At more than 300 pages, there is much to absorb in Chris Skidmore MP’s Net-Zero Review for the British government – and to debate about what is and isn’t included. That said, nearly a month on its from publication, two points can be confidently stated.

Putting aside  arguments inside the Conservative Party about the future direction of overall economic policy, one decision Liz Truss did get right during her short tenure as prime minister was to identify a review into the net-zero opportunities for UK Plc – and that Skidmore (a former UK Energy Minister who signed the UK’s Net Zero pledge into law) was a suitable person to write it.

Second, Skidmore’s messages and key findings are and will remain important for the range of stakeholders – from the financial community to those handling climate and energy policy — not only for the foreseeable future, but as a major contribution to what the UK does and where it goes on perhaps the paramount challenge of the next decade: how to manage an energy transition which not only places the climate emergency front and centre, but does so in a way which supports and accelerates growth, jobs and investment at scale.

Let’s take this last point first. Since its inception, Carbon Tracker has been consistent in its mission: to use its research to chart the way forward for investors in the incredibly complex task of working out what is risk and what is opportunity in a low-carbon future. This is why we were encouraged by the signature message to emerge from the Net-Zero Review: that the transition does indeed represent the economic opportunity of the 21^st century; and, that to maximise the economic opportunity, all the relevant levers of government need to be pulled to mobilise investment in net-zero.

Here, we’ll explore the role of UK policy in more depth below, against the backdrop of intensifying global competition. But first to investment and Skidmore’s stark language, borrowed from the London School of Economics, about the investment task and the imperative to act with urgency: “The UK has been investing far less as a fraction of GDP than its competitors over the last decade, a critical reason for its comparatively weak growth performance. The first challenge is therefore to create stronger conditions for private investment”.

What is less encouraging is that the economic factors which robustly underpin the case for accelerating the pathway to net-zero are not as well and widely understood in this country as they should be. To quote from our recent research. In December, Carbon Tracker published “Paris Maligned”, a report about how the large international oil and gas companies are – despite the need to cut production substantively, and by the end of this decade, if collectively we are to stay aligned withing the 1.5C temperature ceiling – planning to expand production. The main finding of this report is that investors who continue to buy into this business model of corporate oil and gas expansion risk major stranded assets against a backdrop of continuing costs down in wind and solar, and commodity price volatility (as we saw following Russia’s invasion of Ukraine).

Skidmore to his credit is crystal clear about the new economics of energy, viz: “Renewable energy costs are dropping sharply. UK offshore wind prices fell by 70% since 2014. With the offshore wind Contracts for Difference 4 2022 strike price of 37.35 £/MWh and 2014 CfD 1 strike price of £115-120/MWh. onshore, and solar dropping below the cost of fossil fuels, promising a society in the very near future where the sun and wind meet most of our energy needs.”

The International Energy Agency (IEA) was equally explicit about the international picture in its Renewables 2022 report: “Utility-scale solar PV and onshore wind are the cheapest options for new electricity generation in a significant majority of countries worldwide.” And only recently, in its 2023 Outlook, none other than BP highlighted the increasing cost competitiveness of renewables. We could go on in drawing on evidence from all quarters…

But still vested political and commercial interests appear to ignore this reality, spreading ill-informed and misleading headlines that the UK can’t afford net-zero. This is why, in Carbon Tracker’s view, one of the best services that the Net Zero Review can perform in this country is by nailing the “net-zero is too expensive” canard once and for all. The Executive Summary is conclusive: “Ultimately, the benefits of net zero will outweigh the costs”, adding a further line about the risk and disruption of not acting. Or, as the Review frames it, not zero will cost more than net zero. (To give a specific example of this, Carbon Tracker’s recent Marginal Call a price tag of “not zero” in the UK power market of £7.2bn because the price of UK electricity was dictated by the marginal price of gas.)

In his ground-breaking 2006 report on the Economics of Climate Change, Nick Stern concluded that “the benefits of strong and early action far outweigh the economic costs of not acting”. Now, in 2023, the extraordinary decline in the costs of wind and solar over the last decade in particular should settle any debate here that somehow net-zero is too expensive. Of course, as Skidmore makes clear, there will be risks for communities and individuals arising from the energy transition, and his Review devotes thoughtful chapters to how the benefits of net zero can be maximised for people.

For those of us who talk to investors about the risks and opportunities of the transition, a constant refrain is the need for governments to provide clarity on policy and its direction of travel. This clarity can come in two ways.

First, it’s about future pathways. As the Skidmore review underlines, the UK government has a duty to give long-term certainty for business who should be “confident in the knowledge that UK policy or funding will not rapidly change without any good reason”. Skidmore even goes on to sketch out a mission framework of Certainty/Clarity/Consistency/Clarity. These four Cs should all be prerequisites for UK climate and energy policymaking as far as financial institutions are concerned – but they have been sadly lacking this last few years.

Alongside providing a long-term direction of travel (the absence of which is highlighted as one of the most striking themes if the evidence taken by the review), clarity and consistency are indeed key. Mixed messages from governments send deeply unhelpful signals to investors. And this is where we depart from our overall good vibes about the review and suggest that Skidmore could have gone further not only in his support for low-carbon energy but in making concrete proposals for how the UK should actively phase out its fossil fuel production.

We should note that the review does advocate accelerating the end of routine oil and gas flaring to 2025. Butthat is basically it on fossil fuels– demonstrating an uncharacteristic caution compared with the strong and clear-sighted proposals which litter the rest of the document. This remains an elephant in the room for the government and seemingly for most within government: how to reconcile the domestic net zero goal and ambition to be an international climate leader with plans to issue new oil and gas licences and expand production in the North Sea. It is moreover a prime example of a mixed message: how can you say you are fully behind the low-carbon economy, while giving the regulator carte blanche to incentivise still further investment in fossil fuel production? And we didn’t even mention the Cumbria coal mine…

The establishment of a new Energy Security and Net Zero Department might indicate that the penny is dropping within government. But we should wait for a definitive mission statement from the new department – and one which addresses the policy disconnect highlighted above – before being confident in that judgement.

In the meantime, ministers might consider, apart from adopting the Net Zero Review as its blueprint on low-carbon investment, drawing key conclusions from what policymakers in the US, Europe and India are doing. They might examine how the Biden Administration can (despite its own inconsistencies in opening up new drilling rights) set a clear direction of travel for investors by combining ambitious climate action with a transformational green industrial strategy. In parallel, they might look at the EU’s solution to the energy war with Putin: that the best form of energy security is to reduce dependence on oil and gas from despotic regimes and to press the accelerator on decarbonisation. They might also consider India’s decision to incentivise investment with a long-term low-carbon development strategy.

Which brings us back to the core message of the Net Zero Review – that the UK government requires a clear, long-term low-carbon strategy which can secure and accelerate investment that will help deliver on our climate and economic goals.

In conclusion – and building on Skidmore’s proscriptions – we offer two constructive “Big Ideas”:

• The development of a UK net zero investment plan. As E3G, who have been advocating for this, say, it is an obvious missing part of the green finance jigsaw – offering a clear long-term direction of travel to attract and accelerate capital, as per the Review’s core themes;
• Transition plans are becoming an increasingly important preoccupation for corporates and investors, driven by UK regulatory processes (likewise in the EU). This got us thinking about why governments don’t publish their own transition plans. The Paris Climate Agreement makes no mention of oil, gas or coal and this is why the national emissions reductions plans (NDCs) are in our view inadequate. The UK, as a major oil and gas producer, could blaze a trail: combining in a single transparent document their climate policy measures with how they plan to phase out fossil fuel production.

Next stop. The Chancellor’s Budget speech in mid-March. Chris Skidmore should not be the only one monitoring what the chancellor has to say about his Review and what it picks up. It will be an important test of intentions. When the government replies comprehensively to Skidmore remains to be seen.

Richard Folland is the Head of Policy and Engagement at Carbon Tracker. Mark Campanale is the Founder and Director.