Environmental Audit Committee
Wednesday 15th July 2026
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14:28
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14:29
Speaker 3
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Speaker 3
Um well, thank you very much. I mean, maybe if I could just start by talking a bit about that analysis. Um, because, uh, you know, you've highlighted a particular set of numbers there, but there is clearly a huge amount of uncertainty around that analysis. And we do quite a range of, um, kind of risk analysis to kind of complement our estimates that you just, um. Uh, put out there. And I think that is important in terms of the response to your question on the, on the Treasury response.
So we produce a annual report on fiscal risks and fiscal sustainability, where we where we look at kind of longer term pressures on the public finances. And that is where we've done the analysis of the risks from climate change. And we've done two parts to that analysis so far. One is looking at the potential risks to the public finances from the damage caused by climate change, i.e., higher temperatures, more extreme weather events, impacts on the economy, productivity, labour supply, and just the cost to the government of having to deal with those sort of events.
And then we've also done some analysis on the costs of the government, of the transition to net zero in terms of the policy action that the government will need to take to support that transition. So, as you say, um, we have an estimate based on work that's done by the Ngfs, which is the network for greening the financial system. It's a sort of group of central banks and economic institutions that have done a lot of analysis of this issue and using their estimates. We have an estimate that in a scenario where global temperatures rise by three degrees over the next over this century, that there would be potentially a hit to GDP, the level of GDP by by of about 8% by in 50 years time, which is the sort of time horizon over which we do.
These forecasts. Um, and as you say, the impact of that on borrowing and government debt, around 60% of GDP higher. Um, so yeah, I mean, to stress that that is obviously a very uncertain estimate. I mean, there are a huge amount of uncertainties both around the trajectory for global temperature. What that means for global weather patterns, what that means for UK weather patterns, and then what that means for UK GDP, and then what that means for UK public finances. So there's a whole sort of chain of uncertainties underpinning those numbers.
And we look at the kind of risks in the report on the upside that that might be a too pessimistic a view. If you think that actually action to address climate change is going to happen more quickly, or that if you think the economy might be more resilient and able to adapt more quickly, um, or if you think that new technologies are going to come along, which are going to enable economies to adjust more quickly. On the downside, however, that could be too optimistic if you think that actually countries are going to backtrack on their existing commitments on net zero, um, that the economic analysis is not really able at the moment to, to deal with the risk of very big, climatic events that could have much more serious impacts on, on weather patterns.
Uh, and also we don't, this analysis doesn't really look at the risk of sort of cross-border spillovers. So worse effects in the rest of the world having an impact on the UK economy through trade and other flows. Um, so as I say, a lot of um uncertainty it, and I think that that is important in terms of thinking about the appropriate policy response. And we try to stress that when thinking about policy responses, government should look at those risks as seriously as they look at the sort of central estimates that we do.
Um, we are not a body that assesses, uh, the efficiency of government policy on climate change in terms of its impact on climate change. That is not the remit that was given to us. Our remit is very strictly just to look at public finances. We have.
So we produce a annual report on fiscal risks and fiscal sustainability, where we where we look at kind of longer term pressures on the public finances. And that is where we've done the analysis of the risks from climate change. And we've done two parts to that analysis so far. One is looking at the potential risks to the public finances from the damage caused by climate change, i.e., higher temperatures, more extreme weather events, impacts on the economy, productivity, labour supply, and just the cost to the government of having to deal with those sort of events.
And then we've also done some analysis on the costs of the government, of the transition to net zero in terms of the policy action that the government will need to take to support that transition. So, as you say, um, we have an estimate based on work that's done by the Ngfs, which is the network for greening the financial system. It's a sort of group of central banks and economic institutions that have done a lot of analysis of this issue and using their estimates. We have an estimate that in a scenario where global temperatures rise by three degrees over the next over this century, that there would be potentially a hit to GDP, the level of GDP by by of about 8% by in 50 years time, which is the sort of time horizon over which we do.
These forecasts. Um, and as you say, the impact of that on borrowing and government debt, around 60% of GDP higher. Um, so yeah, I mean, to stress that that is obviously a very uncertain estimate. I mean, there are a huge amount of uncertainties both around the trajectory for global temperature. What that means for global weather patterns, what that means for UK weather patterns, and then what that means for UK GDP, and then what that means for UK public finances. So there's a whole sort of chain of uncertainties underpinning those numbers.
And we look at the kind of risks in the report on the upside that that might be a too pessimistic a view. If you think that actually action to address climate change is going to happen more quickly, or that if you think the economy might be more resilient and able to adapt more quickly, um, or if you think that new technologies are going to come along, which are going to enable economies to adjust more quickly. On the downside, however, that could be too optimistic if you think that actually countries are going to backtrack on their existing commitments on net zero, um, that the economic analysis is not really able at the moment to, to deal with the risk of very big, climatic events that could have much more serious impacts on, on weather patterns.
Uh, and also we don't, this analysis doesn't really look at the risk of sort of cross-border spillovers. So worse effects in the rest of the world having an impact on the UK economy through trade and other flows. Um, so as I say, a lot of um uncertainty it, and I think that that is important in terms of thinking about the appropriate policy response. And we try to stress that when thinking about policy responses, government should look at those risks as seriously as they look at the sort of central estimates that we do.
Um, we are not a body that assesses, uh, the efficiency of government policy on climate change in terms of its impact on climate change. That is not the remit that was given to us. Our remit is very strictly just to look at public finances. We have.
14:33
Speaker 2
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Speaker 2
Looked at before you move on. I mean, just on on those, um, predictions that you make. I mean, you know, the, the multitude of different things, um, that could change in the next 50 years as a result of different degrees of climate change. Um, are. So extraordinarily huge. Um, and you, you know, obviously rightly say, well, look, you know, this is a. Estimate, but it could be more, it could be less. But I mean, is it, what sort of credibility is there really to the predictions at all?I mean, you know, and this isn't a criticism of the professionalism of you or any of your people, but it's just that you're being expected.
One thing to expect the budget for the next to to make predictions about the budget for the next five years based on a budget you've already got. But, but over 50 years with a multitude of different governments, you can't yet know how, how much sort of credibility should we give to those forecasts, do you think?
One thing to expect the budget for the next to to make predictions about the budget for the next five years based on a budget you've already got. But, but over 50 years with a multitude of different governments, you can't yet know how, how much sort of credibility should we give to those forecasts, do you think?
14:34
Speaker 3
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Speaker 3
Well, I mean, you're absolutely right, of course, that any any projections over that kind of time period are very uncertain. Mean, that said, you know, we use, uh, what I think is the kind of most, uh, credible external estimate done by, um, the. Real experts out there on the potential economic impact of climate change. Um, and I say it's an international group of economic experts who've done a huge amount of research into this, and they draw on all of the literature that's out there and all of the studies that have been done in order to produce these estimates.
Um, and they also, and we do as well produce multiple different scenarios to look at the impact of changing some of the key assumptions that are particularly uncertain. And I guess an important point on that is that even when you vary some of those key assumptions, you still tend to get a scenario, which is one that creates a lot of risk and pressure on the public finances in the economy. So I think we would always say that the uncertainty around these sort of projections should not be used as an excuse not to take action.
Um, and they also, and we do as well produce multiple different scenarios to look at the impact of changing some of the key assumptions that are particularly uncertain. And I guess an important point on that is that even when you vary some of those key assumptions, you still tend to get a scenario, which is one that creates a lot of risk and pressure on the public finances in the economy. So I think we would always say that the uncertainty around these sort of projections should not be used as an excuse not to take action.
14:35
Speaker 2
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Speaker 2
Absolutely. And when the Treasury makes preventative, um, investment, for example, um, in flood defences or the measures that the government has put in place on renewable energy recently, how does the OBR reflect the extent to which those investments might reduce further liability, future liabilities and costs.
14:35
Speaker 3
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Speaker 3
So. On that question, that is actually a piece of analysis that we have not yet done, but we are planning to do next year. So the question there is, as you say, what to what degree could investment in uh, infra. Structure, which increases the resilience of the economy in the face of some of these risks from climate change, or helps the economy adapt to them?To what extent could they mitigate some of these costs or risks that I'm talking about?Um, we've not been able to do that analysis yet, essentially, because there's we didn't.
Feel we really had a robust enough set of data on what the government is currently investing in that kind of, uh, infrastructure and what might be necessary over the future that the Climate change Committee has now done that analysis, and therefore, we will be using that next year as the basis for the kind of analysis that you were just describing. And and in particular, I think what we will be able to do to hopefully complement what the Climate Change Committee have done is try and look at, uh, scenarios in which we make some assumptions on the kind of benefits of that kind of investment in reducing some of these risks that I've talked about.
And therefore hopefully help government be a bit better informed when it's coming to make some of the political choices and trade offs that are necessary when thinking about that kind of investment.
Feel we really had a robust enough set of data on what the government is currently investing in that kind of, uh, infrastructure and what might be necessary over the future that the Climate change Committee has now done that analysis, and therefore, we will be using that next year as the basis for the kind of analysis that you were just describing. And and in particular, I think what we will be able to do to hopefully complement what the Climate Change Committee have done is try and look at, uh, scenarios in which we make some assumptions on the kind of benefits of that kind of investment in reducing some of these risks that I've talked about.
And therefore hopefully help government be a bit better informed when it's coming to make some of the political choices and trade offs that are necessary when thinking about that kind of investment.
14:37
Speaker 2
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Speaker 2
I should say, as you're speaking, the crowds are flooding in, so keep going. Whatever you're doing, uh, is obviously, uh, being heard across the estate. Um, but on, on that because, um, from, from government's perspective, all different departments are asking the Treasury for more money for their pet projects. Um, one of those, of course will be Defra asking for, uh, in the example I just raised, um, additional money for flood defences. Now if when they spend that money in the fiscal forecasts that they get from yourselves, there is no requisite benefit, it must make it more difficult for them to actually persuade, sorry, to actually persuade the Treasury, um, that they will be able to get approval for that.
Um so, so how important do you think it is that you're able to some degree to be able to positively reflect investments in, uh, nature or climate change, uh, initiatives?
Um so, so how important do you think it is that you're able to some degree to be able to positively reflect investments in, uh, nature or climate change, uh, initiatives?
14:38
Speaker 3
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Speaker 3
Well, as I say that that is what we do aim to do. But I would stress we do that over a long term time horizon, which I think is appropriate because these are investments which you would expect to have that kind of payoff over a relatively long time horizon. I mean, I don't think you would ever expect these kind of investments to have a very immediately immediate kind of big return on investment. So that's why we look at it in in terms of the long term.
I mean, in terms of immediate budget choices for the government, I mean, that that is a kind of political decision and trade off that government has to make in all of its investment decisions. And as I say, hopefully the analysis that we do can, can, can support that.
I mean, in terms of immediate budget choices for the government, I mean, that that is a kind of political decision and trade off that government has to make in all of its investment decisions. And as I say, hopefully the analysis that we do can, can, can support that.
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14:39
Speaker 3
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Speaker 3
Well, I think we have done to date what is actually seen as, uh, leading edge analysis amongst independent fiscal bodies around the world on the two sources of risk to the public finances from climate change that I mentioned, damage and the cost of transition to net zero. We actually we chair the OECD group of independent fiscal bodies on climate change analysis. One of our staff members has helped the OECD build a model, um, to assess this sort of risk and cost that is used by other countries around the world.
So I think we are, as I say, I think we're at the forefront of this type of analysis at in terms of what is done within independent fiscal bodies. I mean, we are not a climate. We are not climate experts. We are fiscal experts and economic experts. So in doing this analysis, we draw on the analysis of climate that is done by others, that is done by the experts. Uh, but I think, you know, we are able to use that analysis and add value through our sort of fiscal expertise.
Thank you. But I should say sorry. I mean, we're not resourced and we're not set up. And it is not our remit essentially, to, to try and to sort of do cost benefit analysis of every single individual government programme that is definitely outside our scope. So we do look at it from a very much a kind of macro perspective.
So I think we are, as I say, I think we're at the forefront of this type of analysis at in terms of what is done within independent fiscal bodies. I mean, we are not a climate. We are not climate experts. We are fiscal experts and economic experts. So in doing this analysis, we draw on the analysis of climate that is done by others, that is done by the experts. Uh, but I think, you know, we are able to use that analysis and add value through our sort of fiscal expertise.
Thank you. But I should say sorry. I mean, we're not resourced and we're not set up. And it is not our remit essentially, to, to try and to sort of do cost benefit analysis of every single individual government programme that is definitely outside our scope. So we do look at it from a very much a kind of macro perspective.
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14:41
Speaker 4
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Speaker 4
So just on that chair, Mr. Joseph, so you're very clear, it's not your remit to analyse the climate change. That's not your specialism. You're looking at the fiscal costs of that. So I'm just wondering if you agree with the report that was produced by the Institute and Faculty of Actuaries, where they called for the government to commission the government actuary's department to complete a planetary solvency risk assessment so they could bring that bit to bear.
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14:42
Speaker 5
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Speaker 5
Thank you. Chairman. The OBR estimated that the cost of achieving net zero over the next 30 years will be 1.4 billion. Um the Chancellor, then Chancellor, Philip Hammond, when the targets were set, reckoned that from Treasury's um figures that would be about 50 billion per year. And the Department of Business estimated it would be cost 70 billion per year. Given those costs. What is your assessment of the impact of the policy of net zero and the costs of pursuing that policy on economic growth in the United Kingdom?
14:42
Speaker 3
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Speaker 3
Uh, I mean, just on the costs, I mean, in terms of our latest estimates, which we produced in 2025, we identified two main sources of cost to the to the government fiscal costs, the largest being actually the loss of revenues related to emissions. The biggest of those by far being fuel duty. And, um, that is a loss of around 1% of GDP over the 50 year period. Um, actually, sorry about about 1.5% of GDP. Um, and then we also identified costs of, uh, the investment that the government would need to make, i.e.
public spending in various different mechanisms to support the transition. In particular, support the. Switchover to heat pumps in buildings, investment in transport infrastructure and energy. Um, overall, our latest estimate, um, was that that would increase debt by about 20% of um GDP by 2050. So those are our, uh. Our latest estimates that we, we have published, um. The, uh. In terms of, sorry, the second part of your question was.
public spending in various different mechanisms to support the transition. In particular, support the. Switchover to heat pumps in buildings, investment in transport infrastructure and energy. Um, overall, our latest estimate, um, was that that would increase debt by about 20% of um GDP by 2050. So those are our, uh. Our latest estimates that we, we have published, um. The, uh. In terms of, sorry, the second part of your question was.
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14:44
Speaker 3
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Speaker 3
On economic growth. Uh, so, um, we do not have an estimate of the impact that we think this will have on economic growth. So we talk to a lot of experts on this issue. And I think it's fair to say there is a very wide range of views on the impact of the transition to net zero on productivity. So you will get some economists who would argue that there will be quite a big cost in terms of economic growth and the transition essentially due to, uh, shifting.
Industry onto a higher cost source of energy more quickly than they otherwise would do. Um, and, um, also because potentially you are, uh, scrapping assets in infrastructure earlier than you would otherwise do in order to make the transition. And that would have costs for the economy. On the other hand, there are people who argue quite strongly that there will be positive benefits to productivity on the basis that these new energy sources will eventually be lower cost than the fossil fuel energy sources that are being replaced.
Although, again, a lot of different range of views on that. Uh, there is also view that it will as a boost to investment, there is a kind of knock on benefit to, to economic growth, uh, and also that there are sort of wider benefits to growth and things like healthier population due to less air pollution. I think, you know, we found. That there were not any very robustly quantified estimates of either the upside or downside. And as I say, as we are not climate experts ourselves, we therefore decided we would not include an estimate in our projections.
We would essentially assume that there was no effect to sort of zero effect on productivity from the transition in our in our projections. But we've definitely said it's one thing that we would like to do further work on in the future and if more, if clearer, quantified evidence comes along, that suggests the effect is one way or the other, then we definitely look to include.
Industry onto a higher cost source of energy more quickly than they otherwise would do. Um, and, um, also because potentially you are, uh, scrapping assets in infrastructure earlier than you would otherwise do in order to make the transition. And that would have costs for the economy. On the other hand, there are people who argue quite strongly that there will be positive benefits to productivity on the basis that these new energy sources will eventually be lower cost than the fossil fuel energy sources that are being replaced.
Although, again, a lot of different range of views on that. Uh, there is also view that it will as a boost to investment, there is a kind of knock on benefit to, to economic growth, uh, and also that there are sort of wider benefits to growth and things like healthier population due to less air pollution. I think, you know, we found. That there were not any very robustly quantified estimates of either the upside or downside. And as I say, as we are not climate experts ourselves, we therefore decided we would not include an estimate in our projections.
We would essentially assume that there was no effect to sort of zero effect on productivity from the transition in our in our projections. But we've definitely said it's one thing that we would like to do further work on in the future and if more, if clearer, quantified evidence comes along, that suggests the effect is one way or the other, then we definitely look to include.
14:46
Speaker 5
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Speaker 5
That does not seem odd that if early scrapping of productive machinery, uh, to meet net zero requirements, increased energy costs, increased investment by firms in in new technologies. You know, that all of those things are not going to have a negative impact, at least initially on economic growth and the production of productive capacity of the economy.
14:46
Speaker 3
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Speaker 3
Well, so I say we definitely identify those in our report as, as downside risks. Uh, but as I say, there are also things that could push you in, push growth in the other direction. Um, and yeah, as I say, it's not clear which of. The evidence is not clear in terms of which of those is the sort of stronger. Um, I mean, I think there is potentially a kind of um time horizon issue here, as you say, some of those costs might happen earlier and some of the benefits may come in later.
So, you know, it may be that there's an initial cost and then potentially a longer term benefit. But again, the, the sort of defining the kind of precise time horizon over which that would happen is quite, is quite difficult.
So, you know, it may be that there's an initial cost and then potentially a longer term benefit. But again, the, the sort of defining the kind of precise time horizon over which that would happen is quite, is quite difficult.
14:47
Speaker 5
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Speaker 5
I think that's probably one of the issues which we do need to draw out because as politicians of course, um, what happens in 2100 is not not really going to have too much impact on our votes. Uh, in 2025 or 26. Sorry. Um, and secondly, uh, if all of the costs are falling on one, one particular time, while the benefits might occur, and I think the Grantham Institute have indicated that by 2050, we should start seeing the costs outweighing the benefits. But that's 25 years in which costs are going to be exposed to people in their everyday lives.
Cost of living, cost of energy, the employment prospects, etc. has he done any work on that distinguishing between what might happen?You've certainly predicted what the impact on GDP might be by 2070, or whatever it happens to be. But have you done any impact on what the short term consequences of the transition to net zero is?
Cost of living, cost of energy, the employment prospects, etc. has he done any work on that distinguishing between what might happen?You've certainly predicted what the impact on GDP might be by 2070, or whatever it happens to be. But have you done any impact on what the short term consequences of the transition to net zero is?
14:48
Speaker 3
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Speaker 3
I say on the economic impact of the in the short term of the transition, we've done a lot of analysis. We didn't feel that there was clear evidence one way or the other. And so we've sort of set out a set of upside and downside risks on the longer term, the analysis I was talking about earlier, in answer to the chair's question, was actually about the the impact on the economy from the damage caused by climate change itself, rather than the transition to net zero. So essentially, more extreme weather, hotter weather leading to lower productivity, lower labour supply, more disruption.
And that is that again, as I was saying, very uncertain. But we think the direction at least of that is is clearly a negative one.
And that is that again, as I was saying, very uncertain. But we think the direction at least of that is is clearly a negative one.
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Speaker 3
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Speaker 3
Well, I'd say we think it's useful to do that. Never acknowledging the uncertainty. We think it's usual useful to set out estimates, set out a range of scenarios using different assumptions, explain the risks. And you know, we think that is helpful. Uh, analysis for governments when confronting these decisions is even acknowledging the uncertainty.
14:49
Speaker 5
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Speaker 5
Isn't really helpful though, when you talk about all the risks, uncertainty, and they never, ever come out in the press releases or the reports or whatever, it's always the top figure. It GDP is going to be impacted by 8%. If we don't take any action. You know as well as I do, that's the the the figure which goes into the paper without all of the qualifications of the risks, which you have quite rightly outlined here today, and ought there not be to be more of a cautious approach on these things, rather than headline grabbing figures which are designed, some people, the cynics would say, scare the life out of people into following or accepting policies which are unpopular and impact on their lives.
And at the same time, underestimate your credibility. Um, I note that, uh, professor, um, Dieter Helm from the University of Oxford actually made this very point that by making these. Um. Predictions. And then when they're not seen to come true, or when people see that the costs are much more than they are actually undermine the cause, the case for actually doing things that we should be doing.
And at the same time, underestimate your credibility. Um, I note that, uh, professor, um, Dieter Helm from the University of Oxford actually made this very point that by making these. Um. Predictions. And then when they're not seen to come true, or when people see that the costs are much more than they are actually undermine the cause, the case for actually doing things that we should be doing.
14:50
Speaker 3
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Speaker 3
Well, I mean, this is an occupational hazard as a forecaster, I'm afraid. And, um, it is one we confront on all of the analysis that we do and all of the forecasts and projections that we do. I think, as I say, our argument would. Be that it is beneficial to set out this analysis, but be very transparent about the kind of range of scenarios that you're looking at and the uncertainty and the assumptions that underpin your analysis, so that if people disagree with those assumptions, they can they can kind of assess what impact making their own assumptions would have on the projections.
Uh, and that, that contributes to a richer policy discussion. I mean, I completely recognize the risk that you are identifying there. And it's certainly something we worry about a lot. And we, you know, essentially try and do our best to, in all of our communication and reports really stress the uncertainty and the range of possible outcomes.
Uh, and that, that contributes to a richer policy discussion. I mean, I completely recognize the risk that you are identifying there. And it's certainly something we worry about a lot. And we, you know, essentially try and do our best to, in all of our communication and reports really stress the uncertainty and the range of possible outcomes.
14:52
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14:52
Speaker 5
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Speaker 5
And I think we've dealt mostly with the the kind of fiscal impact Mr. Radcliff and Mr. Howarth, do you feel that the Treasury. Because this is the remit of this committee to try and see how resilient the nature is and how resilient our economy is in terms of not losing valuable natural resources?Um, do you feel the Treasury, when it's making the estimate of the costs of its policies of net zero, give sufficient weight to the, the nature impacts of a doing what they're doing or not doing what some people would like them to do.
14:52
Speaker 1
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Speaker 1
I. Can go first. Yeah. So I think from our perspective, the Treasury is acknowledging nature impacts. Um, I think our perception has always been in terms of the scale of the three big climate change issues, one being net zero and emissions, one being nature and one being adaptation resilience. The net zero has got far more attention, particularly from the Treasury. Um, it feels like other government departments clearly take some of those issues very seriously. So I suppose if we had a recommendation for the Treasury, it would be to put all of those three issues on an equal footing and be really clear.
So it's not that they don't do anything on nature, but I think your.
So it's not that they don't do anything on nature, but I think your.
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14:54
Speaker 1
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Speaker 1
So I think two things. One would be we've got a very clear net zero target. The feeling is that there's not a sort of target on adaptation, resilience or nature for businesses to rally around. I think that's particularly helpful at sort of boardroom and executive level, where you can really map progress. You know, it is possible to do very granular assessments of nature, but it is a complicated issue. And there's lots of complicated data sets. If we could have something that the government is working together and it's really clear the Treasury is behind that, business leaders could then assess how they're doing against that target.
So that would be one having consistent framework for targets. I think the other is related to that is there are definitely things you can do in this space that have a beneficial impact for all three. Um, and I think if the Treasury was really clear that that was the kind of gold standard and the things that they were going to really back. So I'm sure we'll come on to things like that they could do around, um, blended finance and government guarantees to support projects.
I think if they had a really clear assessment that said, the things that are clearly beneficial for all three and they are there. Those are the areas the Treasury really prioritized.
So that would be one having consistent framework for targets. I think the other is related to that is there are definitely things you can do in this space that have a beneficial impact for all three. Um, and I think if the Treasury was really clear that that was the kind of gold standard and the things that they were going to really back. So I'm sure we'll come on to things like that they could do around, um, blended finance and government guarantees to support projects.
I think if they had a really clear assessment that said, the things that are clearly beneficial for all three and they are there. Those are the areas the Treasury really prioritized.
14:55
14:55
Speaker 3
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Speaker 3
Raghav yeah, I think I would just to expand on what Ben said about specifically about nature, I think there are three key steps that the Treasury could be taking. So number one is probably to identify the risks that exist. I mean, you can't respond to a risk that you don't understand. And I think from, um, the evidence we've just heard, there's a dizzying range of estimates and forecasts. We need more kind of clear and transparent.
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14:56
Speaker 3
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Speaker 3
That's a good question. Um, who should be responsible for doing these forecasts?Uh, is not a question to have the answer to right now. But I think that there is scope for the Treasury to perhaps ask the OBR to do more. And forecasting nature risk, sorry, giving you more work. Um, but in the fiscal risks and sustainability report that you mentioned, there are long term forecasts on climate impacts, but we don't see the same forecasts for the impacts of nature loss.
So that's potentially a gap that the OBR could help to fill. After the Treasury understands what risks it faces, I think it's important that it can be creating the conditions to attract private capital where we need to see it. So the Treasury has done some really good work here when it comes to climate. For example, contracts for difference, incentivizing investment in wind power. That's a really big success story. Creating the conditions to attract capital to nature markets is somewhere where I think we need to see more progress, and perhaps there's a role for the, um.
National wealth fund here. Um, but yeah, we might get onto that a bit later. And then the final point is just around treasury consistency. Once it sets some of these policies and incentives for nature, ambition, uh, it needs to stick with it and be consistent to create the conditions of confidence for business to invest and really get behind that, that movement.
So that's potentially a gap that the OBR could help to fill. After the Treasury understands what risks it faces, I think it's important that it can be creating the conditions to attract private capital where we need to see it. So the Treasury has done some really good work here when it comes to climate. For example, contracts for difference, incentivizing investment in wind power. That's a really big success story. Creating the conditions to attract capital to nature markets is somewhere where I think we need to see more progress, and perhaps there's a role for the, um.
National wealth fund here. Um, but yeah, we might get onto that a bit later. And then the final point is just around treasury consistency. Once it sets some of these policies and incentives for nature, ambition, uh, it needs to stick with it and be consistent to create the conditions of confidence for business to invest and really get behind that, that movement.
14:57
Speaker 5
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Speaker 5
This is my question for both Mr. Hart and Mr. Radcliffe, though. Mr.. Joseph, you might want to jump in you in your report, you saw the investment required to reach net zero being 25% government, 75% private. Um, investment. Is that target being met?Um or is it still mostly government investment?And if so or if not, then what incentives need to be given to try and draw in that private investment.
14:58
Speaker 1
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Speaker 1
Yeah, yeah. So obviously Abi members are long term investors. Um, and we'll be looking and making significant investments in net zero. So we've got lots of examples. And um, we, we look at sort of productive assets, but our members set a target a few years ago of putting 100 billion, um, investment into productive assets over the next ten years. And in the first year of that, they managed 10 billion. So they're on track. So we think we are making significant investments.
Is there potential to do more and also perhaps target it in the things that will have the biggest impact?Um yes. So we've got an investment viability group that we've put together where we, the Treasury are represented on that, as are the Prudential Regulation Authority. And then we draw in people like the National Wealth Fund. Um, so I think we're starting to make good progress. Some of these projects are quite technical, and there's a lot of due diligence that needs to go into it.
If you're a pension investor, you've got people savings that you don't want to lose. So we're not going to invest in very high risk projects. So I think the Treasury's role and they're making a good start. The National wealth fund, with the engagement we've had with the National Wealth Fund, I would say has been really positive, but we probably haven't seen the volume of actual project investments that we were hoping for in the really high impact stuff. It's starting to happen, but we could go further.
But if the Treasury could just put a bit more into that upfront kick start to get those things to the point where at the scale and risk profile, where our members can then come in and back them to really roll them out and drive them forward.
Is there potential to do more and also perhaps target it in the things that will have the biggest impact?Um yes. So we've got an investment viability group that we've put together where we, the Treasury are represented on that, as are the Prudential Regulation Authority. And then we draw in people like the National Wealth Fund. Um, so I think we're starting to make good progress. Some of these projects are quite technical, and there's a lot of due diligence that needs to go into it.
If you're a pension investor, you've got people savings that you don't want to lose. So we're not going to invest in very high risk projects. So I think the Treasury's role and they're making a good start. The National wealth fund, with the engagement we've had with the National Wealth Fund, I would say has been really positive, but we probably haven't seen the volume of actual project investments that we were hoping for in the really high impact stuff. It's starting to happen, but we could go further.
But if the Treasury could just put a bit more into that upfront kick start to get those things to the point where at the scale and risk profile, where our members can then come in and back them to really roll them out and drive them forward.
15:00
Speaker 3
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Speaker 3
I think I'd echo that. National Wealth Fund has been a success. Um, their recent reporting showed that for every £1 of public money they're putting into projects, they're attracting more than £2 of private investment. The work that they've done is supporting or creating over 70,000 jobs. So that blended approach seems to be working, but I think we just need more of it. And the Treasury has the power to give more capital to the national wealth fund and to adjust its mandate as well, to direct it to some of these climate and nature issues that we want to see progress in.
And our business membership kind of queuing up to find investable propositions that they can make money from, but also make progress in tackling climate change and stopping nature loss. But there just isn't enough of a range for them to get into at the moment, because they kind of they're looking for a government to or government bodies to act as that cornerstone investor. That gives them some stability and some confidence that the project that they might invest in is, is going to be a success. Okay.
And our business membership kind of queuing up to find investable propositions that they can make money from, but also make progress in tackling climate change and stopping nature loss. But there just isn't enough of a range for them to get into at the moment, because they kind of they're looking for a government to or government bodies to act as that cornerstone investor. That gives them some stability and some confidence that the project that they might invest in is, is going to be a success. Okay.
15:01
15:01
Speaker 6
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Speaker 6
So in, in the, um, projections we made, we used the climate change committee's estimate of the whole economy, cost of the transition to net zero. And then we make an assumption that around a third of that would have to be funded by the state, by the public sector. Um. That equates, we felt when we did this report to essentially around 10 billion a year in the 2025 spending review, the government made an allocation for this, uh, this area of. Spending, which we thought was broadly in that range.
So at the current time, the investment made by the or the plans for investment made by the government in the spending review were kind of broadly in line with the estimates that we derived from the Climate Change Committee.
So at the current time, the investment made by the or the plans for investment made by the government in the spending review were kind of broadly in line with the estimates that we derived from the Climate Change Committee.
15:02
15:02
15:02
Speaker 3
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Speaker 3
I can I can start I think our business members would absolutely say, yes, it is an opportunity. We clearly see the economy wide benefits of um. In climate and nature issues. So the CBI recently published a report showing that the net zero economy alone. So that's not kind of accounting for nature markets or adaptation, just the net zero economy contributes 105 billion of GVA to the economy annually and supports 1.1 million jobs. So that's a really clear economy wide benefit that we're seeing.
Um, and we also see kind of individual business cases and case studies of success where, uh. Or Treasury has backed a, a policy and it's given business the opportunity to grow and create local success stories. So one of those is, um, after the. Contracts for difference policy was agreed, giving investors security and income from wind power. Siemens Gamesa invested £500 million in a blade manufacturing plant in Hull, creating 1400 jobs, most of those for local people. So I think that's a really nice example of how government policy leads to certainty for investors, leading to investment in local communities and benefits for the economy.
Um, and we also see kind of individual business cases and case studies of success where, uh. Or Treasury has backed a, a policy and it's given business the opportunity to grow and create local success stories. So one of those is, um, after the. Contracts for difference policy was agreed, giving investors security and income from wind power. Siemens Gamesa invested £500 million in a blade manufacturing plant in Hull, creating 1400 jobs, most of those for local people. So I think that's a really nice example of how government policy leads to certainty for investors, leading to investment in local communities and benefits for the economy.
15:03
15:03
Speaker 1
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Speaker 1
Yeah, I think our short answer is yes, but we are insurers, so I suppose we're in a unique position in seeing opportunity and risk. So I wouldn't downplay the risk side and some of the upfront costs that the previous set of questions were referring to. It's really important that we manage those as a sector, but overall we see our role as an enabler of this change. Um, I could give you loads of examples of investments in net zero technology that our members have been doing.
And also I'd really emphasize the role that our commercial insurers in particular, have been done to back projects like high net and panel of insurers, QBE, convex, etc., who are backing those. And then the investments that members like LNG are doing in wind farms are either doing in all those sectors. So I could give you a raft of examples there. So there are definitely strong economic growth opportunities, but it is a a risk management exercise as well. So our members are investing a lot of time in the, in the climate risk side and making sure that analysis is really tight.
But of course, for them, in many instances, those risks are in turn opportunities to de-risk those projects. And I suppose if I had one really big message here is to make full use of everything our sector does. So make sure that our investment capacity is utilised to the max, but also that our commercial insurers are there to get these projects so that they are as risk free as possible. And that actually will help reduce some of those upfront costs, means that you can make longer term investments in those projects because you're managing them.
And also I'd really emphasize the role that our commercial insurers in particular, have been done to back projects like high net and panel of insurers, QBE, convex, etc., who are backing those. And then the investments that members like LNG are doing in wind farms are either doing in all those sectors. So I could give you a raft of examples there. So there are definitely strong economic growth opportunities, but it is a a risk management exercise as well. So our members are investing a lot of time in the, in the climate risk side and making sure that analysis is really tight.
But of course, for them, in many instances, those risks are in turn opportunities to de-risk those projects. And I suppose if I had one really big message here is to make full use of everything our sector does. So make sure that our investment capacity is utilised to the max, but also that our commercial insurers are there to get these projects so that they are as risk free as possible. And that actually will help reduce some of those upfront costs, means that you can make longer term investments in those projects because you're managing them.
15:04
Speaker 7
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Speaker 7
So great. Thank you. And that tease me up nicely for my second question. And Mr. Ratcliffe, you already started touching on this, so don't feel the need to repeat anything you just said, but how well do you feel for both of your organisations, the Treasury's fiscal policies, market incentives and regulatory framework reflect the environmental and climate risks and opportunities the economy's already got in front of it.
15:05
Speaker 3
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Speaker 3
As you say, I think we've already started to touch on this, but, um, maybe just to reiterate, we think that there are good frameworks in place and the Treasury has done some really good work putting in kind of coherent frameworks and incentives for businesses to invest in decarbonization and climate issues. So around energy and renewable energy. Um, but we think that those coherent frameworks are perhaps lacking or need strengthening when it comes to nature markets and adaptation as well. Um, so that's what I would add.
15:05
Speaker 1
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Speaker 1
Yeah. I suppose on the regulatory frameworks, we are broadly supportive. And I think for our members, one area of proof I would give is that the government's been consulting on whether or not to make transition plans mandatory. If you look at our members websites, you'll see a large number of them voluntarily published those plans. So they see this reporting framework as broadly positive. The one thing I would emphasize where perhaps I slightly disagree with Aldersgate Group is that the volume of work on that reporting is very significant.
It's a it's a big exercise. So I would say we're not calling for it to be rolled back. I think the framework they've got is good. I think it is time now to allow it to bed in and in practice. The teams that I work with in Abi membership, they aren't reporting functions per se. They're meant to be delivering strategies and actually delivering on these action plans. I think probably is a good time to say let's allow members.
They've set their targets, they've got their action plans, they've got the reporting frameworks in place. Perhaps it's time to actually deliver on those plans and assess progress, because in in reality, we've probably had a couple of consultations every year in the period that I've been working on climate change, which is about the last five. Um, which is fine. I'm happy to respond to consultations, but I think we've reached a point now where perhaps a bit less focused on reporting and disclosure, not that it's not important and a bit more focused, giving people the time to deliver.
It's a it's a big exercise. So I would say we're not calling for it to be rolled back. I think the framework they've got is good. I think it is time now to allow it to bed in and in practice. The teams that I work with in Abi membership, they aren't reporting functions per se. They're meant to be delivering strategies and actually delivering on these action plans. I think probably is a good time to say let's allow members.
They've set their targets, they've got their action plans, they've got the reporting frameworks in place. Perhaps it's time to actually deliver on those plans and assess progress, because in in reality, we've probably had a couple of consultations every year in the period that I've been working on climate change, which is about the last five. Um, which is fine. I'm happy to respond to consultations, but I think we've reached a point now where perhaps a bit less focused on reporting and disclosure, not that it's not important and a bit more focused, giving people the time to deliver.
15:07
Speaker 3
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Speaker 3
Specifically on reporting and disclosure frameworks. I think we're seeing that exact conflict play out right now in the European Union with the omnibus package, where there are kind of reforms to disclosure and reporting regulation going through the European Parliament, because there is that perceived trade off between reporting and business cost. Um, and I think maybe that's one that the UK should be watching. If that's a success story, there's nothing wrong with streamlining and improving disclosure frameworks in the UK. Um but.
But I think just because it adds an additional cost to business isn't necessarily an argument not to do it. Um, businesses have accounting functions like that's an essential, uh, thing. A business does to understand its risks and opportunities. There are clear risks and opportunities related to climate in nature. And those, in our view should be assessed.
But I think just because it adds an additional cost to business isn't necessarily an argument not to do it. Um, businesses have accounting functions like that's an essential, uh, thing. A business does to understand its risks and opportunities. There are clear risks and opportunities related to climate in nature. And those, in our view should be assessed.
15:08
Speaker 7
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Speaker 7
Okay. Um, so Mr. Josephs, the last couple of questions touched quite a lot on on GDP and economic growth. But when we spoke to economists in a previous session of this inquiry, quite a lot of the conversation ranged over the inadequacies of GDP as a measure of our economic prosperity and our success. And they spoke to us about the importance of investing in our natural capital capital, that the quality of our natural environment as an essential part of improving both our productivity and our wellbeing.
So I'm really interested to understand from you, whether you think that the office for Budget Responsibility works in a way that supports the government to take that approach of thinking, not just purely about GDP and whether their spending is going to increase GDP growth, but whether it's going to increase our natural capital. So if a Chancellor chose to make a, you know, recruit thousands of people across the country to plant new trees, lay new hedgerows, rewet our peatlands, um, would the OBR score that in a sufficiently positive way that it wouldn't be seen as a massive waste of public money?
So I'm really interested to understand from you, whether you think that the office for Budget Responsibility works in a way that supports the government to take that approach of thinking, not just purely about GDP and whether their spending is going to increase GDP growth, but whether it's going to increase our natural capital. So if a Chancellor chose to make a, you know, recruit thousands of people across the country to plant new trees, lay new hedgerows, rewet our peatlands, um, would the OBR score that in a sufficiently positive way that it wouldn't be seen as a massive waste of public money?
15:08
Speaker 6
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Speaker 6
Um, thanks. So, I mean, I think it is important to say that the, the role, the remit that was given to us by Parliament was to assess very specifically the sustainability of the public finances and the way in which we do that over the medium term is. Essentially defined by the accounting framework and the fiscal rules that the government themselves set. Uh, and we therefore use that because our role is to, within the framework the government has set, assess whether it's meeting its fiscal rules or not.
Um, but we do so say we do as I've been describing in our role of looking at wider fiscal risks and longer term fiscal sustainability, uh, look more widely at potential sources of fiscal risk. And as I was describing earlier, we've done a huge amount of work on the potential fiscal risks from climate change, which I think is. Very much aimed at looking at some of these wider questions that you're identifying there. Uh, I mean, you know, we absolutely recognise that there is a very extensive, uh, literature.
On why GDP has some shortcomings in terms of a measure of wellbeing and living standards. Um, but for what we are focused on, given the remit, we have the public finances, GDP is actually a pretty good indicator because GDP is essentially what is driving, um, tax revenues. A lot of public spending. Um, and you know. Yeah, yeah.
Um, but we do so say we do as I've been describing in our role of looking at wider fiscal risks and longer term fiscal sustainability, uh, look more widely at potential sources of fiscal risk. And as I was describing earlier, we've done a huge amount of work on the potential fiscal risks from climate change, which I think is. Very much aimed at looking at some of these wider questions that you're identifying there. Uh, I mean, you know, we absolutely recognise that there is a very extensive, uh, literature.
On why GDP has some shortcomings in terms of a measure of wellbeing and living standards. Um, but for what we are focused on, given the remit, we have the public finances, GDP is actually a pretty good indicator because GDP is essentially what is driving, um, tax revenues. A lot of public spending. Um, and you know. Yeah, yeah.
15:09
Speaker 7
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Speaker 7
So I totally accept what you're saying, but um, if, if the government wants to be able to justify, if any government wants to be able to justify investment in the natural world. Yeah, essentially is reliant on what the OBR says in, in its scoring of that investment. So in order to justify that, that sort of decision making, do we need to change the Obr's remit or do we need a government to put in its own fiscal rules, something around natural capital accounting?
15:10
15:10
15:10
Speaker 6
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Speaker 6
It's absolutely not the case that we we block or it's up to us to determine what is appropriate public investment. I mean, that is just not the right characterization of our role, I'm afraid. I mean, our role is very specifically to produce forecasts which assess whether or not the government is on track to meet fiscal rules. Those fiscal rules are set by the government. They're not set by us. The chance is the Chancellor's choice whether or not she meets those rules or not, and it's the government's choice as to how she meets those rules.
If she decides to meet those rules, she has £3 trillion worth of tax and £3,000,000,000,000 trillion worth of public spending. To use to meet those fiscal rules. So decisions on a particular investment programme is absolutely down to the Chancellor to decide whether or not it's affordable within her fiscal rules. That is, that is just not something that we are have a role in. Uh, kind of commenting on or blocking.
If she decides to meet those rules, she has £3 trillion worth of tax and £3,000,000,000,000 trillion worth of public spending. To use to meet those fiscal rules. So decisions on a particular investment programme is absolutely down to the Chancellor to decide whether or not it's affordable within her fiscal rules. That is, that is just not something that we are have a role in. Uh, kind of commenting on or blocking.
15:11
Speaker 7
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Speaker 7
No, that's not quite what I meant. I meant, I suppose what I meant is it's the, the best possible outcome for a chancellor to be making an investment decision, which they can then point to and say, this is going to have a significant increase in our economic well-being and our economic prosperity. And therefore, this has been a sensible decision for me and that that, you know, is based on your scoring as the OBR. Um.
15:11
Speaker 6
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Speaker 6
I mean, it's it's it's well, there's no reason why it should be. I mean, if the government thinks that that is going to be the case, then it should say so and it should take the decision on that basis. Um, I mean, what we do when we are given public investment plans is at a very macro level because we are macro forecasters. As I was saying earlier, we're not resourced and we don't have a remit to look at every single line of government investment programme, of which there are literally, you know, tens of thousands.
You know, it's not our job to do cost benefit analysis of those individual lines. That's what the Treasury and departments are there to do. Um, we take a macro look at public investment and we've done, and we did a paper where we assessed the macro economic benefits of public investment at the, at the aggregate level. And based on an extensive survey of the international literature on this. And we did include a uplift in economic growth on the basis of the increase in investment overall that the government did in its first budget.
So there was a positive economic benefit from that overall uplift in public investment. We did we did not look at individual lines within that because we're not able to do that. But we did an aggregate. So we do take into account the possible positive benefits of public investment.
You know, it's not our job to do cost benefit analysis of those individual lines. That's what the Treasury and departments are there to do. Um, we take a macro look at public investment and we've done, and we did a paper where we assessed the macro economic benefits of public investment at the, at the aggregate level. And based on an extensive survey of the international literature on this. And we did include a uplift in economic growth on the basis of the increase in investment overall that the government did in its first budget.
So there was a positive economic benefit from that overall uplift in public investment. We did we did not look at individual lines within that because we're not able to do that. But we did an aggregate. So we do take into account the possible positive benefits of public investment.
15:13
Speaker 7
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Speaker 7
Straying a little bit. So I'm just going to try one last time on the question of would would the government having natural accounting capital accounting as a key part of its economic objectives, um, help you in, in the way that you work in relating to saying whether an investment is a, is a going to have a positive impact on our prosperity if it's based on a natural capital approach.
15:13
Speaker 6
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Speaker 6
Let's say. I mean, we we do not we're not resourced to look at individual. Individual capital programmes. That's just not our role. That is the role of the as I say, of the Department of the Treasury to do. We are. We're there as macro forecasters and as I say, we do take into account, based on extensive economic research, the positive benefits of public investment. And we do over the longer term, look at these risks to the public finances from, uh.
Nature related risks due to climate change. And we've chosen climate change because that seems to be up to us to be the most material of these risks. And therefore, the one that we felt most appropriate to focus our resources on.
Nature related risks due to climate change. And we've chosen climate change because that seems to be up to us to be the most material of these risks. And therefore, the one that we felt most appropriate to focus our resources on.
15:14
15:14
Speaker 8
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Speaker 8
Thank you very much, Mr. Josephs. I feel sorry for the OBR because you get it in the neck from both sides very often. Um, rather like politicians. We get it in the neck because sometimes we, uh, we're accused of not taking a long term vision and at other times we're accused of not sorting out the short term problems. Um, it was Lord stern that said that the discount rate was essentially a moral question, wasn't it?When he did his review back in 2005, and he said that because he said it was wrong to discount the lives and welfare of future generations.
Uh, below the importance of the lives and welfare of the current generation. Now, in your previous review, your Fiscal Risks and sustainability report, you had predicated that there were going to be costs, the costs that my colleague, Mr. Wilson, referred to. And you said that those costs would be substantial, going through to about 2050, but that from 2040 on, there would be savings of about 19 billion a year, and it would actually become positive in 2017. Now, as far as I understand it, your recent fiscal report is saying that, actually you're pushing that further because you now believe that the costs of climate change to the economy are actually going to be more economically damaging than you had previously thought.
Is that broadly, the difference between your, what, 1919 report and your 25 report?
Uh, below the importance of the lives and welfare of the current generation. Now, in your previous review, your Fiscal Risks and sustainability report, you had predicated that there were going to be costs, the costs that my colleague, Mr. Wilson, referred to. And you said that those costs would be substantial, going through to about 2050, but that from 2040 on, there would be savings of about 19 billion a year, and it would actually become positive in 2017. Now, as far as I understand it, your recent fiscal report is saying that, actually you're pushing that further because you now believe that the costs of climate change to the economy are actually going to be more economically damaging than you had previously thought.
Is that broadly, the difference between your, what, 1919 report and your 25 report?
15:16
Speaker 6
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Speaker 6
Yeah, that is right. Thank you. I mean, that is based on, I should say, that increase in estimate of the cost is based on the external analysis that I was talking about earlier, done by the kind of experts on potential impact of climate change on economies. So they have increased their estimates of the cost.
15:16
Speaker 8
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Speaker 8
Absolutely. Um, and what you haven't done, I, I take it, um, is. Factor in any political change. That's not your job. As you've outlined to my colleague Mr. Hinchcliffe. Um, you haven't factored in any political decisions to actually spend, uh, even greater amounts now in, in terms of adaptation or in terms of mitigation, uh, effects that I mean, obviously those would have to not just be domestic, but globally. As, uh. Other countries act in this area because we can't act on our own on mitigation.
But you haven't taken into account how one might mitigate the economic damage of climate change on our infrastructure itself by the political decisions that we might take in terms of increasing our spend, which I'm sure Mr. Wilson probably would not approve of either. Um, but that that would, might that might actually then bring that payoff back down. AM I correct in assuming that you have not second guessed the politicians in that way?
But you haven't taken into account how one might mitigate the economic damage of climate change on our infrastructure itself by the political decisions that we might take in terms of increasing our spend, which I'm sure Mr. Wilson probably would not approve of either. Um, but that that would, might that might actually then bring that payoff back down. AM I correct in assuming that you have not second guessed the politicians in that way?
15:17
15:17
Speaker 8
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Speaker 8
It seems to me that Mr. Wilson is pushing you in one direction. Mr. Hinchcliffe is pushing you in other direction, and I'm trying to be the reasonable voice in the middle here. Right. Um, that ends up saying, look, I think you're absolutely right to be saying that climate change is going to be even more damaging than we thought it was going to be five years ago, that it's cost to our economy is going to be even worse than we thought it was five years ago.
Um, and therefore, it's not your job, but it is the job of politicians to answer Lord Stern's question. And ultimately decide when it must be and how much we must spend to get to that point of when it must be that we see the payback against the costs. Would you agree with that?
Um, and therefore, it's not your job, but it is the job of politicians to answer Lord Stern's question. And ultimately decide when it must be and how much we must spend to get to that point of when it must be that we see the payback against the costs. Would you agree with that?
15:18
Speaker 6
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Speaker 6
Yes, I would, and I do. I think, although we cannot um. Make projections of alternative government policy paths, what we can do is within our risk analysis and illustrate some of the potential costs and benefits of different paths. So for example, in our projections of climate change damage, the central projection that we've used is on the basis of a three degree rise in temperatures by the end of the century. That is broadly from the IPCC, based on a. Current kind of global policy.
But we also have a two degree centigrade projection, which is based on a kind of acceleration of global action on net zero. And we show that the costs, the economy, are very much lower under that scenario. So that illustrates the potential payoff from, um, more net zero mitigation at global scale. Obviously, we also just very quickly next year are going to do an analysis of adaptation spending. So spending on building up the resilience of the economy to deal with some of that potential damage from climate change.
And we hope to be able to use that again to show some of the potential trade offs for politicians in terms of the costs and benefits of that sort of spending.
But we also have a two degree centigrade projection, which is based on a kind of acceleration of global action on net zero. And we show that the costs, the economy, are very much lower under that scenario. So that illustrates the potential payoff from, um, more net zero mitigation at global scale. Obviously, we also just very quickly next year are going to do an analysis of adaptation spending. So spending on building up the resilience of the economy to deal with some of that potential damage from climate change.
And we hope to be able to use that again to show some of the potential trade offs for politicians in terms of the costs and benefits of that sort of spending.
15:20
Speaker 8
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Speaker 8
Thank you. Um, you're an economist and you speak in that language. I'm a politician and therefore nobody takes any notice of what I say. Um, but people listening to this, I just want to try and get this into English. Um, for anybody who might be bored enough to turn their television on in the afternoon and watch these proceedings. But as I understand, your economist speak, what you're telling us is, look, we could spend a hell of a lot more at the moment on adaptation, and we could spend globally a hell of a lot more on mitigation.
And where are we to do so?The ultimate cost of climate change would be reduced and would actually repay the investment we've made sooner than if we don't accelerate those costs. Is that a fair English speak summary?
And where are we to do so?The ultimate cost of climate change would be reduced and would actually repay the investment we've made sooner than if we don't accelerate those costs. Is that a fair English speak summary?
15:21
15:21
15:21
Speaker 6
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Speaker 6
That we're going to. Going to do it next year. So we haven't actually done that analysis, which would, um, give, give the potential answer that you've just given there. So I can't sort of pre-empt that analysis on mitigation. As I say, we do this, we, our analysis shows much lower, much lower costs to the economy from lower temperature rise under a scenario.
15:21
Speaker 8
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Speaker 8
Sorry, I must just correct you because in your July 25th statement, you do actually say investment investment in adaptation improves to improve resilience. The fiscal costs of the transition to net zero, the economic damage caused by climate change and investment in adaptation to improve resilience are the factors that you identify, um, through which it will affect the public finances, but also the damage ultimately that is done to the economy from climate change.
15:22
15:22
15:22
15:22
15:22
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15:23
15:23
Speaker 3
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Speaker 3
Thank you. Um. I think it's probable that the Treasury is both helping and hindering in different places. So there have been lots of important and positive work that the Treasury has done, encouraging. Right. Business conditions to invest in things like preventing climate change and decarbonisation. So I've already mentioned a couple of times the contracts for difference. That's a really positive story. Treasury supporting the Zev mandate by introducing the EVs grant as well as another good one that's promoted, uh, higher EV sales.
And also given auto manufacturers the confidence needed to put more investment into electric vehicles. So those are two success stories. I would say. However, there are some contradictions within the incentives that Treasury provides. Um, I think a really big one actually is on electricity prices. We know that in the UK, electricity prices are really high and that has a negative impact on economic growth. It makes manufacturing more difficult. UK competitive competitiveness harder.
Um and a large component of electricity prices is policy levies essentially taxes put on electricity bills. So that is disincentivizing the economy moving to the low carbon fuel that we need to be able to decarbonise properly and meet our ultimate net zero targets. So I think that's an instance of a sort of misalignment, if you will, the Treasury has it within its power to do something to help this as well. I would say it could move some of those policy costs off electricity bills onto general taxation.
We think that would unlock a real wave of investment into low carbon technologies.
And also given auto manufacturers the confidence needed to put more investment into electric vehicles. So those are two success stories. I would say. However, there are some contradictions within the incentives that Treasury provides. Um, I think a really big one actually is on electricity prices. We know that in the UK, electricity prices are really high and that has a negative impact on economic growth. It makes manufacturing more difficult. UK competitive competitiveness harder.
Um and a large component of electricity prices is policy levies essentially taxes put on electricity bills. So that is disincentivizing the economy moving to the low carbon fuel that we need to be able to decarbonise properly and meet our ultimate net zero targets. So I think that's an instance of a sort of misalignment, if you will, the Treasury has it within its power to do something to help this as well. I would say it could move some of those policy costs off electricity bills onto general taxation.
We think that would unlock a real wave of investment into low carbon technologies.
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Speaker 1
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Speaker 1
Yeah, I mean, I think I broadly agree with that. I think particularly for the insurance and long term savings sector, where we would see the Treasury as our lead department. Um, I think a really key role they could play is to make sure that where it's a cross-government effort and inevitably on some of these areas, it's going to be deaf or deafness or the local government department, they're going to play the lead, making sure that the value of our members and what we can offer is fully understood in policy making.
Um, I might give one particular example, which is the importance of maintenance and a whole life cycle approach to investment decisions. So looking at the complete cost of a project until it's decommissioned. Um, and I think actually ensuring that these, the cost of maintaining them to a good standard, which is key to adaptation and resilience that that's properly costed in and those, those Properly costed in. And those those things are taken into account in investment decisions. The Treasury could make sure that happens.
And that's something our members can definitely help with. And I might just give an example to illustrate that. So, you know the big end. If you look at big renewable energy projects, you know, as they go towards the end of their life cycle, that's where they may potentially actually produce some additional risk if they don't work properly. And you can see that with solar panels, if they're at a very end of their life, you know, they are potentially a fire risk.
And actually, in terms of some of the nature based solutions as well, which are broadly very positive. But actually, if you to give an example, if you install a kind green wall there, you and you don't look after it, that's potentially an increased fire risk. So I think it's making sure that when government departments across are making these decisions, the value of our sector and what we can offer and our kind of expertise and risk management is, is realised. That would be something that, you know, obviously it's for the whole of government, but Treasury could play a real lead.
Um, I might give one particular example, which is the importance of maintenance and a whole life cycle approach to investment decisions. So looking at the complete cost of a project until it's decommissioned. Um, and I think actually ensuring that these, the cost of maintaining them to a good standard, which is key to adaptation and resilience that that's properly costed in and those, those Properly costed in. And those those things are taken into account in investment decisions. The Treasury could make sure that happens.
And that's something our members can definitely help with. And I might just give an example to illustrate that. So, you know the big end. If you look at big renewable energy projects, you know, as they go towards the end of their life cycle, that's where they may potentially actually produce some additional risk if they don't work properly. And you can see that with solar panels, if they're at a very end of their life, you know, they are potentially a fire risk.
And actually, in terms of some of the nature based solutions as well, which are broadly very positive. But actually, if you to give an example, if you install a kind green wall there, you and you don't look after it, that's potentially an increased fire risk. So I think it's making sure that when government departments across are making these decisions, the value of our sector and what we can offer and our kind of expertise and risk management is, is realised. That would be something that, you know, obviously it's for the whole of government, but Treasury could play a real lead.
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Speaker 4
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Speaker 4
I can start if that's okay. Um, for businesses to invest in green skills, it's just like any other investment. They need to have a clear signal that that's going to be, they're going to get a return on that investment and a clear business case for making it. And a lot of the businesses we work with, there's no lack of willingness to invest in skills, but they believe that there's a lack of policy clarity to make that happen. So I think a good example of this is the electrification of heating in buildings.
So in the Warm homes plan, there's a target of having 450,000 heat pumps installed by 2030. Last year, we had 70,000 installed and we have 10,000 qualified installers in England. So we clearly need more workforce in this space if we're going to meet our targets. And they need to get trained pretty quickly. If we're going to meet that 2030 target. But the policy kind of certainty to make it clear to businesses that piling money into training up new workforce is worthwhile, isn't there?So we don't know whether or when there might be a gas boiler phase out.
We don't know whether hydrogen might be promoted as an alternative to heat pumps. We don't know whether the funding for the boiler upgrade scheme will be continued beyond 2030. So there's all these uncertainties that mean that why would these. Companies involved in heat pump installation make a massive investment now when that could go wrong?Another thing I'd point out is that this is a really powerful disincentive to individuals to retrain. If an individual has to go through an apprenticeship for 4 or 5 years, potentially taking a pay cut to do so, if they're not sure they're going to walk into a job at the end of that, that disincentivizes training as well.
So in summary, I think just creating the real long term clear market signals can help with training.
So in the Warm homes plan, there's a target of having 450,000 heat pumps installed by 2030. Last year, we had 70,000 installed and we have 10,000 qualified installers in England. So we clearly need more workforce in this space if we're going to meet our targets. And they need to get trained pretty quickly. If we're going to meet that 2030 target. But the policy kind of certainty to make it clear to businesses that piling money into training up new workforce is worthwhile, isn't there?So we don't know whether or when there might be a gas boiler phase out.
We don't know whether hydrogen might be promoted as an alternative to heat pumps. We don't know whether the funding for the boiler upgrade scheme will be continued beyond 2030. So there's all these uncertainties that mean that why would these. Companies involved in heat pump installation make a massive investment now when that could go wrong?Another thing I'd point out is that this is a really powerful disincentive to individuals to retrain. If an individual has to go through an apprenticeship for 4 or 5 years, potentially taking a pay cut to do so, if they're not sure they're going to walk into a job at the end of that, that disincentivizes training as well.
So in summary, I think just creating the real long term clear market signals can help with training.
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Speaker 1
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Speaker 1
Yeah, I suppose I could give on the good side. So I oversee our Dei and talent work at the Abi as well. And certainly I know our members see their role and their contribution on sustainability and climate change as a real part of their pitch to new people coming into the industry. And one of the reasons you would want to work in insurance and long term savings. So certainly from our sector, we see it as an employment opportunity in a key part of people's roles over the next decades to come.
I think I'd go back probably to my point around maintenance and skills. That is a key area where there is a potential risk that we don't have the skills that we need. We're seeing that probably already in the the vehicle side of the insurance industry. So the skills needed to repair highly sophisticated and complicated electric vehicles, they're starting to come through, but probably not at the scale and pace that we need. The risk there is either that a lot of that work ends up being done by the original manufacturers overseas, and things are being sent off.
So actually, you lose some of the carbon reduction carbon emissions benefit from those technologies. If you're having to ship them overseas every time they need to be repaired or they're not being repaired and they're being replaced, which is not necessarily a good thing. Um, but actually just on that general side of keeping things in good condition. So we know we need a workforce that's able to maintain the scale and pace of change that we're seeing as a result of the net zero transition does create a challenge there.
And we need to find a way to. And actually, for the reasons that Toby's outlined, is actually that it's really important that we we start to invest in those skills now. And hopefully some of those repair and maintenance skills are things that you could apply across multiple technologies, I think. And actually, if you're thinking and planning about this, it probably is about making sure that we've got people who are able to repair and maintain multiple things so that they don't become too specialised. Um, the other side is of course a lot of this technology that's coming through particularly sophisticated sensors and things like that, being able to interpret and analyse that is a really good skills opportunity will help those technologies last for longer, will help identify where they're going wrong quicker, so the damage isn't so good.
And again, that's a skill that we'll need is actually being able to interpret that data and act on it quickly. Um, so there's lots of opportunity, but there's probably a pretty urgent need to think about maintenance and repair skills.
I think I'd go back probably to my point around maintenance and skills. That is a key area where there is a potential risk that we don't have the skills that we need. We're seeing that probably already in the the vehicle side of the insurance industry. So the skills needed to repair highly sophisticated and complicated electric vehicles, they're starting to come through, but probably not at the scale and pace that we need. The risk there is either that a lot of that work ends up being done by the original manufacturers overseas, and things are being sent off.
So actually, you lose some of the carbon reduction carbon emissions benefit from those technologies. If you're having to ship them overseas every time they need to be repaired or they're not being repaired and they're being replaced, which is not necessarily a good thing. Um, but actually just on that general side of keeping things in good condition. So we know we need a workforce that's able to maintain the scale and pace of change that we're seeing as a result of the net zero transition does create a challenge there.
And we need to find a way to. And actually, for the reasons that Toby's outlined, is actually that it's really important that we we start to invest in those skills now. And hopefully some of those repair and maintenance skills are things that you could apply across multiple technologies, I think. And actually, if you're thinking and planning about this, it probably is about making sure that we've got people who are able to repair and maintain multiple things so that they don't become too specialised. Um, the other side is of course a lot of this technology that's coming through particularly sophisticated sensors and things like that, being able to interpret and analyse that is a really good skills opportunity will help those technologies last for longer, will help identify where they're going wrong quicker, so the damage isn't so good.
And again, that's a skill that we'll need is actually being able to interpret that data and act on it quickly. Um, so there's lots of opportunity, but there's probably a pretty urgent need to think about maintenance and repair skills.
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Speaker 2
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Speaker 2
And following from that, so obviously you, you talked about giving certainty to the market and to employers to invest. Are there any other Treasury policies that um, will, will help employers address these challenges. Um, to equip workers with the skills needed for the transition. Any other that you can think of. Or that you would like to see Treasury. Pursue.
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Speaker 4
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Speaker 4
Yeah. I think an interesting one is the um. Apprenticeship levy which the Treasury backed. Um, so that provides, it covers the cost of training and apprenticeships. So it means that it's easier for businesses to cover the cost of training an apprenticeship and apprentice. That's really positive. We think, and we think especially for SMEs, that's really beneficial. Helping them. Invest in training the next generation of workers. We have seen actually that those.
Since that apprenticeship levy was introduced, there hasn't been an increase in annual starts in apprenticeships. So I think that's where the policy certainty comes in. But having that assistance to pay for training is really beneficial for the SMEs that at least the ones that we talk with. So I think maybe there could be opportunities to extend and grow that grant money that is available for apprenticeships, but in more targeted industries. So rather than just having it across the board, say that we we know that we want to have more maintenance and engineer skills.
We know we want to have more heat pump installers. We know we want to have more grid technicians targeting the support that Treasury provides at target Industries, potentially.
Since that apprenticeship levy was introduced, there hasn't been an increase in annual starts in apprenticeships. So I think that's where the policy certainty comes in. But having that assistance to pay for training is really beneficial for the SMEs that at least the ones that we talk with. So I think maybe there could be opportunities to extend and grow that grant money that is available for apprenticeships, but in more targeted industries. So rather than just having it across the board, say that we we know that we want to have more maintenance and engineer skills.
We know we want to have more heat pump installers. We know we want to have more grid technicians targeting the support that Treasury provides at target Industries, potentially.
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Speaker 2
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Speaker 2
And so lastly, um how is the Treasury ensuring that the economic benefits and opportunities arising from the green transition are shared fairly across regions and communities throughout England. So the communities are not left behind as it has happened with previous energy transitions. And I'm sure, Tom, you can't answer this either again.
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Speaker 4
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Speaker 4
Well, perspective, the green transition is kind of already a regional success story. Um, green industries are active in hubs across various regions. It's bringing economic benefits to areas outside of the capital and the south east. So that's a really good story. I think that when we look at the Treasury's role in promoting that regional distribution, you can look to the um. The mandate that the National wealth fund has, and it has an obligation to target the investment it makes in the regions of the UK.
And, you know, because the Treasury has control of capitalisation and the mandate of the National Wealth Fund, it could tinker with that even further to direct funding into, you know, areas that it thinks funding is needed. Um, and to work more closely with metro mayors or local economic plans to promote local growth.
And, you know, because the Treasury has control of capitalisation and the mandate of the National Wealth Fund, it could tinker with that even further to direct funding into, you know, areas that it thinks funding is needed. Um, and to work more closely with metro mayors or local economic plans to promote local growth.
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Speaker 1
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Speaker 1
Yeah. So with the Abi, we we've run a number of regional visits for our members on the investment side of our membership to go to various of these regions and see the investment opportunities. They've been really positive. And so I think we're moving in the right direction. If there's one specific thing the Treasury could could really focus on is in terms of obviously the actual projects are going to reflect local needs and will be quite different depending on the region. But the way that the financial opportunities are structured, the more standardised that could be the better.
Because frankly, one of the big upfront costs for our members is the due diligence and the work on structuring a deal. If they have to repeat that every single time, it's going to be a disincentive for them to do it. And there might be some really attractive opportunities they're still interested in. But if you could be looking at deals that are structured in roughly the same way across the UK, you can start to roll that out, and then you can really start to see the scale of investment.
So I think Treasury could really assist the regions. Some are doing it really well, but we probably have perceived, you know, a knowledge gap in terms of different regions in the UK and local authorities. So if the Treasury could really focus on making sure that there are as consistent structures as possible for the way deals are structured, then our members will suddenly find, well, the due diligence, the regulatory permissions that they need becomes easier. And you can start to see things happening quicker. So it's either about speeding up those investments or in some cases, if it's a really complicated deal and it's not a massive deal, our members might just look at it and say the upfront work is, is more than we're willing to do for, for that opportunity.
So standardization would really help. And clearly the Treasury can assist there.
Because frankly, one of the big upfront costs for our members is the due diligence and the work on structuring a deal. If they have to repeat that every single time, it's going to be a disincentive for them to do it. And there might be some really attractive opportunities they're still interested in. But if you could be looking at deals that are structured in roughly the same way across the UK, you can start to roll that out, and then you can really start to see the scale of investment.
So I think Treasury could really assist the regions. Some are doing it really well, but we probably have perceived, you know, a knowledge gap in terms of different regions in the UK and local authorities. So if the Treasury could really focus on making sure that there are as consistent structures as possible for the way deals are structured, then our members will suddenly find, well, the due diligence, the regulatory permissions that they need becomes easier. And you can start to see things happening quicker. So it's either about speeding up those investments or in some cases, if it's a really complicated deal and it's not a massive deal, our members might just look at it and say the upfront work is, is more than we're willing to do for, for that opportunity.
So standardization would really help. And clearly the Treasury can assist there.
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Speaker 3
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Speaker 3
Thank you very much. Or Mr. Radcliffe, Mr. Josephs and Mr. Howard, thank you very much indeed for excellent first panel session. Uh, we all have a quick break between, uh, the first panel and the second. Um, but this sitting is suspended order. For. Two. Order, order!Welcome to the second of our three panel events today. Delighted to have with us Jennifer Wu and Lord Sharma. Um, welcome back to you and welcome to you.
Um, if I could just invite you to start just to introduce yourselves and the organisations that you are representing. So starting with yourself, Miss Wu.
Um, if I could just invite you to start just to introduce yourselves and the organisations that you are representing. So starting with yourself, Miss Wu.
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Speaker 12
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Speaker 12
So thank you very much for the question. Um, we've been very fortunate to be asked by Treasury to help provide support and resources to the Transition Finance Markets Review, which started back in 2023. And one of the recommendations from the Transition Markets Review was to set up a Transition Finance Council to carry on the work. There were a number of recommendations that were published as part of the review. Um and what the council has been doing over the course of the last year since Lord Sharma has taken over as the chair, is to implement on some of those recommendations and making sure that we still bring a group of private sector participants together, ensuring that we're focusing on specific issues to mobilise private finance separately.
Um, we have also received support from Treasury in terms of not only at that policy level, but also at working group level. So the, the civil servants in Treasury has also been working quite closely with us throughout this whole period. Um, by participating in the strategic steering group meetings, as well as the working group sessions, providing us informal feedback on a lot of the publications that we published at the end of this year in March as well. So I would say the interaction with the Treasury, both at the minister level as well as at the working level, has been quite close.
Um, and they have been quite clear as to what is it that they would like to see from the City of London standpoint in our support to the council?I think where we are at now is we are going into. I'm sure we'll talk about this a lot more is as we're entering into the final year of the council, a lot of our focus is really around action, right?We need. And this is what we hear from private sector as well, is a strong policy signal from Treasury.
We have lots of frameworks. We have lots of guidelines. Um but we need a market signal to help a lot of the private sector participants to get comfortable into investing in a lot of these first of a kind projects in the hard to abate sector, especially.
Um, we have also received support from Treasury in terms of not only at that policy level, but also at working group level. So the, the civil servants in Treasury has also been working quite closely with us throughout this whole period. Um, by participating in the strategic steering group meetings, as well as the working group sessions, providing us informal feedback on a lot of the publications that we published at the end of this year in March as well. So I would say the interaction with the Treasury, both at the minister level as well as at the working level, has been quite close.
Um, and they have been quite clear as to what is it that they would like to see from the City of London standpoint in our support to the council?I think where we are at now is we are going into. I'm sure we'll talk about this a lot more is as we're entering into the final year of the council, a lot of our focus is really around action, right?We need. And this is what we hear from private sector as well, is a strong policy signal from Treasury.
We have lots of frameworks. We have lots of guidelines. Um but we need a market signal to help a lot of the private sector participants to get comfortable into investing in a lot of these first of a kind projects in the hard to abate sector, especially.
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Speaker 13
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Speaker 13
Um, yeah. I mean, just to add to that, um, which is, look, I think the Treasury obviously understands that, um, the ability to raise transition finance is very important. And the Treasury absolutely wants London to be the place that we do it for, for UK needs, but also for international needs. Um, and you know, they did set up the transition finance market review. Um, I mean just one, 1 or 2 of the reflections on that is that um you know, when the Transition Finance Council was set up, one of the things I was surprised at was that there was no formal response to a really comprehensive transition finance market review.
I mean, really very comprehensive. I'm sure the committee will have gone through it. Um, and normally, I mean, certainly from the time when I was in government, I would have expected that there would be a formal response. And what I was told at the time was, well, there isn't a formal response, but actually the answer is to set up the Transition Finance Council, which was one of the key recommendations. Um, I then subsequently actually wrote to the, the chancellor in the middle of, of last year ahead of their publication of their financial services growth and competitive strategy, um, outlining some of the key items that we thought should be in that strategy.
And one of the, one of the two, two key asks in that in relation to, to the transition finance market review, one was for the strategy to explicitly say that it would look to adopt the recommendations. And secondly, one of the key recommendations was to set up a transition finance lab. So, you know, moving from all the sort of policy discussions and getting the frameworks in place, which is great, but then actually, how do you trigger finance to actually flow?And that means that you need a new innovative products and all the rest of it.
Um, that didn't happen. And it is happening that the GFR you may have as part of this, these sessions as well is doing something on a voluntary basis. So I guess from my point of view, I think, and actually the working with the ministers has been great, although we're now in our third Minister. Um, but I. Would say overall is the Treasury absolutely gets it, but we have to move from understanding the problem to actually then executing and ensuring that we are seeing a real flow of transition finance in the market.
I mean, really very comprehensive. I'm sure the committee will have gone through it. Um, and normally, I mean, certainly from the time when I was in government, I would have expected that there would be a formal response. And what I was told at the time was, well, there isn't a formal response, but actually the answer is to set up the Transition Finance Council, which was one of the key recommendations. Um, I then subsequently actually wrote to the, the chancellor in the middle of, of last year ahead of their publication of their financial services growth and competitive strategy, um, outlining some of the key items that we thought should be in that strategy.
And one of the, one of the two, two key asks in that in relation to, to the transition finance market review, one was for the strategy to explicitly say that it would look to adopt the recommendations. And secondly, one of the key recommendations was to set up a transition finance lab. So, you know, moving from all the sort of policy discussions and getting the frameworks in place, which is great, but then actually, how do you trigger finance to actually flow?And that means that you need a new innovative products and all the rest of it.
Um, that didn't happen. And it is happening that the GFR you may have as part of this, these sessions as well is doing something on a voluntary basis. So I guess from my point of view, I think, and actually the working with the ministers has been great, although we're now in our third Minister. Um, but I. Would say overall is the Treasury absolutely gets it, but we have to move from understanding the problem to actually then executing and ensuring that we are seeing a real flow of transition finance in the market.
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Speaker 14
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Speaker 14
So I think in terms of am I right, then what you're both saying is that there has been a level of engagement from the Treasury within the process. Um, but what is lacking is perhaps a more overall strategic sense of direction and support. And where does the Treasury want to go with this in terms of is that what's lacking in do you think.
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Speaker 13
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Speaker 13
I mean, I think so we've taken it upon ourselves to also, you know, provide some of the answers to that. Um, so, you know, we've set out for policy asks, we did a sort of big, big, big document. We can go through the details of those policy asks, but, um, those policy asks if they're delivered will lead to either new market instruments being set up to allow the delivery of transition finance, or to make it easier for transition finance to be delivered, because there will be government guarantees, you know, backing some of the, the, the private money.
Um, and so really what we need is some of that to be executed. And I think one of the other things that I have pushed, um, and I think there's been a little bit of reluctance is for the UK to think about at least launching a sovereign transition finance bond. And the reason I think is important is because it's a really big market signal. I remember when I, when I was in government and we had this discussion ahead of Cop26, whether or not we should or shouldn't launch a green gilts programme.
Actually we did. There was. But but this comes down to political leadership. This isn't just about senior officials in the Treasury. If ministers say we want this to happen, it'll happen. And we did manage to get green gilts launched in September 2021. And now, I mean, up until now, the programme has still been running over 50 billion raised so far for the UK. So that's the sort of thing that I'm talking about, where you need to have some flagship thing that you are doing that you can point towards, rather than just, you know, a whole bunch of reports and guidelines which are great and are needed.
But I don't think that's enough.
Um, and so really what we need is some of that to be executed. And I think one of the other things that I have pushed, um, and I think there's been a little bit of reluctance is for the UK to think about at least launching a sovereign transition finance bond. And the reason I think is important is because it's a really big market signal. I remember when I, when I was in government and we had this discussion ahead of Cop26, whether or not we should or shouldn't launch a green gilts programme.
Actually we did. There was. But but this comes down to political leadership. This isn't just about senior officials in the Treasury. If ministers say we want this to happen, it'll happen. And we did manage to get green gilts launched in September 2021. And now, I mean, up until now, the programme has still been running over 50 billion raised so far for the UK. So that's the sort of thing that I'm talking about, where you need to have some flagship thing that you are doing that you can point towards, rather than just, you know, a whole bunch of reports and guidelines which are great and are needed.
But I don't think that's enough.
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Speaker 14
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Speaker 14
Is it fair enough to say that what the Treasury has done is in terms of almost passed over to, um, in terms of let's have. Had the review, one things have set up the council and essentially you feel it's passed to the Council almost the responsibility for that strategic approach rather than leading it themselves.
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Speaker 13
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Speaker 13
Um I don't think that's entirely fair. And if I put it like that, then I think that's, that's that's not appropriate. Because when we looked, if you look at the big sort of four policy asks that we've had to be fair, the Treasury officials have been involved in in coming up with those as well. So there has been a sort of a great deal of interaction. But all we are saying, I'm saying now is that, um, that's great. So you've got the tools available.
Well, let's try and let's try and build those tools then and let's try and execute this thing.
Well, let's try and let's try and build those tools then and let's try and execute this thing.
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Speaker 14
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Speaker 14
So rather than a lack of strategy or strategic thought, it's more about execution. When the issue is okay. Um, and you both mentioned market signal in terms of come back to you miss in terms of what does the City of London, the financial sector need from, in terms of that market signal?What sort of things does it need to actually feel as if it has that support and have the confidence?
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Speaker 12
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Speaker 12
Yeah. Um, so we put out four specific policy recommendations at the end of March. Um, and this is a continuation work continuation work from the transition markets review as well. The four were picked by industry. And you know, we think they are really critical barriers that can if we remove them, that can really send the right signals. The first one is really around clarifying fiduciary duty to really unlock our pension pools to invest in transition opportunities, give them the confidence and clarity to be able to do that.
And I know that there are lots of things in motions already around the pension scheme, bills and all of that. We just wanted to see, I think, policy certainty that this will get carried through such that we can have our pension funds to have the confidence to invest in this space. The second piece is really around promoting transition, transition label products, innovation to Lord Chalmers point. Um, you probably also see that in the market, more and more banks and financial institutions are looking into potentially issuing transition bonds, especially on the back of the launch of the transition category by the likes of Icma and LMA standard setters, defining what a transition bond looks like.
Um, but like I said earlier, some of the technologies that these bonds will get invested in or the proceeds will be used to invest in are first of kind technologies. Um, you do need governments to come in to potentially provide some sort of guarantee or participate to de-risk that, which links to the other recommendation that we have is to continue and expand the guarantees programme that the different public institutions already have to include the likes of transition finance in the design phase. Um, if one example that, um, you know, we talked about is long duration energy storage, which is critical and it's part of the mandate of the, um, the National wealth fund for the AI growth strategy.
And as part of their guarantee programme, the reality is long duration energy storage is also critical for the hard to abate sector to decarbonise. So there are many things that don't necessarily only just help one particular pro growth strategy. Um, the consideration of transition finance can be also integrated into that and expand the definition I think will also help the final recommendation that we put forth is making sure that there is a co-creation process, as the likes of the net zero Council, for instance, go through and develop sectoral transition pathways such that you don't only just have a sectoral pathway with the policies that needs to be in place, as well as the technology roadmaps, but also how to finance that at what stage public, um, finance will be part of it.
Is there going to be guarantee?How do we de-risk that equity fixed income?I think that's something that will really help the private sector. And as part of the Transition Finance Council, in the last year, we've devoted an entire working group just on developing a prototype to as to how that can be done. So we did one for long duration energy storage. We also developed a template on how that financing plan can be designed for each of the sectoral pathways.
So I think these are the things that we would love to see them being carried through. Um, even after the council is dissolved.
And I know that there are lots of things in motions already around the pension scheme, bills and all of that. We just wanted to see, I think, policy certainty that this will get carried through such that we can have our pension funds to have the confidence to invest in this space. The second piece is really around promoting transition, transition label products, innovation to Lord Chalmers point. Um, you probably also see that in the market, more and more banks and financial institutions are looking into potentially issuing transition bonds, especially on the back of the launch of the transition category by the likes of Icma and LMA standard setters, defining what a transition bond looks like.
Um, but like I said earlier, some of the technologies that these bonds will get invested in or the proceeds will be used to invest in are first of kind technologies. Um, you do need governments to come in to potentially provide some sort of guarantee or participate to de-risk that, which links to the other recommendation that we have is to continue and expand the guarantees programme that the different public institutions already have to include the likes of transition finance in the design phase. Um, if one example that, um, you know, we talked about is long duration energy storage, which is critical and it's part of the mandate of the, um, the National wealth fund for the AI growth strategy.
And as part of their guarantee programme, the reality is long duration energy storage is also critical for the hard to abate sector to decarbonise. So there are many things that don't necessarily only just help one particular pro growth strategy. Um, the consideration of transition finance can be also integrated into that and expand the definition I think will also help the final recommendation that we put forth is making sure that there is a co-creation process, as the likes of the net zero Council, for instance, go through and develop sectoral transition pathways such that you don't only just have a sectoral pathway with the policies that needs to be in place, as well as the technology roadmaps, but also how to finance that at what stage public, um, finance will be part of it.
Is there going to be guarantee?How do we de-risk that equity fixed income?I think that's something that will really help the private sector. And as part of the Transition Finance Council, in the last year, we've devoted an entire working group just on developing a prototype to as to how that can be done. So we did one for long duration energy storage. We also developed a template on how that financing plan can be designed for each of the sectoral pathways.
So I think these are the things that we would love to see them being carried through. Um, even after the council is dissolved.
15:53
Speaker 14
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Speaker 14
But just finally, in, I think in terms of all those various actions that you're talking about, it's about creating more policy certainty so that investors are willing to invest. It's creating through all these various different mechanisms and executing those that you think you will then create the level of certainty around policy that you get, that level of that you want. Yeah.
15:54
Speaker 13
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Speaker 13
Yes, absolutely. So, I mean, we've got these draft guidelines, which are basically the framework, uh, to allow us. Which are in hard debate sectors to raise finance and to do that in a credible way. And then you've got the instruments that we're talking about that would allow you to actually do the raising the finance.
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15:54
Speaker 5
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Speaker 5
Thank you. I think you've been pretty clear about some additional actions that are either in progress or coming soon, that will hopefully start to allow that investment to flow more than it has so far. You also touched Miss Wu on the current model, the sort of crowding in. So the idea of instead of government co-financing and match funding, all investment in this area that they're shifting more like the American model to offering funding for those innovation and the sort of leading aspects, and hoping that the market will then follow.
Do you feel that that's working effectively?Do you think that's moving in the right direction?Any evidence that that is the right direction to move the financing model?
Do you feel that that's working effectively?Do you think that's moving in the right direction?Any evidence that that is the right direction to move the financing model?
15:55
Speaker 12
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Speaker 12
Thank you for that question. So we do have national wealth fund as a observer on our strategic steering group for the Transition Finance Council. And they've kindly provided their strategy and mandate to us on a regular basis. So we know what is it that they're looking at. And if transition finance, the different technology that's needed, be it for the hard to abate sector or some of the other areas, are being thought through as part of their guarantee design. Um, AI, the example that I just gave is a really good one.
The technologies that they're looking to finance, um, not under the transition finance strategy banner, but for some other growth strategy, um, has elements that can be extended to transition finance. So I think if they were able to design, and I'm not just pointing at the national wealth fund only, but any public finance institutions to actually embed the concept of a concept of transition finance into the design of all of their guarantee programmes or public private partnership programmes, I think that could actually create a multiplying effect as well, and sends a really strong signal to the market.
The technologies that they're looking to finance, um, not under the transition finance strategy banner, but for some other growth strategy, um, has elements that can be extended to transition finance. So I think if they were able to design, and I'm not just pointing at the national wealth fund only, but any public finance institutions to actually embed the concept of a concept of transition finance into the design of all of their guarantee programmes or public private partnership programmes, I think that could actually create a multiplying effect as well, and sends a really strong signal to the market.
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15:58
Speaker 15
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Speaker 15
Thank you. Chair. Um. You both for your answers so far. Um, I just want to refocus on, um, how transition finance should be embedded within the wider economic and growth strategies that the UK has. Um, and whether you think that at the moment it's sitting a little bit away from the central kind of components of, of our long term economic strategy. And if, if it's seen as a bit separate at the moment, and if you've got any reflections on that, essentially.
15:58
Speaker 13
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Speaker 13
Yeah. Well, so I think, I mean, just looking at this at a very macro level, I think last year there was about $2.3 trillion that was raised globally for the transition, if we can put it sort of widely with a wide definition in it, uh, less than 10% of that money went into heart about sectors. Um, so, um, you know, it's, it's, it's not kind of, uh, being the sort of the sexy bit of where the money has been been spent. But actually, if you, if you do want to decarbonise economies, then you have to, you have to deal with that.
And I think, um, you know, one of the issues, of course, is that, you know, what is the definition of transition finance, right?I mean, we don't have a green taxonomy. So that's one of the things that we've tried to address through the through, through the guidelines. But I think the way you embed this into the UK finance ecosystem is basically to follow through on the work that we've been doing and the recommendations that we've been making. So if I can, if I can put this in sort of three, three parts, uh, firstly, sort of the draft guidelines that we, we have, uh, those are being tested by private sector institutions.
Uh, when, you know, in terms of how they allocate money and how those particular decisions are made. And we want to see more of that, that road testing going on. Um, the, the second bit is, uh, on, um. Um. Looking at the, the, the sector plans and I think Jennifer's talked about some of the work we've done on that. And of course, that's now been effectively a lot of that is being led by the net zero council. And the final bit is then the, the, the sort of the products, what we would call the the signals to the market in terms of execution.
So if all these three things actually happened, and I mean, just take the guidelines, for example. I mean, they are you know, they're voluntary, they're out there. Um, if at the end of this whole process, when those guidelines are finalised, the government said, you know what we're going to adopt. We're going to say this is these are our, uh, government guidelines rather than just another set of guidelines that are sort of sitting out there that you can or, or cannot, uh, do or do not have to, to take into account.
I mean, that would be, that would be great. Uh, you know, if we manage to get some of these financial instruments launched, that would make a difference. And I just want to go back to this point about innovation, which I think, uh, you raised as well. Um, you know, the reason that there was a recommendation, uh, initially in the, in the original review on having a transition finance lab was basically to test products as well. Right?And see what's actually needed.
And that helps to provide the innovation. I mean, I, um, I think as a sort of parallel example of something that is happening, uh, pretty well is at the world Bank and, um, Adebanjo when he came in, uh, you know, recognized that you needed to sort of scale up the amount of private finance that, that, that flows as a result of the money that the world Bank is also allocating. And so they set up a private finance lab, and that is actually come up with, uh, you know, a, a, a bunch of.
Policies, but very concrete things, uh, that if they are enacted, will help to deliver and corral in more private finance. So my view is that, uh, the transition finance lab is now currently being done on a, on a voluntary basis by the Green Finance Institute. Um, I. Would like, and I have no sort of axe to grind here because I'm not part of that institution, but I would quite like for government to take some co-ownership of that. And not just to say that, you know, we think this is a good thing to do, but actually to provide some resource as well.
Um, I mean, and I just want to be very clear on this and the TFC, we don't get any resource from the government. Uh, you know, the government obviously very helpfully provides civil servants we interact with, but we are funded through philanthropy and the City of London. But I just think if you're going to have a, a, some kind of transition finance lab, it does need government backing. And also actually to have 1 or 2 people from government as part of it. So there is a a backwards and forwards flow in terms of discussion, in terms of which products work, which products don't work.
And I think, um, you know, one of the issues, of course, is that, you know, what is the definition of transition finance, right?I mean, we don't have a green taxonomy. So that's one of the things that we've tried to address through the through, through the guidelines. But I think the way you embed this into the UK finance ecosystem is basically to follow through on the work that we've been doing and the recommendations that we've been making. So if I can, if I can put this in sort of three, three parts, uh, firstly, sort of the draft guidelines that we, we have, uh, those are being tested by private sector institutions.
Uh, when, you know, in terms of how they allocate money and how those particular decisions are made. And we want to see more of that, that road testing going on. Um, the, the second bit is, uh, on, um. Um. Looking at the, the, the sector plans and I think Jennifer's talked about some of the work we've done on that. And of course, that's now been effectively a lot of that is being led by the net zero council. And the final bit is then the, the, the sort of the products, what we would call the the signals to the market in terms of execution.
So if all these three things actually happened, and I mean, just take the guidelines, for example. I mean, they are you know, they're voluntary, they're out there. Um, if at the end of this whole process, when those guidelines are finalised, the government said, you know what we're going to adopt. We're going to say this is these are our, uh, government guidelines rather than just another set of guidelines that are sort of sitting out there that you can or, or cannot, uh, do or do not have to, to take into account.
I mean, that would be, that would be great. Uh, you know, if we manage to get some of these financial instruments launched, that would make a difference. And I just want to go back to this point about innovation, which I think, uh, you raised as well. Um, you know, the reason that there was a recommendation, uh, initially in the, in the original review on having a transition finance lab was basically to test products as well. Right?And see what's actually needed.
And that helps to provide the innovation. I mean, I, um, I think as a sort of parallel example of something that is happening, uh, pretty well is at the world Bank and, um, Adebanjo when he came in, uh, you know, recognized that you needed to sort of scale up the amount of private finance that, that, that flows as a result of the money that the world Bank is also allocating. And so they set up a private finance lab, and that is actually come up with, uh, you know, a, a, a bunch of.
Policies, but very concrete things, uh, that if they are enacted, will help to deliver and corral in more private finance. So my view is that, uh, the transition finance lab is now currently being done on a, on a voluntary basis by the Green Finance Institute. Um, I. Would like, and I have no sort of axe to grind here because I'm not part of that institution, but I would quite like for government to take some co-ownership of that. And not just to say that, you know, we think this is a good thing to do, but actually to provide some resource as well.
Um, I mean, and I just want to be very clear on this and the TFC, we don't get any resource from the government. Uh, you know, the government obviously very helpfully provides civil servants we interact with, but we are funded through philanthropy and the City of London. But I just think if you're going to have a, a, some kind of transition finance lab, it does need government backing. And also actually to have 1 or 2 people from government as part of it. So there is a a backwards and forwards flow in terms of discussion, in terms of which products work, which products don't work.
16:02
Speaker 15
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Speaker 15
I mean, I'm sure that's all very, very helpful and clear. Um, but I wonder because obviously this would need resources like what kind of ballpark figures would you be thinking about putting behind the lab from, from government?Um, or in terms of sector plans, is there a particular sector that you think is a low hanging fruit?Um, for us to kind of lead with, um, as an example?Um, so yeah, just those two questions really.
16:03
Speaker 13
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Speaker 13
Yeah. So in terms of resources, I mean, I'm not, when I talk about resources, I mean, I'm not talking about sort of, you know, huge amounts of money. I'm talking about having, you know, a few people, a little bit of sort of finance resource, um, that. Are, I mean, just to, just to tell you, I just put this into context. Transition finance Council works on the basis of, uh. A grant from a Sif the children investment fund to the tune of, um, I don't know whether I'm allowed to say, but I mean, it's, it's, it's several hundred thousand pounds.
Yeah. Um, and then sort of support from the city of London as well. So we're not talking about sort of huge sums of money, but actually symbolically it makes a huge difference if you also have 1 or 2 people from the Treasury embedded in this, because the whole market, that's also market signal where the market says, oh my God, I mean, the government's really behind this. They're putting people in there. So that's important. And in terms of which sectors, um, I think, I mean that basically that work is being led now, um, by the net zero council.
I think they have a plan to roll out a whole bunch of, of, of sector plans, but the sort of things that, you know, we were talking about when this was still, uh, sort of work within, within TFC, uh, was hard to abate sectors like cement, steel, etc..
Yeah. Um, and then sort of support from the city of London as well. So we're not talking about sort of huge sums of money, but actually symbolically it makes a huge difference if you also have 1 or 2 people from the Treasury embedded in this, because the whole market, that's also market signal where the market says, oh my God, I mean, the government's really behind this. They're putting people in there. So that's important. And in terms of which sectors, um, I think, I mean that basically that work is being led now, um, by the net zero council.
I think they have a plan to roll out a whole bunch of, of, of sector plans, but the sort of things that, you know, we were talking about when this was still, uh, sort of work within, within TFC, uh, was hard to abate sectors like cement, steel, etc..
16:04
Speaker 15
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Speaker 15
Okay. Well, that's really useful. Um, just finally on, um, just a couple of questions about international comparisons. We kind of highlighted, um, some other other avenues that have been explored, but given the political kind of nature at the moment and the shift away from kind of a consensus, I'd say politically, and you might want to reflect on your, your previous position on this. Do you think that the UK's global position, um, for sustainable and transition finance as a centre is, is under threat at the moment?And do you think the um HMT need to do more to maintain leadership in this space.
And do you think the political backdrop is making that more of a challenge.
And do you think the political backdrop is making that more of a challenge.
16:05
Speaker 13
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Speaker 13
Let me speak. Since we're talking about sort of Transition Finance Council, uh, a bit more sort of narrowly on this, I think, um, I think the, the, the, I mean, yes, of course, you're absolutely right that the political consensus that we've historically had on climate issues isn't there, uh, certainly not anywhere near in the way that we had previously. And that, of course, sends sort of wider market signals to potential investors in the UK, etc.. But looking at this narrowly through the lens of the Transition Finance Council, I think, um, we're, I would say at a sort of nascent stage.
So I just think we need to get on and do the things that, that we've got on the agenda and to get, you know, backing and support from government. And to be fair, we've had and we continue to get very good interaction with, uh, with with civil servants. We just need that to happen because there are other markets that, um, you know, are more nimble and are moving ahead in this area. Uh, I mean, Jennifer, you might to talk a little bit about Singapore, but since I mentioned a transition finance bond, a sovereign bond in the UK, I mean, it's worth noting that Japan launched, uh, a sovereign transition finance bond bond, as they call it, um, in 2024.
And the aim is to have a series of these, these bonds launched, raising, you up to around $130 billion as part of their transition as well. So, um, I think we just need to sort of get on with it. And, you know, the politics will swirl around. But I think in this case, we just need to, to focus and deliver on the things that that we've said we're going to deliver on. Do you want to comment on Singapore or any of the other markets?
So I just think we need to get on and do the things that, that we've got on the agenda and to get, you know, backing and support from government. And to be fair, we've had and we continue to get very good interaction with, uh, with with civil servants. We just need that to happen because there are other markets that, um, you know, are more nimble and are moving ahead in this area. Uh, I mean, Jennifer, you might to talk a little bit about Singapore, but since I mentioned a transition finance bond, a sovereign bond in the UK, I mean, it's worth noting that Japan launched, uh, a sovereign transition finance bond bond, as they call it, um, in 2024.
And the aim is to have a series of these, these bonds launched, raising, you up to around $130 billion as part of their transition as well. So, um, I think we just need to sort of get on with it. And, you know, the politics will swirl around. But I think in this case, we just need to, to focus and deliver on the things that that we've said we're going to deliver on. Do you want to comment on Singapore or any of the other markets?
16:06
Speaker 12
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Speaker 12
So I think transition finance for private sector is really very much about, um economic economic efficiency. If you have a hard to abate sector, a cement company in another market that that is able to operate at a much, you know, carbon efficient and also, um, cost efficient standpoint compared to a cement company here, we lose our competitive advantage, right?So I think that's, that's a very, very important thing. Also, I think just given the fact that, um, a lot of the sectors in order and countries in order to gain energy independence, they need to transition, right?So this is a growth opportunity.
I think from a private sector standpoint, to be part of that and finance these potential opportunities. So I think these are the two main drivers. Um, Japan is a great example whereby you have government leading this effort and then followed by banks also issuing and corporates issuing transition bonds. So it's a pretty vibrant market. We have a lot of discussions with the Japanese government. If you look at Singapore, for instance, we talk about cost, for example, um issuance of label bonds will incur a little bit of cost, right?Because a lot of these label instruments will need to require external validation to make sure that it's credible.
The green credentials are exactly what, uh, in line with any kind of standards and format, uh, frameworks. The Singapore government monetary, uh, authority of Singapore subsidises external validation fees. It's, we're talking about not a lot of money, but that sends a very strong signals to, especially mid-cap companies. Um, it's not always large cap companies that need transition funding and a little bit of help as they issue these type of bonds, right?So that I think sends a really good signal. Uh, I think the, the other thing to note is also about having the.
Ability. We talked about execution, but then also there are many different policies that sit, um, separately and not joined up. I'll give you one example. Um, so transition finance strategy, focusing on the investment side of things, but we also have our UK emissions trading scheme. If you look at some of the other markets, for example, you have Japan actually using the proceeds from their emissions trading, trading schemes to finance or to repay the transition bond. So it's linked.
You have the EU that basically recycles the revenues that they raise from the emissions trading scheme to reinvest back into transition finance. So how do you actually join up all of the different policy instruments to, to make this a, a revenue opportunities for the countries and also, um, the industry I think is really, really important. And that's an opportunity that we have here.
I think from a private sector standpoint, to be part of that and finance these potential opportunities. So I think these are the two main drivers. Um, Japan is a great example whereby you have government leading this effort and then followed by banks also issuing and corporates issuing transition bonds. So it's a pretty vibrant market. We have a lot of discussions with the Japanese government. If you look at Singapore, for instance, we talk about cost, for example, um issuance of label bonds will incur a little bit of cost, right?Because a lot of these label instruments will need to require external validation to make sure that it's credible.
The green credentials are exactly what, uh, in line with any kind of standards and format, uh, frameworks. The Singapore government monetary, uh, authority of Singapore subsidises external validation fees. It's, we're talking about not a lot of money, but that sends a very strong signals to, especially mid-cap companies. Um, it's not always large cap companies that need transition funding and a little bit of help as they issue these type of bonds, right?So that I think sends a really good signal. Uh, I think the, the other thing to note is also about having the.
Ability. We talked about execution, but then also there are many different policies that sit, um, separately and not joined up. I'll give you one example. Um, so transition finance strategy, focusing on the investment side of things, but we also have our UK emissions trading scheme. If you look at some of the other markets, for example, you have Japan actually using the proceeds from their emissions trading, trading schemes to finance or to repay the transition bond. So it's linked.
You have the EU that basically recycles the revenues that they raise from the emissions trading scheme to reinvest back into transition finance. So how do you actually join up all of the different policy instruments to, to make this a, a revenue opportunities for the countries and also, um, the industry I think is really, really important. And that's an opportunity that we have here.
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16:09
Speaker 6
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Speaker 6
You've you've spoken about the, the role that banks play. Um, and how you've encouraged banks to think along the lines of what they do to help climate and nature, etc.. There has been a lot of reports recently, of course, that banks are now looking at putting money more into projects which give high returns. And there's been the the reports and papers about them going back to financing fossil fuel projects, etc., and billions going into that. This committee is interested in, especially in how finance and private finance can be used to promote nature and restore our natural resources here.
What's your experience been with those banks that are committed to helping the transition and promoting the green?And promoting nature?Have they, um, been. Playing a huge role as private finance played a huge role in that. Can you think of any projects which they're lending money to?And if not, what are the the impediments um, to doing that, especially since it's seen it very often those nature type projects, the monetary returns are much lower or they're not as apparent, let's put it that way, um, than say investment in wind energy or something like that.
Yeah, yeah.
What's your experience been with those banks that are committed to helping the transition and promoting the green?And promoting nature?Have they, um, been. Playing a huge role as private finance played a huge role in that. Can you think of any projects which they're lending money to?And if not, what are the the impediments um, to doing that, especially since it's seen it very often those nature type projects, the monetary returns are much lower or they're not as apparent, let's put it that way, um, than say investment in wind energy or something like that.
Yeah, yeah.
16:11
Speaker 13
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Speaker 13
So, um, we, we haven't from a transition finance Council perspective, looked at this through a nature lens, but if I make a sort of a broader, um, comment on this and then maybe ask Jennifer if she, from her private sector experience previously wants to comment on this, but, uh, generally, I mean, my experience with, with, with banks is that, um. They, they remain, uh, many of them actually remain committed to the transition. Um, and I think there are a number of reasons for that. Uh, one is to end up ensuring that they don't end up banking stranded assets.
And, um, but it's a, it's a, it's a gradation, right?In the sense that, um. Every bank will have a sort of set of policies in terms of what percentage they are willing to invest over what period of time in particular sectors. I mean, you mentioned fossil fuels and how that actually goes down over, over time. Um, so I mean, I think, um, certainly the banks that, that, um, you know, I'm aware of, you know, and by the way, just to point out that actually, uh, if you look at the Transition Finance Council, um, we had.
Uh, have had 80 folks, uh, very senior folks who work in the city at banks and insurance companies and all the rest of it who've been involved in a voluntary basis. And a lot of the road testing that's going on is also with financial institutions when it comes to guidelines. So I think I mean, I think we are the I can certainly see the commitment continuing from the financial services sector, specifically in terms of nature. I mean, just from some of the interactions that I've had separate to, um, the work of Transition Finance Council.
Uh, yes, there are some banks looking at this. Um, I mean, I think Bank of America has looked at some of this. Um, I don't know whether on a JP Morgan point of view, there's anything that you are aware of where they were looking at in terms of nature bonds or nature finance?
And, um, but it's a, it's a, it's a gradation, right?In the sense that, um. Every bank will have a sort of set of policies in terms of what percentage they are willing to invest over what period of time in particular sectors. I mean, you mentioned fossil fuels and how that actually goes down over, over time. Um, so I mean, I think, um, certainly the banks that, that, um, you know, I'm aware of, you know, and by the way, just to point out that actually, uh, if you look at the Transition Finance Council, um, we had.
Uh, have had 80 folks, uh, very senior folks who work in the city at banks and insurance companies and all the rest of it who've been involved in a voluntary basis. And a lot of the road testing that's going on is also with financial institutions when it comes to guidelines. So I think I mean, I think we are the I can certainly see the commitment continuing from the financial services sector, specifically in terms of nature. I mean, just from some of the interactions that I've had separate to, um, the work of Transition Finance Council.
Uh, yes, there are some banks looking at this. Um, I mean, I think Bank of America has looked at some of this. Um, I don't know whether on a JP Morgan point of view, there's anything that you are aware of where they were looking at in terms of nature bonds or nature finance?
16:12
Speaker 12
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Speaker 12
Uh, yes, I think nature bond is definitely an. area that's been growing. I think another area that financial institutions in the private sector have been focusing on is voluntary carbon market, right?Um, understanding the fact that corporations or even countries, at some point, you just, you will end up with residual emissions that you have to divert that you cannot diversify away. Um, and one of the potential instruments to be utilized by both private and public sector is to offset that with carbon credits generated by nature based solutions or engineering solutions, removal solutions.
So the creation of that market is actually quite critical because once a credit is created on the back of a forest or any type of, um, nature related projects has a price, um, and you can have a buyer, you can have a buyer, potential buyer as well. Um, so that creates this kind of incentives for potentially more project developers to look at different areas of nature conservation or different types of nature projects that can generate credits. Um, and, and have the confidence that they will be able to pay for that and have a return, uh, you know, revenue stream.
The challenge with that market right now is that it is very much what I would call primary market. Um, so you have project developers who work together with banks to get the, the first loan so that they can first kick start the projects. Um, but it's, uh, you know, it's really quite hard for institutional investors, for example, to, um, you know, get access to these project developers unless they know whom to call, be it the banks or the project developers themselves. And also because it's all over the counter type of transactions, pricing is also opaque and not transparent.
That really deterred a lot of institutional investors, be asset managers or pension funds to get into that space, because once they have these credits, which should be treated as financial assets on their book, they can't mark to market. Um, they do, they do see benefit of potentially buying credits, which will not only help with their decarbonisation objectives, but also financing nature in a really effective way. But I think there is a market infrastructure marketplace problem that we need to solve in order to really unlock this opportunity, i.e.
mobilising more finance into the nature project.
So the creation of that market is actually quite critical because once a credit is created on the back of a forest or any type of, um, nature related projects has a price, um, and you can have a buyer, you can have a buyer, potential buyer as well. Um, so that creates this kind of incentives for potentially more project developers to look at different areas of nature conservation or different types of nature projects that can generate credits. Um, and, and have the confidence that they will be able to pay for that and have a return, uh, you know, revenue stream.
The challenge with that market right now is that it is very much what I would call primary market. Um, so you have project developers who work together with banks to get the, the first loan so that they can first kick start the projects. Um, but it's, uh, you know, it's really quite hard for institutional investors, for example, to, um, you know, get access to these project developers unless they know whom to call, be it the banks or the project developers themselves. And also because it's all over the counter type of transactions, pricing is also opaque and not transparent.
That really deterred a lot of institutional investors, be asset managers or pension funds to get into that space, because once they have these credits, which should be treated as financial assets on their book, they can't mark to market. Um, they do, they do see benefit of potentially buying credits, which will not only help with their decarbonisation objectives, but also financing nature in a really effective way. But I think there is a market infrastructure marketplace problem that we need to solve in order to really unlock this opportunity, i.e.
mobilising more finance into the nature project.
16:14
16:14
Speaker 12
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Speaker 12
One of the work that we are looking to take on as part of City of London, and this is separate from the transition Finance Council is um government actually has done. UK government has actually done a lot of work focusing on creating the standards. And we were the ones who actually created standards and which is now being recognized by the United Nations as well on integrity principles. Right. What type of nature projects, um, you know, what are the criteria they need to fulfil in order to be able to call that this is a credible carbon credit.
Um, so a lot of that work on the supply side is being done. It's not perfect. There's still a lot that needs to be done. But I think the challenge now is really on the demand side. And I just mentioned some of the issues or the barriers that's stopping demand. So one of the things that we are scoping out is in London, we trade everything commodities, stocks, bonds. We have a very, very established mainstream financial infrastructure.
A credit should be no different from any type of commodities or, um, you know, financial assets. Um, we want to be able to trade that through our mainstream financial market infrastructure as well, right?So such that we can actually create a secondary market, the primary market still needs to exist, but you do need a liquid transparent secondary market for this to take place. And also it may also open up opportunities for project developers to directly list on the secondary market, as opposed to having to find a banker or a venture capital firms to finance these type of projects.
So I think the benefit of plugging the voluntary carbon market into mainstream financial infrastructure that we have here in London is really, really a unique opportunity that we have right now. There are other markets, I hate to say this, but there are other markets looking at this right now. Singapore is one, Japan is another. Um, so, you know, it's a, we won't end up being the only global centre doing this, but we cannot miss this opportunity.
Um, so a lot of that work on the supply side is being done. It's not perfect. There's still a lot that needs to be done. But I think the challenge now is really on the demand side. And I just mentioned some of the issues or the barriers that's stopping demand. So one of the things that we are scoping out is in London, we trade everything commodities, stocks, bonds. We have a very, very established mainstream financial infrastructure.
A credit should be no different from any type of commodities or, um, you know, financial assets. Um, we want to be able to trade that through our mainstream financial market infrastructure as well, right?So such that we can actually create a secondary market, the primary market still needs to exist, but you do need a liquid transparent secondary market for this to take place. And also it may also open up opportunities for project developers to directly list on the secondary market, as opposed to having to find a banker or a venture capital firms to finance these type of projects.
So I think the benefit of plugging the voluntary carbon market into mainstream financial infrastructure that we have here in London is really, really a unique opportunity that we have right now. There are other markets, I hate to say this, but there are other markets looking at this right now. Singapore is one, Japan is another. Um, so, you know, it's a, we won't end up being the only global centre doing this, but we cannot miss this opportunity.
16:16
Speaker 3
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Speaker 3
Thank you very much, Lord chairman, just for. Finally, um, we all recall. Your role in Cop26. And as you say, those halcyon days when we had this sort of political consensus and, and basically the only question was, how fast do we get there?And by, by what route?Um, and clearly, you know, we are, um, as my colleague referred to, you know, that consensus has broken down. I mean, just, just give us a sense as to, from, from the perspective of the confidence that the market has, the sense that we could, you know, change, change government.
And abandon the, the pathway, I mean, must affect the sort of long term investment appetite of people in this sector, doesn't it?
And abandon the, the pathway, I mean, must affect the sort of long term investment appetite of people in this sector, doesn't it?
16:17
16:17
16:17
Speaker 13
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Speaker 13
No. Sure, sure. But I mean, look, I, if I think back to when, when, um, you know, I was in government, we one of the reasons I think we managed to raise, um, you know, tens of billions of, of pounds of private sector money which went into green technology, into renewable sector. I mean, we built the second biggest offshore wind sector in the world. And, you know, we had this whole discussion around energy security. But frankly, if we hadn't had the level of renewables that we had in our system, when the first energy shock struck in 2022, we would be in a far worse place.
And, but one of the reasons that I think people were willing to invest is because they saw that there was a long term policy certainty. Going forward. Um, I mean, look, I think you've seen, um, folks like the CBI and others who've more recently said that, you know. Uh, the, the lack of political consensus, um, you know, does make the private sector question. It does put at risk, um, inward investment and jobs. And I think that's the case.
Um, you know, for, for any country where there is a sort of a question marks about what may happen, um, if there's, if there are changes of, of, of government, I mean, just as a sort of general point, I'd just say that, look, the transition is happening, right?So this, this idea that what happens in one country somehow sort of slows the rest of the world. It's happening. I mean, you know, go out to Asia. I mean, we've continuously made reference to the markets that are being really innovative.
We've talked about Japan. We've talked about, uh, Singapore. Um, you know, innovation is going on. And at the end of the day, people don't have to invest in the UK, right?They can choose to take the money elsewhere. And my big concern with all of this is that, um. You know, there is a risk that, um, you know, we lose out on jobs, we lose out in investment. And from my perspective, I think that would be that would be unfortunate.
But, you know, overall the transition is happening. Um, and, you know, the world is continuing to decarbonise despite, you know, some of the noises that you hear. Uh, and that will, that will continue. Yeah.
And, but one of the reasons that I think people were willing to invest is because they saw that there was a long term policy certainty. Going forward. Um, I mean, look, I think you've seen, um, folks like the CBI and others who've more recently said that, you know. Uh, the, the lack of political consensus, um, you know, does make the private sector question. It does put at risk, um, inward investment and jobs. And I think that's the case.
Um, you know, for, for any country where there is a sort of a question marks about what may happen, um, if there's, if there are changes of, of, of government, I mean, just as a sort of general point, I'd just say that, look, the transition is happening, right?So this, this idea that what happens in one country somehow sort of slows the rest of the world. It's happening. I mean, you know, go out to Asia. I mean, we've continuously made reference to the markets that are being really innovative.
We've talked about Japan. We've talked about, uh, Singapore. Um, you know, innovation is going on. And at the end of the day, people don't have to invest in the UK, right?They can choose to take the money elsewhere. And my big concern with all of this is that, um. You know, there is a risk that, um, you know, we lose out on jobs, we lose out in investment. And from my perspective, I think that would be that would be unfortunate.
But, you know, overall the transition is happening. Um, and, you know, the world is continuing to decarbonise despite, you know, some of the noises that you hear. Uh, and that will, that will continue. Yeah.
16:20
Speaker 3
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Speaker 3
I'm hoping the thing you said there gets you thrown out of any gang at all. It's I know that certain people are in a vicious mood at the moment, but, uh, we thank you very much indeed for that excellent evidence. Uh, and indeed yourself, as we're very clear, uh, and I think giving us some real food for thought and some very useful recommendations going forward. So, uh, thank you very much. We'll switch to the third panel with, uh, seamless, uh, quality if we can.
But thank you very much indeed for your evidence. Thank you. Thank you very much. Um, to our third panel who's joined us today. Um, can I invite you starting with yourself, Masood, please. Just to introduce your yourself and your organization, um, before we make a start.
But thank you very much indeed for your evidence. Thank you. Thank you very much. Um, to our third panel who's joined us today. Um, can I invite you starting with yourself, Masood, please. Just to introduce your yourself and your organization, um, before we make a start.
16:21
16:21
16:22
Speaker 7
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Speaker 7
So it's a progressive economy think tank and its objectives is basically to, you know, make the economy or help to make the economy work better for both people and planet. So we're not purely a sort of environmental NGO, although we're very much, you know, championing the transition. But at its heart, what the way in which we want to achieve that is a way that really, really works for people as well.
16:22
16:22
Speaker 17
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Speaker 17
Yes. Good afternoon. I'm James Alexander, chief executive of UK CIF, which is the UK Sustainable Investment and Finance Association with a membership network for sustainable finance in the UK. And we bring together banks, pension funds and asset managers and other parts of the financial services industry. With £19 trillion of assets under management to advance sustainability in finance.
16:23
16:23
Speaker 17
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Speaker 17
Sustainable finance plays?I think a very key role in this. We know and I think we've heard from other panels today, that we are not going to find ways to pay for the transition with public money alone. We do need to find ways to attract and drive private capital into that transition. And, and sustainable finance is a key way of delivering that and achieving that. And, and on a more philosophical level, I suppose sustainable finance is about investing in assets or companies or activities that can stand the test of time, whose activities do not cause environmental or social harm, and therefore are able to continue going forward with their business models and their approaches.
And in many respects, I think the government and the Treasury, I know you're looking specifically at the Treasury, have have done a lot of work to build and encourage the development of sustainable finance in the UK, and we have many of the building blocks of a sustainable finance system now embedded here in the UK. And those include the frameworks that allow you to identify what is and isn't sustainable. They include the the disclosures that or will shortly, we hope, include the disclosures once transition plans and the full adoption of the UK Sustainability Reporting Standards is in place and which will allow investors to understand whether something they're looking to invest in actually is sustainable or not against a credible benchmark.
And they include the enforcement mechanisms and the anti greenwashing approaches that have been embedded across the UK. Now that much of that's in place, particularly for climate, we need to do more on that around nature. And as the panel's previously mentioned, also around looking at adaptation and resilience. But I think we are we are strongly building that. Now. The challenge is that we don't necessarily have in place the policies that will attract capital. You can have that regulatory environment in place, but that doesn't necessarily create the one of the other key building blocks, which is capital movement.
And so we need to ensure that we are constantly finding ways to ensure that a rational investor, thinking rationally is incentivised or encouraged to invest in the sustainable activity, rather than the unsustainable one. And that means making sure that that is a better business model.
And in many respects, I think the government and the Treasury, I know you're looking specifically at the Treasury, have have done a lot of work to build and encourage the development of sustainable finance in the UK, and we have many of the building blocks of a sustainable finance system now embedded here in the UK. And those include the frameworks that allow you to identify what is and isn't sustainable. They include the the disclosures that or will shortly, we hope, include the disclosures once transition plans and the full adoption of the UK Sustainability Reporting Standards is in place and which will allow investors to understand whether something they're looking to invest in actually is sustainable or not against a credible benchmark.
And they include the enforcement mechanisms and the anti greenwashing approaches that have been embedded across the UK. Now that much of that's in place, particularly for climate, we need to do more on that around nature. And as the panel's previously mentioned, also around looking at adaptation and resilience. But I think we are we are strongly building that. Now. The challenge is that we don't necessarily have in place the policies that will attract capital. You can have that regulatory environment in place, but that doesn't necessarily create the one of the other key building blocks, which is capital movement.
And so we need to ensure that we are constantly finding ways to ensure that a rational investor, thinking rationally is incentivised or encouraged to invest in the sustainable activity, rather than the unsustainable one. And that means making sure that that is a better business model.
16:25
16:25
Speaker 7
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Speaker 7
So I think, um, in terms of, of the Treasury's frameworks, I mean, firstly, I think that that the role of sustainable finance really depends on the characteristics and the nature of the market in question. Right. So I don't think it's the case that we should just be, you know, aiming to construct frameworks around some idea that, you know, the public finances are incredibly constrained. And therefore, you know, the only way that we can resolve any of these issues in climate mitigation and adaptation in nature is to just crowd in and de-risk and pull in as much private capital as we can.
I think it's more nuanced than that. I think it's more complex than that. Um, uh, and I think, you know, that the role of sustainable finance and private finance has a much larger role to play in achieving mitigation objectives. I think, um, you know, in those kind of investments, you know, a fair amount of those investments are profitable and competitive. And as you kind of go across from mitigation to adaptation to nature, that that case for private finance, delivering on those objectives kind of gets weaker.
Um, where, you know, most investments are kind of unprofitable and generally a public good. So I think Treasury frameworks, as they are set up, um, have enabled us to make a lot of progress on mitigation and have enabled us to channel a fair amount of sustainable finance and private finance into investments in that area. Um, you know, we've got national wealth fund set up as a public policy bank. That's a really positive move forward and progress on disclosure infrastructure, as you said. Um, and actually embedding climate to a lesser extent nature, but climate into the Bank of England's remit has been really important.
Just last month we heard that the bank's going to start um, greening its collateral framework following the European Central Bank in doing so. But I do think that these frameworks, regardless of the progress made, are still in service to a relatively outdated view. A of, you know, what will attract investment out to the future. And we can look at countries that are being really successful in accelerating growth capital. Um, uh, gross fixed capital formation at the moment. And they are ones that actually have really big state led programs, really strong regulatory regimes.
And I think that is a slightly different approach than what our our frameworks are set out to do, including bodies like the National wealth Fund. Um, and secondly, you know, where the characteristics of the market in question mean private finance actually is ill suited to delivering the objectives. So I think the discussion on nature in the earlier panel was an interesting one. I think I'm sort of skeptical about the degree to which nature objectives will actually be achieved if we, you know, pursue this pathway of just trying to kind of narcotize everything.
I think it's more nuanced than that. I think it's more complex than that. Um, uh, and I think, you know, that the role of sustainable finance and private finance has a much larger role to play in achieving mitigation objectives. I think, um, you know, in those kind of investments, you know, a fair amount of those investments are profitable and competitive. And as you kind of go across from mitigation to adaptation to nature, that that case for private finance, delivering on those objectives kind of gets weaker.
Um, where, you know, most investments are kind of unprofitable and generally a public good. So I think Treasury frameworks, as they are set up, um, have enabled us to make a lot of progress on mitigation and have enabled us to channel a fair amount of sustainable finance and private finance into investments in that area. Um, you know, we've got national wealth fund set up as a public policy bank. That's a really positive move forward and progress on disclosure infrastructure, as you said. Um, and actually embedding climate to a lesser extent nature, but climate into the Bank of England's remit has been really important.
Just last month we heard that the bank's going to start um, greening its collateral framework following the European Central Bank in doing so. But I do think that these frameworks, regardless of the progress made, are still in service to a relatively outdated view. A of, you know, what will attract investment out to the future. And we can look at countries that are being really successful in accelerating growth capital. Um, uh, gross fixed capital formation at the moment. And they are ones that actually have really big state led programs, really strong regulatory regimes.
And I think that is a slightly different approach than what our our frameworks are set out to do, including bodies like the National wealth Fund. Um, and secondly, you know, where the characteristics of the market in question mean private finance actually is ill suited to delivering the objectives. So I think the discussion on nature in the earlier panel was an interesting one. I think I'm sort of skeptical about the degree to which nature objectives will actually be achieved if we, you know, pursue this pathway of just trying to kind of narcotize everything.
16:27
16:27
Speaker 7
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Speaker 7
I mean, I think the kind of standout. So so McKinsey did a really good report on this actually looking at like, where is investment going at the moment?And what does that mean for competitiveness in the investment space. And China, of course, is the, is the the standout example. Now, our economy is nothing like China's and our state institutions are nothing like China's. But that is the direction of travel. I mean, the rate at which they are building and developing new assets in this space is, is far beyond what anyone else is doing in the world.
Um, I think we could also look at our, um, our European neighbours. So in terms of, for example, their policy bank infrastructure, we can look to Germany for KfW, we can look to France for BPI France. So these are much older institutions than the national wealth fund. Um but they are far, far bigger, far, far better capitalised. Um, and you know, those, um, lots of those kind of European countries, their states are actually quite forward leaning and taking equity stakes in the grid, taking equity stakes in these big green strategic infrastructure projects.
Um, and that's just kind of not what we're doing at home.
Um, I think we could also look at our, um, our European neighbours. So in terms of, for example, their policy bank infrastructure, we can look to Germany for KfW, we can look to France for BPI France. So these are much older institutions than the national wealth fund. Um but they are far, far bigger, far, far better capitalised. Um, and you know, those, um, lots of those kind of European countries, their states are actually quite forward leaning and taking equity stakes in the grid, taking equity stakes in these big green strategic infrastructure projects.
Um, and that's just kind of not what we're doing at home.
16:29
16:29
Speaker 7
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Speaker 7
Um, I think that, uh, its strengths are that, you know, it's made some progress in terms of, um, the, the disclosure and regulatory infrastructure. Um, I think that it's also, you know, being quite forward leaning in actually, um, increasing public finance that's being channelled towards these, uh, infrastructure projects. We had the big capital uplift to, um, uh, spending envelope last year. Um, I think the weaknesses are effectively kind of setting out on these, you know, promising looking trajectories and then sort of watering things down, pulling back.
I think that the decision not to take forward the green taxonomy, um, has had implications on the economy. And I think the slow progress in, um, in. Mandating transition plans also has been quite detrimental. I think there's a really good example of which, you know, I can go into, if it's of interest, a good example of the Bank of England's corporate bond purchase scheme, which was green tilted in 2021, which really could have benefited from both, uh, you know, transition plans and a green taxonomy.
And it sort of ended up having to come up with these classifications itself. Um, I'll leave it there.
I think that the decision not to take forward the green taxonomy, um, has had implications on the economy. And I think the slow progress in, um, in. Mandating transition plans also has been quite detrimental. I think there's a really good example of which, you know, I can go into, if it's of interest, a good example of the Bank of England's corporate bond purchase scheme, which was green tilted in 2021, which really could have benefited from both, uh, you know, transition plans and a green taxonomy.
And it sort of ended up having to come up with these classifications itself. Um, I'll leave it there.
16:30
16:30
Speaker 17
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Speaker 17
So yes, I mentioned some of the regulatory work that's already been done, but we have not yet seen the transition plans moving forward, which of course is a Labour manifesto commitment. We want to see that moving forward. We also want to see the adoption of the UK sustainability Reporting Standards. But I think more broadly the challenge now is is one of is one of policy, um and ensuring consistency and uh, I guess. Confidence in government policy. Um, and a classic example was the zero emission vehicle mandate or Zev mandate.
The, the, that's trying to respond to an industry that has a chicken and egg problem. On one side, you have nobody that's going to buy an electric vehicle if they cannot charge it anywhere. But equally, no one's going to build the network of charging infrastructure across the country if no one has an electric vehicle. And so we what we need to do is find ways. And the Zev mandate has been a really key part of doing that of, of helping give confidence to private capital providers, many of whom are pension funds and others.
So, you know, this is not just talking about wealthy people investing their money. This is talking about, you know, people across the country, their pensions being invested in industries of the future, such as electric vehicle charging infrastructure. We need billions of pounds of investment. And the way that we're going to get that is by encouraging or giving confidence that those pensions are not being put into an investment that's going to go foul after a few years. And the challenge, of course, of reviewing endlessly things like the zero emission vehicle mandate, is that investors say, well, hang on, this is a 20 year investment.
And within six months of the policy, it's being reviewed. Again, how can we have confidence that's on that challenge?
The, the, that's trying to respond to an industry that has a chicken and egg problem. On one side, you have nobody that's going to buy an electric vehicle if they cannot charge it anywhere. But equally, no one's going to build the network of charging infrastructure across the country if no one has an electric vehicle. And so we what we need to do is find ways. And the Zev mandate has been a really key part of doing that of, of helping give confidence to private capital providers, many of whom are pension funds and others.
So, you know, this is not just talking about wealthy people investing their money. This is talking about, you know, people across the country, their pensions being invested in industries of the future, such as electric vehicle charging infrastructure. We need billions of pounds of investment. And the way that we're going to get that is by encouraging or giving confidence that those pensions are not being put into an investment that's going to go foul after a few years. And the challenge, of course, of reviewing endlessly things like the zero emission vehicle mandate, is that investors say, well, hang on, this is a 20 year investment.
And within six months of the policy, it's being reviewed. Again, how can we have confidence that's on that challenge?
16:32
Speaker 9
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Speaker 9
Well, on that question then, I mean, how important is it in terms of future, the government's future ability to encourage people to invest in these kind of markets and these kind of initiatives that the government basically holds in relative terms, firm on on the zero emissions mandate. Clearly, there are people in this place calling for various degrees of of rowing back on it, including sort of pushing the date out to 2035 in the most extreme cases. How important do you think it is for the for the sake of future investment that the government convinces investors that it will stick to what it said?
16:32
Speaker 17
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Speaker 17
I mean, extremely important. I can't I can't overstate how important that is for investors to feel confident making long term investment decisions. The Zev mandate is one example. There are there are others in terms of housing, warm homes, um, there are, you know, there's been questions even around the, the offshore wind auctions as well. And I suppose the question that investors are asking themselves when they're looking at investing in the UK, they're looking at the UK policy environment, they're looking at people calling into question some of the key flagship policies that are that are driving forward investment and saying, is this the right place to invest?Is this the right country to invest in?And I think we must.
I cannot get across how important it is that we provide that stable policy environment for investment, to give investors confidence.
I cannot get across how important it is that we provide that stable policy environment for investment, to give investors confidence.
16:33
Speaker 9
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Speaker 9
And in terms of the issue of electric vehicles, particularly the investment in, uh, charging. Infrastructure, you know, is, is very much dependent upon, uh, being attractive to those consumers who aren't going to have access to electric vehicle charging points at home. So from my perspective, electric vehicle driver, have a drive, um, charge my own car, not a very big customer of those, but the investment has been on the basis that we're going to move beyond just the fleet sector and just the sector, uh, of those people who are able to charge at home.
And it will become a more mainstream thing. So if government. So that's the basis of that investment decision. If government were then to say, well, actually, it's difficult for people who live in a flat or live in a terraced house to do this. And so we're going to kind of let them off. Then it undermines the entire basis of that investment decision, doesn't it?
And it will become a more mainstream thing. So if government. So that's the basis of that investment decision. If government were then to say, well, actually, it's difficult for people who live in a flat or live in a terraced house to do this. And so we're going to kind of let them off. Then it undermines the entire basis of that investment decision, doesn't it?
16:34
16:34
16:34
Speaker 17
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Speaker 17
Well, I suppose my message would be policy change that policies that have been put in place to, specifically to drive consumer change and attract investment around that consumer change. Take some time to bed in and need to be need to be left to bed in. But we are going through a substantial transition in how we mobility. As one example in the economy. Um, the only way we're going to do that is by government, industry and, and consumers working together. And if government pulls the rug out halfway through the implementation of a policy, that that undermines confidence in the other areas and puts at risk the transition that we're trying to create.
16:35
16:35
Speaker 18
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Speaker 18
Um, thank you, chair. Uh, Mr. Alexander, if I can come to you first, um, just Treasury's current sustainable finance framework provide the certainty and incentives needed to mobilise investment across the whole transition, including in areas where markets alone are unlikely to deliver, if not, where are the most significant gaps?
16:35
Speaker 17
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Speaker 17
I think I think on the climate side, the Treasury's policies are broadly working. There's still some more to do, but things like the National Wealth Fund are having a positive impact. We've heard that from other panel members previously. Um, I would like to see the National Wealth Fund and GB energy focusing even more on attracting and driving as much private investment as possible. So every pound of taxpayers money that goes into a project or a transaction needs to, needs to have the target of attracting as much private capital as possible.
Um, and really using that sort of scarce resources that the National wealth fund and GB energy have should be driving and attracting as much private capital as it possibly can. That will also create growth. It will create new opportunities for, for the more investment, the more private investment we can get in, the more private investment becomes comfortable with those transactions. And the idea would be eventually that you wouldn't need the government's support to make those transactions move forwards. And the classic example is, is early offshore wind was very difficult.
The the precursor I suppose, to to the national wealth fund, um the UK green investment bank, um, did an awful lot of work to try and de-risk offshore. Part of that was making investors comfortable and confident with the technology and with the approaches. And that has largely occurred and allowed us to build quite a strong offshore wind industry in the UK. Um, so, so that's, that's part of where I want us to see, to see it moving, but on nature and on adaptation, I think there's still some more work to do.
And there's rightly pointed out those areas where it's harder to attract private capital, but we've got to find new and innovative ways of doing that. And it's a key role for Treasury to work with industry to, to find new financial mechanisms to attract private capital. Because because, again, we are not going to solve these problems if we think that it can only happen from public money.
Um, and really using that sort of scarce resources that the National wealth fund and GB energy have should be driving and attracting as much private capital as it possibly can. That will also create growth. It will create new opportunities for, for the more investment, the more private investment we can get in, the more private investment becomes comfortable with those transactions. And the idea would be eventually that you wouldn't need the government's support to make those transactions move forwards. And the classic example is, is early offshore wind was very difficult.
The the precursor I suppose, to to the national wealth fund, um the UK green investment bank, um, did an awful lot of work to try and de-risk offshore. Part of that was making investors comfortable and confident with the technology and with the approaches. And that has largely occurred and allowed us to build quite a strong offshore wind industry in the UK. Um, so, so that's, that's part of where I want us to see, to see it moving, but on nature and on adaptation, I think there's still some more work to do.
And there's rightly pointed out those areas where it's harder to attract private capital, but we've got to find new and innovative ways of doing that. And it's a key role for Treasury to work with industry to, to find new financial mechanisms to attract private capital. Because because, again, we are not going to solve these problems if we think that it can only happen from public money.
16:37
16:37
Speaker 7
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Speaker 7
Yeah, I do. I mean, I think, um, on the climate side, I think where there are gaps are kind of twofold. So one of them I think is, um, like I mentioned at the start, this kind of nuance around what are the types of markets and the types of investments that we are talking about. Um, so I think one of the reasons that the climate consensus is fracturing is because of sort of political disagreements, but that is coming from, um, you know, people in society sort of not buying into to the idea of the transition.
And that is because it's ended up being really costly, right?Like the promise of lower bills that was going to come with renewables has not delivered. And I think that is in part because if you open the door to private finance to deliver as much of the transition as you can, you then don't necessarily have so much control over how that market is functioning. And consumers and bill payers can be the ones that are ending up paying the price. And I think offshore wind is a really good example where Treasury frameworks have worked well to leverage in private finance into an appropriate sector.
I think where it hasn't worked so well is somewhere like the grid. We're going to need huge amounts of grid expansion, um, going forward into the future if we're going to electrify the country. Um, you know, grid companies, knows, knows and Citizens Advice just did a report on this last week are making an absolute killing at the moment because that is a monopoly industry. It's not well suited to private finance. So I think we do need to be sort of slightly careful about, um, you know, the answer always being to just create markets such that it leverages in as much finance as we want as we can.
I think another gap is the underutilization of the Bank of England as a lever. Now, this is very complicated because the Bank is independent and it has price stability at its mandate, under which, you know, lots of people, including me, would categorize, like the climate transition, mitigation, uh, adaptation and nature investment. Um, there are levers that it could be using. Um, it could be, and, you know, it's starting to green its collateral framework. It's starting to do bits here and there.
It could be doing things like offering a cheaper rate of borrowing for financial institutions that are investing more towards green rather than brown assets. And then, um, I think, uh, yeah, of course, there's gaps in adaptation in nature. My view on that would be that actually those, um, those objectives are best served and best delivered through a combination of public finance and serious regulation and serious planning, you know, different land, um, land use framework that they've published recently. This year is the beginning of that.
Um, I don't, we can go down the route of the limits of public finance if you'd like. Um, I love talking about that topic. Um, but I'll leave that there.
And that is because it's ended up being really costly, right?Like the promise of lower bills that was going to come with renewables has not delivered. And I think that is in part because if you open the door to private finance to deliver as much of the transition as you can, you then don't necessarily have so much control over how that market is functioning. And consumers and bill payers can be the ones that are ending up paying the price. And I think offshore wind is a really good example where Treasury frameworks have worked well to leverage in private finance into an appropriate sector.
I think where it hasn't worked so well is somewhere like the grid. We're going to need huge amounts of grid expansion, um, going forward into the future if we're going to electrify the country. Um, you know, grid companies, knows, knows and Citizens Advice just did a report on this last week are making an absolute killing at the moment because that is a monopoly industry. It's not well suited to private finance. So I think we do need to be sort of slightly careful about, um, you know, the answer always being to just create markets such that it leverages in as much finance as we want as we can.
I think another gap is the underutilization of the Bank of England as a lever. Now, this is very complicated because the Bank is independent and it has price stability at its mandate, under which, you know, lots of people, including me, would categorize, like the climate transition, mitigation, uh, adaptation and nature investment. Um, there are levers that it could be using. Um, it could be, and, you know, it's starting to green its collateral framework. It's starting to do bits here and there.
It could be doing things like offering a cheaper rate of borrowing for financial institutions that are investing more towards green rather than brown assets. And then, um, I think, uh, yeah, of course, there's gaps in adaptation in nature. My view on that would be that actually those, um, those objectives are best served and best delivered through a combination of public finance and serious regulation and serious planning, you know, different land, um, land use framework that they've published recently. This year is the beginning of that.
Um, I don't, we can go down the route of the limits of public finance if you'd like. Um, I love talking about that topic. Um, but I'll leave that there.
16:39
Speaker 17
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Speaker 17
I think. Can I just build on that slightly on, on the regulatory side, because I think that's a really key role that the government needs to play in. Maybe not, not Treasury per se, but parts of government. Um, in terms of making it make sense and making it the rational choice to take the sustainable approach. And so, for example, at the moment we have, um, if you're in a hard to abate industry, steel making or concrete, for example, um, at the moment, even if you wanted to attract private capital to, to, to transition to net zero, you'd find it very hard to do so because your product isn't necessarily going to sell for anymore.
At the end of the day, green concrete isn't really worth much more than regular concrete. And so how do we turn that risk upside down?Well, the way to do that is for government to look at these industries, you know, one by one or perhaps collectively and say, okay, um, if you want to sell concrete or steel in the UK in ten years time, then it has to meet these criteria of how it's manufactured, whether it's imported or whether it's made here. Um, and, and that changes the whole risk profile.
Suddenly you go from saying the risk is to transition to the risk is not to transition. And that's been a big part of what sustainable finance is all about is looking at risk and understanding the risk from environmental and social challenges. And one of the things that's changed in the five years that I've been doing this job is that policy risk has gone from being the number one thing that people were thinking about all the time to, to almost, almost not being on the agenda. People do not believe that policy is going to change substantially in, in the medium term, such that irresponsible or polluting business practices will be will be made impossible to do.
And that is a big driver of change for companies.
At the end of the day, green concrete isn't really worth much more than regular concrete. And so how do we turn that risk upside down?Well, the way to do that is for government to look at these industries, you know, one by one or perhaps collectively and say, okay, um, if you want to sell concrete or steel in the UK in ten years time, then it has to meet these criteria of how it's manufactured, whether it's imported or whether it's made here. Um, and, and that changes the whole risk profile.
Suddenly you go from saying the risk is to transition to the risk is not to transition. And that's been a big part of what sustainable finance is all about is looking at risk and understanding the risk from environmental and social challenges. And one of the things that's changed in the five years that I've been doing this job is that policy risk has gone from being the number one thing that people were thinking about all the time to, to almost, almost not being on the agenda. People do not believe that policy is going to change substantially in, in the medium term, such that irresponsible or polluting business practices will be will be made impossible to do.
And that is a big driver of change for companies.
16:41
16:41
Speaker 17
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Speaker 17
I think I think Treasury should should do both and should look at obviously, what's the most effective approach in different areas. But I think there is there is definitely a role for corporate regulation around, um, ensuring that companies are not permitted to pollute, um, in certain, in a period of time in the future. And that there's gradually recognition that continually polluting in the way that many companies are right now is not going to be possible in the future. And, and that companies need to attract the investment to make sure that they can upgrade their machinery or electrify their equipment such that they are not causing that pollution in the future.
16:42
16:42
16:42
16:42
Speaker 17
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Speaker 17
I mean, I think so I think yes. Um, we would have like to see all three. Um, but we also recognise some of the political constraints that the government is under, around, around corporate regulation. Um we, I think of. Of the three, if you put them in priority order, the taxonomy comes third on that priority list. I think the most important thing for investors at this point is to understand the nature of, uh, the transition plans of companies and the nature of the data that those companies in terms of their current sustainability credentials, such that investors have all the information they need in order that they can, um, that they can make sensible investment decisions based on the different risk analysis they see of companies that are polluting more or that are less resilient.
Um, and I think, I think additionally, what transition plans do is it focuses, um, company executives minds on the areas that they need to take action. It allows investors to see a year by year plan of what they plan to do between now and 2050. Um, and, and it collectively, when you amalgamate multiple transition plans with the various dependencies that they will each have, not every company can fix the issues on all on its own. So the various dependencies then almost form part of the UK's national transition plan efforts that say, okay, there are 100 companies, major companies in the UK that each need this particular thing to happen.
Great. That gives the government a clear guideline of what that is, and how to then go about making that possible. So. So yes, but what we want to see, obviously is transition plans to actually happen. We've had the consultation. The consultation was quite broadly drafted. Um, we want to make sure that this actually moves forward and, and government recognises how important this particular piece of regulation is for investors across the economy.
Um, and I think, I think additionally, what transition plans do is it focuses, um, company executives minds on the areas that they need to take action. It allows investors to see a year by year plan of what they plan to do between now and 2050. Um, and, and it collectively, when you amalgamate multiple transition plans with the various dependencies that they will each have, not every company can fix the issues on all on its own. So the various dependencies then almost form part of the UK's national transition plan efforts that say, okay, there are 100 companies, major companies in the UK that each need this particular thing to happen.
Great. That gives the government a clear guideline of what that is, and how to then go about making that possible. So. So yes, but what we want to see, obviously is transition plans to actually happen. We've had the consultation. The consultation was quite broadly drafted. Um, we want to make sure that this actually moves forward and, and government recognises how important this particular piece of regulation is for investors across the economy.
16:44
Speaker 17
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Speaker 17
I mean, yeah, it goes back to, I guess, my, my point that I made previously on things like the, the Zev mandate, the policy plays an extremely important role in making a decision to invest viable or not viable, or the cost of capital for that investment decision policy can act as a substantial de-risking effort, um, to allow investors to, to be more comfortable making a choice. And we have to remember that investors are not just looking at which UK investment they might choose. They're looking at investments all over the world.
And obviously we want them to think about the UK. We want them to think about investing here. And we want them to think that that this is a place with stable policy and regulation that they can predict long into the future, because most investments are more than just a, you a few years. Um, and that they are therefore a good, a good place to, to put people what is often people's pensions. Um, and, you know, don't want to be playing around with people's pensions.
So, so, you know, it's so important that we have in the UK that stable policy and regulatory environment. And, you know, Lord Sharma talked about this on the previous panel. Um, the fact that the what has been up until now, a cross-party consensus or a fairly broad consensus around the UK's, um, carbon budgets has now broken. And it seems that there's some sort of loss of consensus on net zero altogether. That is extremely challenging for, for investors who are saying, well, we want to know that that the country is going in this direction.
Um, as the chair said, you know, how it's done and, and how quickly and how that moves is, is a subject for legitimate political debate. But I think investors are very keen to know that there is a broad direction of travel. And that's what encouraged a lot of investors to sign up to net zero targets. At the Cop that we hosted in Glasgow. Um, and that's one of the major success factors of that. Have, I think could be accused of having slowed down some of their progress since then.
What investors are doing is responding to the political environment and what they see as governments across the world slowing down on their targets. Investors cannot be ahead of where the economy is. There was a there was a strong consensus that governments, companies and investors were all pointing in the same direction, going towards the same targets. And it does feel as though that consensus has has broken and investors are saying, well, we can't be where the economy is not moving to. We have to be aligned with where the economy is.
And obviously we want them to think about the UK. We want them to think about investing here. And we want them to think that that this is a place with stable policy and regulation that they can predict long into the future, because most investments are more than just a, you a few years. Um, and that they are therefore a good, a good place to, to put people what is often people's pensions. Um, and, you know, don't want to be playing around with people's pensions.
So, so, you know, it's so important that we have in the UK that stable policy and regulatory environment. And, you know, Lord Sharma talked about this on the previous panel. Um, the fact that the what has been up until now, a cross-party consensus or a fairly broad consensus around the UK's, um, carbon budgets has now broken. And it seems that there's some sort of loss of consensus on net zero altogether. That is extremely challenging for, for investors who are saying, well, we want to know that that the country is going in this direction.
Um, as the chair said, you know, how it's done and, and how quickly and how that moves is, is a subject for legitimate political debate. But I think investors are very keen to know that there is a broad direction of travel. And that's what encouraged a lot of investors to sign up to net zero targets. At the Cop that we hosted in Glasgow. Um, and that's one of the major success factors of that. Have, I think could be accused of having slowed down some of their progress since then.
What investors are doing is responding to the political environment and what they see as governments across the world slowing down on their targets. Investors cannot be ahead of where the economy is. There was a there was a strong consensus that governments, companies and investors were all pointing in the same direction, going towards the same targets. And it does feel as though that consensus has has broken and investors are saying, well, we can't be where the economy is not moving to. We have to be aligned with where the economy is.
16:47
16:47
Speaker 7
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Speaker 7
I think for me, um, you know, I think there's so much that the Treasury could do, but I think um the, the most useful thing that it could do now is to move with where the momentum is going, both in terms of what is pulling that investment in globally, but also the steps that it's already started taking. And that is to do with the National Wealth Fund as its policy bank. I think it needs to do two things with the National Wealth Fund. One is help it get, you know, get its capital out the door.
You know, KfW last year deployed about 80 billion worth of, uh, of finance. The national wealth fund is about 3 billion. It's far below what its annual capacity limit is. Um, so the first thing is to get money moving out the door. And this actually comes to your to your question earlier, I don't think that it's just, um, you know, policy and regulatory barriers that are holding back appetite for sustainable investment to, to come here into the UK. I think it's about showing that this government is serious.
They're going to be a serious co-investor as well. They're a serious player in the game. You know, that's what's happening in China. That's what's starting to happen in Europe is there are these big strategic assets where there's state co-investment alongside the private investment. And so that's that's anchoring. And it's also showing that the state is is serious about this. And the state is sharing in some of the upside. So actually, you know, really cares how profitable and how, um, how well these infrastructure projects actually run.
But I would probably say the most important thing would be to focus on the national wealth fund. I also think the Bank of England is an underutilized tool.
You know, KfW last year deployed about 80 billion worth of, uh, of finance. The national wealth fund is about 3 billion. It's far below what its annual capacity limit is. Um, so the first thing is to get money moving out the door. And this actually comes to your to your question earlier, I don't think that it's just, um, you know, policy and regulatory barriers that are holding back appetite for sustainable investment to, to come here into the UK. I think it's about showing that this government is serious.
They're going to be a serious co-investor as well. They're a serious player in the game. You know, that's what's happening in China. That's what's starting to happen in Europe is there are these big strategic assets where there's state co-investment alongside the private investment. And so that's that's anchoring. And it's also showing that the state is is serious about this. And the state is sharing in some of the upside. So actually, you know, really cares how profitable and how, um, how well these infrastructure projects actually run.
But I would probably say the most important thing would be to focus on the national wealth fund. I also think the Bank of England is an underutilized tool.
16:49
16:49
16:49
Speaker 7
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Speaker 7
Yeah. I mean, I think like, like James, I think they're all really important. They serve very different purposes. So disclosures are important for understanding, you know, um, what corporations are doing now, uh, transition plans are really important for understanding where they're headed in the future. And the green taxonomy kind of makes it just easier for investors to be able to kind of categorize firms like along those lines, rather than having to look into those disclosures themselves. Um, so I think, you know, the example that I gave of where a green taxonomy would have been really useful was during the quantitative easing program, where the Bank of England employed this corporate bond purchase scheme.
And it basically, um, uh, said that if the corporate bond issuers were more aligned with climate goals, it would offer a better price for buying up those corporate bonds. And the way that it went about determining, you know, which of those corporate bonds it was going to offer a better price to. It had to look into the disclosure. Um, the tcfd disclosures itself, it had to kind of construct its own framework and it had to look at the emissions intensity of the activities that sat under that corporation.
Now, the one weakness is that is that it's only a snapshot in time because at the time, uh, the bank didn't have access to transition plans, which would have actually shown the direction of travel of businesses, which actually might have affected how it made those lending decisions. And the other that is that obviously without a green taxonomy, it just had to do all the work itself. So it's kind of, you know, doubling up and duplicating efforts, um, in an unnecessary way.
And it basically, um, uh, said that if the corporate bond issuers were more aligned with climate goals, it would offer a better price for buying up those corporate bonds. And the way that it went about determining, you know, which of those corporate bonds it was going to offer a better price to. It had to look into the disclosure. Um, the tcfd disclosures itself, it had to kind of construct its own framework and it had to look at the emissions intensity of the activities that sat under that corporation.
Now, the one weakness is that is that it's only a snapshot in time because at the time, uh, the bank didn't have access to transition plans, which would have actually shown the direction of travel of businesses, which actually might have affected how it made those lending decisions. And the other that is that obviously without a green taxonomy, it just had to do all the work itself. So it's kind of, you know, doubling up and duplicating efforts, um, in an unnecessary way.
16:50
16:50
Speaker 19
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Speaker 19
Thank you very much. Um, chair um, very insightful evidence this afternoon. Thank you very much. Um, the Zev mandates come up a few times and, um, I just wondered, um, how to what extent in general terms, do you feel that, um, the, the kind of vested interests in the sectors and I'm particularly thinking about automotive and hard to abate sectors are shaping government's thinking on this issue, on how we mitigate carbon emissions and our manage our relationship with the environment. Because obviously, particularly in the automotive sector, they've got an incentive to sell you a new car, haven't they?Um, and I do wonder to what extent that has curtailed um green investment and private capital going into things like sustainable fuels, because there is a case that to say that if you've got perhaps a ten year old well made car that's well maintained, if you're to power that on sustainable fuels, uh, it makes sense to, um, to run that car for the rest of its life because an electric vehicle does take many, many miles to offset.
Its, um, its carbon emissions. How, um, how good do you think government is at making those assessments about. Well, actually, yes, the automotive industry would like to sell you a new electric car, but actually, in terms of our relationship with the environment, we should be pushing in a different direction and relying more on sustainable fuels. And does that sort of permeate government's thinking that those powerful voices, uh, within. You know, commercial aspects of, of the economy are actually sometimes leading us to go down the wrong track.
Its, um, its carbon emissions. How, um, how good do you think government is at making those assessments about. Well, actually, yes, the automotive industry would like to sell you a new electric car, but actually, in terms of our relationship with the environment, we should be pushing in a different direction and relying more on sustainable fuels. And does that sort of permeate government's thinking that those powerful voices, uh, within. You know, commercial aspects of, of the economy are actually sometimes leading us to go down the wrong track.
16:51
Speaker 17
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Speaker 17
I mean, yes, I think, I think we have to get the kind of broad premise of what you're saying. I think we have to get better at reusing and extending the life of things as far as possible in a throwaway culture is clearly, you know, which exists in all through the economy, not just in automotive. Um, it's clearly not, not where we need to be. Um, but at the same time, we have with um, electric vehicles technology that is proven to work, technology that's proven to be cheaper, that's proven to be effective.
And, um, I don't fully understand why, why incumbent automotive companies are not rapidly transitioning when they're being so readily, um, pushed out by, by companies that are electric only and are now taking a substantial share of the market. So, so there is definitely a transition challenge here that these companies have failed to transition quickly enough. Um, and that's perhaps you might argue there's a degree of policy failure in there, although I'm not sure what it would be. Um, and so some of the incumbent companies are losing.
Substantial market share to new companies, particularly coming from China that understand the UK is one of the biggest markets in the world for Chinese electric vehicles. Um and, and so, so that has had an impact now in terms of corporate um. Interference, if you like, on policy, I think that the area that we see this the most, of course is the oil and gas industry. Um, and I think it's very clear that that, that is the incumbent industry that has obviously significant resources that sees the transition as a, as an almost life or death moment.
Um, has switched in recent years from trying to deny climate change altogether to saying we don't need to solve it as quickly. Um, and, and so has, has, is putting enormous amounts of money into, into lobbying and engagement, not obviously just here, but all across the world. And we can see the results of that is that it has substantially slowed the transition. It has led us to, to, to not believe some of the science, despite the fact that 99% of scientists agree. And it has it has created a huge public debate in in an area that should actually be not a debate of whether we fix climate change, but how we fix climate change.
And and so and that's and that's extremely unfortunate. And it's unfortunate that that has been allowed to permeate throughout global politics. Um, how we address that, I think, is by listening very clearly to scientists and others that, that are really clearly, clearly know what they're talking about, but also hold firm, hold firm on the analysis that we've done, trust that the analysis of how the economy is going to develop is the right one. And, and I think also importantly, we can't try and be a country that sits on on the fence in the middle of the of the new economy around electrification and renewables and the old economy around fossil fuels.
Because if we do that, we'll just lose in both directions. We need to find, you know, we need to say the economy of the future is evidently going to be around sustainability, around renewables. Lord Sharma said exactly the same thing. Do we want to be a leader in that?Do we want to be using our universities to drive key innovations in that?Do we want to have the companies of the future based here in the UK, or do we want to sit on the fence, try and ride two horses at once?Failed to do either, and end up without the innovations here, without the companies here, without the industry here.
And I think I think to me it's pretty obvious what sort of economy we want to create.
And, um, I don't fully understand why, why incumbent automotive companies are not rapidly transitioning when they're being so readily, um, pushed out by, by companies that are electric only and are now taking a substantial share of the market. So, so there is definitely a transition challenge here that these companies have failed to transition quickly enough. Um, and that's perhaps you might argue there's a degree of policy failure in there, although I'm not sure what it would be. Um, and so some of the incumbent companies are losing.
Substantial market share to new companies, particularly coming from China that understand the UK is one of the biggest markets in the world for Chinese electric vehicles. Um and, and so, so that has had an impact now in terms of corporate um. Interference, if you like, on policy, I think that the area that we see this the most, of course is the oil and gas industry. Um, and I think it's very clear that that, that is the incumbent industry that has obviously significant resources that sees the transition as a, as an almost life or death moment.
Um, has switched in recent years from trying to deny climate change altogether to saying we don't need to solve it as quickly. Um, and, and so has, has, is putting enormous amounts of money into, into lobbying and engagement, not obviously just here, but all across the world. And we can see the results of that is that it has substantially slowed the transition. It has led us to, to, to not believe some of the science, despite the fact that 99% of scientists agree. And it has it has created a huge public debate in in an area that should actually be not a debate of whether we fix climate change, but how we fix climate change.
And and so and that's and that's extremely unfortunate. And it's unfortunate that that has been allowed to permeate throughout global politics. Um, how we address that, I think, is by listening very clearly to scientists and others that, that are really clearly, clearly know what they're talking about, but also hold firm, hold firm on the analysis that we've done, trust that the analysis of how the economy is going to develop is the right one. And, and I think also importantly, we can't try and be a country that sits on on the fence in the middle of the of the new economy around electrification and renewables and the old economy around fossil fuels.
Because if we do that, we'll just lose in both directions. We need to find, you know, we need to say the economy of the future is evidently going to be around sustainability, around renewables. Lord Sharma said exactly the same thing. Do we want to be a leader in that?Do we want to be using our universities to drive key innovations in that?Do we want to have the companies of the future based here in the UK, or do we want to sit on the fence, try and ride two horses at once?Failed to do either, and end up without the innovations here, without the companies here, without the industry here.
And I think I think to me it's pretty obvious what sort of economy we want to create.
16:55
16:55
Speaker 13
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Speaker 13
Yeah. You've spoken about government policy changes. Um very often driven of course, by reality I mean I don't blame groups such as yourselves who come along here have an agenda, uh, promote it, um, vigorously. Uh, I wouldn't expect you to do anything less, but I mean, as a political reality. Not that when the motor car industry says, look, in the last two years, that mandate has cost us £12 billion. And that has stopped a lot of investment in the United Kingdom and is likely to prevent more future investment.
When the grid is saying, even if everybody wanted to have an electric car, we couldn't supply the power plants because the grid is not up to strength and it's not going to be up to strength for many, many years. The amount of investment which is required in that, and just the physical work inquired in that required in that. And as we hear in the chamber almost on a weekly basis, the number of jobs that are being lost in the oil industry and no immediate prospects of replacing those well-paid jobs with other jobs.
I mean, do you know, accept. That there are some times that the reality of life hits the government and they simply have to make choices which may well lead to a change in policy, but is necessary not just to be elected, but necessary to allow people to lead their lives without being clobbered with huge increases in bills at a time when they're already very vulnerable. Um, and, you know, is do we not just have to live with that, that policies which are designed to show their benefit in 50 years time may not be appropriate in the next five years and therefore have to be changed.
When the grid is saying, even if everybody wanted to have an electric car, we couldn't supply the power plants because the grid is not up to strength and it's not going to be up to strength for many, many years. The amount of investment which is required in that, and just the physical work inquired in that required in that. And as we hear in the chamber almost on a weekly basis, the number of jobs that are being lost in the oil industry and no immediate prospects of replacing those well-paid jobs with other jobs.
I mean, do you know, accept. That there are some times that the reality of life hits the government and they simply have to make choices which may well lead to a change in policy, but is necessary not just to be elected, but necessary to allow people to lead their lives without being clobbered with huge increases in bills at a time when they're already very vulnerable. Um, and, you know, is do we not just have to live with that, that policies which are designed to show their benefit in 50 years time may not be appropriate in the next five years and therefore have to be changed.
16:57
16:57
Speaker 7
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Speaker 7
Is that is that to both of us?Yeah. I mean, I think I think as James said, I think what's happened is we've ended up in a situation where in the worst of both worlds, where the government is spending a hell of a lot of money, um, financing subsidies to companies that are, you know, delivering to, to a degree, the transition. But actually, you know, doing so in a way that consumers are not able to see the benefits of, of their costs, for example, their bills coming down.
I think if we had a stronger industrial strategy, which was more detailed, which was more serious, which was more forward leaning, and actually had the state as a proactive equity stakes, taking co-investor in lots of these projects. Um, you know, yes, it would lower the flexibility. It would mean that when challenges came along and costs were exceeding what they were expecting. And that's going to impact on the consumer that they would need to, you know, hold firm and not change direction on that. Um, but I also think that the kind of flexibility that we're maintaining at the moment by constantly changing direction with the government consistently caving to pressure, pressure, not really putting forward a detailed, serious industrial strategy, that it puts its clout behind and that the Treasury can get behind, is that cost to the consumer are still going up, but they're going up because we're transitioning in a very disorderly way, where actually a lot of the benefits of the transition are not being captured by the consumer, but they're being captured by, by international, um, private finance a lot of the time.
So I think we're sort of stuck in this middle ground where we're not being strong and bold enough. And, you know, the government is not backing its its decisions and pathways. Um, uh, in a way that it can actually lower costs and make life easier for people. And people can see the benefits of the transition. Instead, we're in this sort of middle ground world where the government's under pressure for not doing enough, and people's bills and costs are still really high.
I think if we had a stronger industrial strategy, which was more detailed, which was more serious, which was more forward leaning, and actually had the state as a proactive equity stakes, taking co-investor in lots of these projects. Um, you know, yes, it would lower the flexibility. It would mean that when challenges came along and costs were exceeding what they were expecting. And that's going to impact on the consumer that they would need to, you know, hold firm and not change direction on that. Um, but I also think that the kind of flexibility that we're maintaining at the moment by constantly changing direction with the government consistently caving to pressure, pressure, not really putting forward a detailed, serious industrial strategy, that it puts its clout behind and that the Treasury can get behind, is that cost to the consumer are still going up, but they're going up because we're transitioning in a very disorderly way, where actually a lot of the benefits of the transition are not being captured by the consumer, but they're being captured by, by international, um, private finance a lot of the time.
So I think we're sort of stuck in this middle ground where we're not being strong and bold enough. And, you know, the government is not backing its its decisions and pathways. Um, uh, in a way that it can actually lower costs and make life easier for people. And people can see the benefits of the transition. Instead, we're in this sort of middle ground world where the government's under pressure for not doing enough, and people's bills and costs are still really high.
16:58
16:59
Speaker 17
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Speaker 17
I think building, building on that, you talk you talk about the political reality. Political reality has to hit real life. That's why it's called political reality. We have a real life of a climate reality and an economic reality. The the climate reality is that the climate is changing. We can't we can't deny that. We can't sit here in a day like today. That's that's another almost close to record breaking temperature and deny how much the climate is changing.
The climate reality is that farmers aren't going to be able to grow crops. The climate reality is that, um, almost half a million homes are going to not not be able to get flood insurance in the next few decades. That's a report that we just published, the economic reality is that electric cars are cheaper to run and cheaper to buy than, than petrol cars. So, so unfortunately, we're hitting against quite a lot of realities. And I think the the sensible political response is to say these changes are happening.
They are hard. They are complicated. We can't pretend that they're not happening. We've got to do what we can to make people's lives as easy as possible. Within the context of these political, of these climate and economic realities, and just ignoring them and hoping that they go away is not, I think, a responsible position.
The climate reality is that farmers aren't going to be able to grow crops. The climate reality is that, um, almost half a million homes are going to not not be able to get flood insurance in the next few decades. That's a report that we just published, the economic reality is that electric cars are cheaper to run and cheaper to buy than, than petrol cars. So, so unfortunately, we're hitting against quite a lot of realities. And I think the the sensible political response is to say these changes are happening.
They are hard. They are complicated. We can't pretend that they're not happening. We've got to do what we can to make people's lives as easy as possible. Within the context of these political, of these climate and economic realities, and just ignoring them and hoping that they go away is not, I think, a responsible position.
17:00
Speaker 13
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Speaker 13
To accept that the economic reality for the vast majority of people outside these walls is that they find it difficult to pay their electricity bills at present, because the transition is costly. And indeed, I mean, um, the Grantham Institute indicated that we would not experience the full benefits. The costs would be loaded on between now and 2050, and then we might begin to feel the benefits of the transition spending and transition costs after 2050. That's not good enough. And this is where this is a political and economic reality that's not good enough for people who are currently living unable to meet their cost of living.
And that's why, you know, I think and you know, you you talk about the, the change in the climate and everything else. And we could talk about what caused the change in climate. But we've, we're, we're experiencing climate change, but people are experiencing economic reality now. And that's I just, you know, all I was really trying to get from you is an acknowledgement that the government doesn't do this wilfully. The government does this because it is faced with a situation where, um, you can't deliver on some of the policies without either disproportionate cost or with or without physically, um, having to make huge changes which aren't possibly made in the short run.
And that's why, you know, I think and you know, you you talk about the, the change in the climate and everything else. And we could talk about what caused the change in climate. But we've, we're, we're experiencing climate change, but people are experiencing economic reality now. And that's I just, you know, all I was really trying to get from you is an acknowledgement that the government doesn't do this wilfully. The government does this because it is faced with a situation where, um, you can't deliver on some of the policies without either disproportionate cost or with or without physically, um, having to make huge changes which aren't possibly made in the short run.
17:01
Speaker 17
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Speaker 17
I think, I think, yes, I think, I think I'm happy to acknowledge that people are finding life very difficult. And that is something that the government needs to look at very closely and pay very close attention to. And I, and I hope is, um, you know, we can't also fail to acknowledge that gas is a major driver of the gas price, is a major driver of electricity prices. That gas supplies clearly are even more fragile and subject to shock than they have been ever before.
That, that that change is not going to go away either. And, and, you know. There are multiple reasons for the economic shock that we're currently in. There are multiple reasons for the cost of living challenges, I think, to, to, to say that they are the, the fault purely of net zero, I think would be would be disingenuous, to say the least. And I think that we need to we need to make sure that we are putting out to the public a very.
Rational, thoughtful narrative on how we get the country to net zero to the place where we are not causing further climate chaos that is going to affect future generations much more substantially than any of the shocks that we've seen to date, and whilst also keeping in mind that we do recognize and appreciate that people are suffering from cost of living challenges and that we need to take steps to address that. And that means looking at things like skills, looking at things like, um, how the government supports communities that you've talked about, um, being very, so, you know, a clear example, I think could be Port Talbot in the area around that.
I don't feel that there was a multi-government led response to, to say, okay, there is we know that Port Talbot is going to be a challenge. We know that that there is presumably lots of areas around Port Talbot that, that, um, that we could put training places in. We could, we could address some of the reskilling needs. We could, we could find and attract international companies to manufacture things for the future economy in the areas around Portugal. But I don't feel that we have that multi-agency government response.
And that's the sort of thing I think we need to think about much more strategically.
That, that that change is not going to go away either. And, and, you know. There are multiple reasons for the economic shock that we're currently in. There are multiple reasons for the cost of living challenges, I think, to, to, to say that they are the, the fault purely of net zero, I think would be would be disingenuous, to say the least. And I think that we need to we need to make sure that we are putting out to the public a very.
Rational, thoughtful narrative on how we get the country to net zero to the place where we are not causing further climate chaos that is going to affect future generations much more substantially than any of the shocks that we've seen to date, and whilst also keeping in mind that we do recognize and appreciate that people are suffering from cost of living challenges and that we need to take steps to address that. And that means looking at things like skills, looking at things like, um, how the government supports communities that you've talked about, um, being very, so, you know, a clear example, I think could be Port Talbot in the area around that.
I don't feel that there was a multi-government led response to, to say, okay, there is we know that Port Talbot is going to be a challenge. We know that that there is presumably lots of areas around Port Talbot that, that, um, that we could put training places in. We could, we could address some of the reskilling needs. We could, we could find and attract international companies to manufacture things for the future economy in the areas around Portugal. But I don't feel that we have that multi-agency government response.
And that's the sort of thing I think we need to think about much more strategically.
17:03
Speaker 7
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Speaker 7
And just one word on this. I mean, I totally acknowledge your point as well. And there is more that the government could be doing to socialize the cost of the transition like that is a choice. And that's about market design. And like I've already spoken about kind of profit extraction along the supply chain, a lot of, um, a lot of, uh, you know, profit extraction is going on, um, along the pathway of the transition, which is quite frankly, unacceptable. And it's ultimately consumers who are paying the price for that.
And I'm not surprised that they're pissed off. You know, on the other end of the scale, you've got, um, you know, market design options laid out in front of you, rising block tariff for energy bills, you know, removing, um, levies off of bills and putting them onto taxation and then increasing the degree of progressive taxation that you're doing. So like this is, this is an economic, this is a macroeconomic problem. The transition, it's not that the transition is operating in a silo. And there are these associated costs, and everyone's going to have to pay those costs equally.
It's really, really important. I mean, as you say, um, we're talking about Port Talbot that a, we think about what the transition is going to do to people's jobs and people's livelihoods, livelihoods, but also be in their day to day costs, you know, their day to day. Um, you know, if we're going to expand the grid massively well, is that going to just put loads of costs on consumer bills?What are we going to do about that?And there are options that are developed and that are out there that the government could choose to take.
And I'm not surprised that they're pissed off. You know, on the other end of the scale, you've got, um, you know, market design options laid out in front of you, rising block tariff for energy bills, you know, removing, um, levies off of bills and putting them onto taxation and then increasing the degree of progressive taxation that you're doing. So like this is, this is an economic, this is a macroeconomic problem. The transition, it's not that the transition is operating in a silo. And there are these associated costs, and everyone's going to have to pay those costs equally.
It's really, really important. I mean, as you say, um, we're talking about Port Talbot that a, we think about what the transition is going to do to people's jobs and people's livelihoods, livelihoods, but also be in their day to day costs, you know, their day to day. Um, you know, if we're going to expand the grid massively well, is that going to just put loads of costs on consumer bills?What are we going to do about that?And there are options that are developed and that are out there that the government could choose to take.