Net Zero progress: observations from a leading Net Zero legal practice
By Ross Fairley
Ross Fairley shares his observations on the progress and continued challenges concerning the drive towards New Zero, based on the work and projects the team at Burges Salmon has been involved in
Net Zero has been in the headlines recently because of Prime Ministerial announcements and concerns that the UK is backtracking on initiatives and targets. There is no doubt that changing world events and the economic climate have placed new stresses on the drive towards Net Zero and climate change policies. Moreover, 2023 has also seen a plethora of reports looking at progress and achievements regarding the UK wide target of achieving net zero by 2050. Some years ago, Burges Salmon established a Net Zero business unit providing services for clients, pulling together expertise from its key practice areas of energy, transport, the built environment and land and food. The aim was to help facilitate clients’ policies and initiatives to tackle the drive towards Net Zero.
A recap on Net Zero
The UK ambition and legal target on Net Zero is enshrined in the Climate Change Act 2008, which is that the UK will reduce its greenhouse gas emissions by at least 100 per cent of 1990 levels by 2050. Underneath that target, sit a wide variety of measures and interim targets. The devolved nations of the UK also have their own (often slightly different) policies, targets and proposals to meet the Net Zero challenge.
It is fair to say that the UK has made substantial progress and many will have heard the Prime Minister’s comment that the UK is leading the rest of the world in terms of decarbonisation. According to the National Audit Report, ‘Approaches to achieving Net Zero across the UK’ published in September 2023, UK emissions are down by 46.7 per cent from the 1990 base level. Much of the progress on achieving Net Zero so far, has come from the decarbonisation of the electricity sector and the huge growth in renewable energy, but we are now facing up to the prospect of having to address the more difficult sectors and areas to decarbonise. Many of the recent progress reports (e.g., the Climate Change Committee’s 2023 progress report to Parliament) have focussed on the slowing progress and concerns that we are not moving quickly enough.
A look at the positives
- Over the last 10 years, we have noticed a huge change in attitude from corporates towards Net Zero and climate change. This change in attitude, the investment and the pathways set by corporates has huge momentum and arguably is getting to the stage of being irreversible, which gives us a lot of hope for the future. Most large corporates are implementing decarbonisation strategies and projects. A lot of this is driven by their customers and investors, who see climate change either as a risk that needs to be properly addressed or a buying or investing criteria from which they are not prepared to move. These corporates themselves are pressurising their own supply chain to decarbonise. As a law firm we are now regularly asked about our own commitments and actions in tenders. We can evidence this attitude change from big corporates by a big increase in the legal work we have seen in helping to design tenders and procurements for low carbon technologies and projects, partnering agreements with renewable energy installers and developers, corporate green power purchase agreements and onsite energy supply contracts. A great example is the work Burges Salmon has been doing for Atrato Onsite Energy. A listed fund established specifically to target and install onsite solar energy for corporates. Over the course of the last two years, Atrato has built the business with the help of Burges Salmon.
- Recent announcements aside, there is no doubt that the clarity, targets and drive towards Net Zero from policy makers, government and the devolved nations has inspired confidence in corporates, developers, investors and innovators. The clarity and constant re-emphasis of these policy statements and commitments are, in my view, really important. Clearly, it needs actions as well as statements, but you can go a long way to inspire and persuade people to come on the journey by reiterating and enforcing key messages that Net Zero is a priority for the future.
- The Net Zero journey has been boosted by significant, grants and price support mechanisms for all sorts of developing technologies. This support has resulted in the huge success of renewable energy. There is now support for the roll out of electric vehicles and hydrogen, which I believe will have an important role in decarbonising brown fuels, industrial heat and certain forms of transport. Proper use and targeting of these funds and mechanisms has led to a big growth in green jobs, degrees and skills. Many comment on how much more of the supply chain we should capture in the UK, but we also need to focus on the success we have had. Burges Salmon itself, now employs over 100 experts in the area.
- The momentum has been given a further push by the declarations of climate emergencies by many local authorities around the UK and those authorities setting targets and benchmarks to hit Net Zero. Go back 10 years and decarbonisation projects were largely the preserve of the private sector, but now we see many of the projects coming forward emanating from the public sector. Bristol City Council and its innovative City Leap initiative is a good example, which aims to facilitate investment of over £500 million in low carbon energy and infrastructure for the City.
- The move to decarbonise energy has benefitted, in more recent times, from the large hike in energy prices. Clearly some of the circumstances which have driven that price rise are tragic, but it has forced industry and large energy users to consider how they source their energy and look to their own resilience and onsite renewable energy systems. We regularly hear from our clients that the reason they are installing these systems is because it makes sense from a financial savings, as well as a grid resilience and green, perspective. This makes the sell to Boards much easier. We can evidence this change in attitude by looking at the example of corporate green power purchase agreements (PPAs). Burges Salmon advised on the early corporate PPAs nearly 20 years ago, but the corporate PPA market did not take off as Burges Salmon was expecting. Once we devised these first contracts, we thought it would be a significant source of work for us and that most corporates would be looking at sourcing power directly from renewable electricity generators. That did not prove to be the case. Looking back, I believe that developers could not afford to spend the time engaging with corporates and negotiating these agreements because they had to be focused much more on deploying and capturing the green certificates at the time. However, in the last 10 years this has changed. Currently, there are probably more corporates looking to sign corporate PPAs than there are projects available. I expect these contracts will be a part of many companies Net Zero strategies in years to come.
What about the challenges ahead?
- I don’t think we have made as much progress as we should have done in areas other than electricity, such as decarbonisation of heat, buildings and transport. It is a big challenge because we are dealing with existing infrastructure and long lead assets, as well as changing user behaviours. There are changes on the horizon, however. The heat networks are growing and we expect further announcements this year on heat zoning, which Burges Salmon is advising on. We have also seen policies pushing the switch for the electrification of transport.
- The fixation by the UK government on awarding support to those projects that can demonstrate the lowest cost is rather one dimensional. It does not allow the supply chain for new innovative technologies to formulate properly and risks migration of the skills and manufacturing to other countries at the expense of the UK. History has shown that there is a need to stimulate a certain mass of projects for a new technology before the benefits from cost reduction arise. Making developers or projects bid to the lowest cost for support also hinders collaboration between developers, which is an area that you hear policy makers constantly championing.
- To achieve Net Zero, we also need our governments and policy makers to be consistent in their commitment on policy towards the end goals. Any prevarication on the way, inevitably leads to a loss of confidence among the investors and companies, and businesses are crucial to helping achieve the aim. The ray of light in this is, of course, the point made above, that most corporates (and public authorities) are committed to action and, therefore, hiccup announcements on the way, rather like Rishi Sunak’s recent comments on Net Zero, can probably be navigated. However, clear, concise and consistent policies are absolutely essential if we are all going to meet our aims. By way of example, we have been working on carbon offsetting models, nature-based solutions and biodiversity net gain (BNG), and the development of this market is at risk of being curtailed by recent signals delaying BNG and backtracking on nutrient neutrality.
- The National Audit Office report has highlighted that each nation within the UK has a different way of achieving Net Zero. Up to this point, the differences between UK overarching policy and the policies at a devolved and local level, have not been highlighted or materially prevented progress. But this may not be the case forever and it is going to be essential to have the devolved nations and the UK government working together with a common set of ambitions and aims, and a framework within which to operate.
- There remains a lack of joined up thinking between government departments. The individual departments are ambitious and committed to Net Zero, but one department will put in place an initiative without thinking what the consequent effects will be on another area. A classic area was electric vehicles (EVs). While it is great to announce EV build out and incentivise people to buy EVs, in the early days of the EV rollout, no one had properly considered what that would mean for the energy sector, where the electricity to charge the EVs was going to come from and how the chargers could be installed with UK grid constraints. There are tensions at the moment with hydrogen regulation and incentives with slightly different rules for the Renewable Transport Fuel Obligation incentive run by the Department for Transport and the hydrogen production business model designed by the Department for Energy Security and Net Zero (DESNZ).
- The support mechanisms and the legal contracts and provisions that we have to back up the deployment of initiatives to hit Net Zero can be overly complicated, highly contractual and unwieldy. The electricity contract for difference (CfD), is a 500-page legal agreement that applicants need to wade through. The recent hydrogen business model agreement proposed by the DESNZ to stimulate the early green hydrogen industry in the UK is built off the electricity CfD and runs to 650+ pages. Such contracts are great for lawyers, but not for nimble project developers who want to install their small start-up technology projects quickly and who want to support the development of a UK supply chain. We must remember we are in global competition with other jurisdictions.
- The current political statements on Net Zero have moved in more recent times from big announcements of major deployment targets to a more finessed message, focussing on the rollout of projects in areas of the country to bring about the supply chain and local content benefits for the UK from such projects. The UK has probably concentrated too much on funding a end projects, without thinking about the funding and investment that is also needed in surrounding infrastructure to capture the supply chain. A good example is the huge amount of investment that will need to go into the UK ports to capture a decent proportion of the floating wind supply chain. Burges Salmon are working on Celtic Sea and ScotWind floating wind projects and we have been participating in roundtables bringing ports together to try to find solutions.
Overall, I am hugely positive about the future. People forget that we here at Burges Salmon are part of the supply chain, as are other clean energy law practices and consultancies. I imagine that in any industrial revolution there comes a point when everyone needs to hold their nerve and push forward. If we can do that, the UK can capture the early thinking and lessons and export our expertise for the benefit of UK plc. The UK has an opportunity to create lots more fascinating, interesting and well-paid jobs and roles for my children and my children’s children, while at the same time securing the planet for generations.
Ross Fairley is a partner, chair of Net Zero Services and head of Renewable Energy at Burges Salmon