NZAOA calls on policy makers to remove net zero barriers: ‘we know this can be done’
Olga Hancock and Matt Holmes of the NZAOA argue it is vital investment barriers are eliminated in order to boost net zero implementation
The Net Zero Asset Owner Alliance (NZAOA) has used its first annual general meeting, coinciding with New York Climate Week, to call on policymakers to remove barriers to net zero.
While asset owners could potentially play a key role in the transition to net zero, unlocking between $136 and $275 trillion in net zero investment opportunities by 2050, they are still held back by lack of public investment and regulatory red tape.
These are the conclusions of a new report released by NZAOA at its first AGM in New York today.
Net Zero Investor caught up with two of the report’s authors, Olga Hancock, Policy Track co-lead at NZAOA and head of Responsible Investment at the Church Commissioners for England, and Matt Holmes, policy track Co-Lead at NZAOA and group head of Political and Government Affairs at Zurich Insurance Company.
Despite increasingly apocalyptic warnings by UN secretary General Antonio Guterres and the tangible effects of climate change on Libya overshadowing events, the key message of the NZAOA’s report is one of hope.
The transition to net zero is now underway, with key decarbonisation technologies now being cost effective and ready to be deployed at scale – the NZAOA report argued.
“In the last twelve months, the opportunities for net zero have just blossomed. As investors, we are very keen to allocate capital to these opportunities. We see exponential growth in renewables and technologies such as electric vehicles and heat pumps,” said Olga Hancock.
This sentiment is echoed by Holmes.
“The real driver behind this report is what we see as a potential opportunity. We wanted to identify key areas where policy makers can take action that can facilitate further scaling and reduce costs of emerging technologies," he said.
"We are not currently where we need to be in terms of our 1.5 degree target, we need to accelerate the transition to net zero, but we see that was something that is possible to achieve.”
But investors still face fundamental barriers to investing in renewable energy, ranging from the lack of value chain maturity leading to bottlenecks, particularly when it comes to the rollout of renewables.
Another challenge are the significant upfront costs of switching to low-emission solutions, a challenge that affects the rollout of electric vehicles and heat pumps in particular.
This problem is further accelerated by existing government subsidies to fossil fuel industries, making brown fuels for the time being the cheaper alternative. Indeed, global fossil fuel subsidies have surged to $7 trillion last year, as IMF figures released in August revealed.
Another key barrier to investment was the uncertainty of the investment outlook, with levels of policy support and regulatory backing often remaining unpredictable, the report said.
A case in point is the UK government’s announcement this week that it would significantly scale back on its net zero policies, including a delay in the phase out of internal combustion engines.
But the report also said that policy makers could support the investment case for low carbon assets, most importantly by providing financial support, but also by offering investors clarity on regulatory standards and transition plans.
Hancock said that the inflation reduction act was an example of “incredibly successful” policy backing, but still needed some tweaking.
“When we speak with managers in the US, they are still facing bottleneck problems on paperwork and grid capacity, these could be relatively easy for governments to resolve. We know this can be done."
She added: "South Australia had 99.4% of residential and commercial demand met by rooftop solar alone. There’s no reason this can’t be done. The technology is there, the money is there, let’s just get this paperwork sorted out."
Holmes acknowledged that most governments would not have the financial means to back the $369 billion subsidy package announced by the US government. But policy support for net zero could be a case of quality over quantity, he argued.
“This is not just a question of scale, it is also a question of being of being smart in targeting and being clear in terms of prioritisation. That may differ by economy. But if you are looking at a clearly articulated pathway over the next five years, what are you prioritising from a public sector perspective?"
Holmes listed green aviation fuels or green hydrogen and switch the heavy end of the transport fleet to low carbon solutions as possible priorities. “That is where this priming needs to go and that is where we as investors see future opportunities” he stressed.
The case of Australia showed that policy incentives could also be created without large scale subsidies, Hancock argued.
“While the IRA is focused on fiscal incentives, it is also really important to remove red tape. In the UK, wind replaced gas as part of the energy mix this weekend. The costs of renewables have come down so rapidly, the issue here are constraints on implementation and our hands being tied behind our back.
In Australia, the shift to renewables has not been so much incentive-based, although there have been some incentives in rooftop solar, it is just about costs and economics, if you get that out of the way, the market will play its hand” she added.
Carbon prices and clarity
Over the longer term realistic global carbon prices would be a key prerequisite to reaching net zero, Holmes argued.
But in the absence of that, policy makers still had a role to play in accelerating the race to net zero. “What we clearly need from governments is predictable policy and clarity around future policy. That comes down to transition planning and a clear articulation by governments on how they are looking at delivering against the net zero commitments they have made” he emphasised.