The Confidence Game

It’s an interesting year for climate policy and investment, with elections in the US, UK, EU and Australia. In the former two, there is an increasing expectation of a change in government – which will bring with it a change in policy approach around climate. The EU too is tipped to move further to the right, potentially impacting its approach to the transition. This is likely to be even more pronounced in the case of the US should another Trump presidency eventuate.

The last couple of weeks in Scotland has also been a glaring example of how decarbonisation targets – or the inability to meet them – can have a political impact.

Regardless of the actual person or party in charge, however, a clear message that comes from both industry and other tiers of government is the desire for consistency in terms of policy platforms to support (or not) investment in the energy transition. The size and complexity of any large-scale project – public and private – means that the time period from start to finish will straddle multiple electoral cycles. New strategic transmission lines in the UK can take 12-14 years; they are aspiring to halve this. If the policy environment and economics around project development changes (or is, at least, sufficiently uncertain) investment is far less likely. Given the importance of policy support (often translated into financial support) for projects, confidence on behalf of the financiers is a key enabling factor.

Now, I feel that the above is stating the obvious, but in various conversations that I’ve had over the past weeks, it comes up repeatedly. Industry and planning authorities want clear and stable direction. The fact that decarbonisation and the energy transition is, it feels increasingly, tied to ideology and that politics is becoming an polarised exercise in a growing number of jurisdictions, only makes this more difficult. Increased bipartisanship will make the process easier, but is proving harder to find the world over.

In addition, this is the kind of problem that will benefit from strong multilateral action across nations and continents; nobody wants to be first to turn off their fossil fuel sectors. Why do it when your neighbours or trade competitors aren’t? I had several conversations with people in both Bakersfield and Aberdeen about the fact that reducing their respective domestic oil sectors is simply seeing an increase in oil imported from states with worse environmental and human rights track records. Whilst the Paris Agreement and the various COPs exist, we still haven’t seen the kind of multilateral cooperation that was brought to bear on CFCs (remember those?) to address the ozone hole issue via the Montreal Protocol in 1987. This example is sometimes brought up in the context of current climate challenges, perhaps unfairly, given that the CFC issue was far narrower, and the current global environment is tending away from multilateralism.

The further I delve into the topic, the more I come across patterns like this – which are somewhat deflating – where the required conditions to support action or success (in this case bipartisanship and/or multilateral cooperation) are actually trending in the wrong direction. I’m working on another blog post where I’m going to delve further into this.

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