urges the government to set a minimum goal of securing 1.5GW of new offshore wind capacity per annum when it updates the ERP.