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Let markets run or regulate to accelerate: a false choice or key net zero decision?

Gareth Miller Gareth Miller CEO
4th February 2021

Earlier this week Cornwall Insight convened a group of industry leaders from across the energy and investment space to discuss business preparedness for net zero, and what more can be done to unlock capital to make net zero a reality. The session, hosted by our non-executive chairman Volker Beckers, is part of a series of events we have been running since 2019. We have been engaging regularly with key actors in the energy transition, convening insights that contribute positively to key parts of the net zero journey.

The first part of our discussion yesterday focused on the elevation of net zero to the board rooms of all businesses as it becomes a key factor in capital raising, social value and talent attraction. The good news is that this will provide an expanded corporate impetus to the mission to decarbonise across business and industry. But, the group noted limitations in the short term as businesses get distracted by the challenge of the pandemic, and also anxiety about how to get to achieve very public corporate level targets.

There was a general recognition that consumers will have a key role to play. Most recognised the benefit of government setting unequivocal targets to accelerate changing social norms, but then to step back and let businesses deliver. However, the group discussed how the pull from customer demand will be different in different areas. For example, in e-mobility the combination of demand emerging for electric vehicles as a positive social choice, combined with an ambitious target for phasing out combustion engines at a government level, is already creating big consumer pull. Contrast this to domestic heat where levels of consumer knowledge on what constitutes a low carbon solution, even if there is desire to adopt sustainable heating solutions, leaves a big role for different businesses to play in consumer education, and government in making the big directional calls and then creating appropriate and supporting market incentives.

The second part of our meeting discussed how to unlock capital. Interestingly, the group quickly moved beyond the typical discussion on big renewable assets – where it was recognised there is a proliferation of funds chasing mature, and big projects – to discussing how newer, decentralised consumer focussed business models might be funded.  It is clear from our discussion that innovative businesses, backed up by private capital, are already stimulating the take up of low carbon solutions in the B2C and B2B world. But the point was made that the usual adoption curve may take years to climb to levels where the costs of solutions for heat, energy efficiency and the demand side generally reduce to levels where wide-scale take-up can be achieved - particularly where consumers either lack the means or knowledge to drive faster adoption themselves. Meanwhile, the clock on net zero is already ticking loudly. Of course, one silver lining from the pandemic could be the general accelerated learning curve of digital solutions across the entire economy. But, unless this “crisis” momentum can be harnessed as we move into calmer times, then it is unclear if this high pace of innovation is sustainable, particularly against the backdrop of possible economic headwinds.

More generally, the question for government is whether there is time to allow organic consumer change to run its course? And, if they consider there is a need to accelerate, how do they strike the right balance between necessary new stimulus, without stifling welcome innovation? In other words, what balance do they strike between market signals, and regulatory compulsion without getting trapped in between? If we look at recent history of energy supplier regulation it is very unclear which philosophy will win out. This is a question we will be returning to in a future roundtable, with the aspiration of feeding views into the very dynamic policymaking process unleashed by last year’s Energy White Paper.