The energy crisis has given us all pause for thought. It has also highlighted the risks of relying on an energy system that is built around volatile fossil fuel markets.
In the short term, policymakers are setting out measures to support businesses through this period. The UK government, after implementing a cap on household energy prices, has recently announced a package for businesses that will see energy prices from 1 October 2022 to 31 March 2021 cut to match a government-supported price of £211 per MWh for electricity and £75 per MWh for gas.
In Europe, the European Commission is now intervening to reform the electricity market to reduce gas’s stranglehold on electricity prices, while seeking to establish a windfall tax on energy firms with revenues redistributed to businesses and households. It is also pushing EU member states to implement large energy efficiency drives.
Clean energy is helping – These actions are being accompanied by substantial efforts to diversify traditional energy sources away from Russian supplies. As part of this, a ramp-up of clean energy capacity is planned to help provide additional energy security. Renewables essentially provide power from built infrastructure, and so are not reliant on increasingly costly fuel to operate. In this sense, efforts to improve energy security are also contributing to net-zero targets.
In the EU, the REPowerEU plan – a direct response to Russia’s invasion of Ukraine – sees the bloc raising its renewables ambition from 40% to 45% electricity supply by 2030. This and other measures in the REPowerEU plan will act to enhance the EU’s Fit for 55 programme to reduce emissions 55% by 2030 – a key milestone on its route to net zero by 2050.
The net-zero debate – In the UK, climate change is never far away from political debate, and indeed the new Prime Minister has asked for a review of the country’s net-zero strategy to assess how the target can be met in the fastest way and in a manner that is pro-business and pro-growth. Large businesses have voiced their support for net zero.
Arguments have been made in some corners to push back against the commitments, but this is unlikely as the commitments are set in law as part of the UK’s Climate Change Act. Indeed, they could even be strengthened, particularly as clean energy can help with energy prices, and the costs of moving to net zero are far lower than the costs of not acting. The UK government’s energy security strategy places a large emphasis on clean energy, while its REMA electricity market reform aims to ensure businesses and consumers benefit from the cheaper costs of renewable energy.
Businesses will also soon start to be asked how they will help the UK meet its 2050 net-zero goal.
Across the pond – Meanwhile in the US, significant climate legislation has been passed in the form of the $739bn Inflation Reduction Act, which contains $369bn for measures to tackle climate change over the next ten years.
Some of the agreed climate and energy policies include $30bn in production tax credits for solar panels, wind turbines, batteries and critical minerals processing, $10bn in investment tax credits for new clean technology manufacturing facilities and $22bn in grants and loans for clean vehicle manufacturing facilities. The deal is expected to reduce the nation's emissions by about 40% by 2030 and, along with Australia’s recent commitment to net zero, has increased the likelihood of success at the COP27 climate conference in November.
What this means for businesses – Governments are acting to support businesses through this testing period, and it’s important to note that it’s unlikely the energy crisis will result in a push-back on longer-term net-zero plans. Indeed, the pressure is likely to push governments to move faster on the energy transition and to support firms to remove fossil fuels, and emissions, from their operations.
Businesses can look to get ahead by conducting energy audits and TCFD assessments to work out energy and emissions-intensive areas where they can invest in energy efficiency to save costs and emissions. Following this, increasing on-site renewables can help provide a further buffer against today’s volatile fossil fuel markets.