As COP26 approaches NARDAC gives informed assumptions on the topics we expect to see this year
Sectors responsible for global emissions, from power to transport to industry and buildings, will be following COP26 for more details on how governments plan to achieve net-zero targets. Immediate takeaways from such conferences are generally broad and fluffy, but do set the direction for governments to follow, with details worked-out in subsequent years.
Discussions will touch on the impact of Covid-19 on the energy transition. The opportunity for countries to ‘bounce back better’ could potentially accelerate the transition but also bring challenges. We expect reshoring of manufacturing facilities, strengthened local content rules, a ‘just transition’ and carbon leakage to be key talking points. One example is the battery energy storage market – supporting both the electric vehicle and stationary storage market. Governments are battling for local manufacturing while the supply chain is grappling with the location of and demand for the raw materials in batteries. Expect recycling to be a key talking point.
As the host this time, there is pressure on the U.K. government to follow-up on its ‘ten point plan for a green industrial revolution’ with longer-term policies and financial support for existing and emerging technologies, and solutions to the climate crisis. The U.K. should leverage its experience in building its global leadership position in offshore wind to design supporting policies for spurring supply and demand for hydrogen, in its various colours and applications. A success story from most angles, the U.K.’s transparent, long-term commitment with robust subsidy mechanisms escorted offshore wind from high costs and low volumes to low cost, high volumes, with an active local supply chain. However, it will not be a like-for-like comparison, with hydrogen facing both supply and demand challenges.
As focus shifts to hard-to-abate sectors, it’s important for governments like the U.K. to maintain a clear route-to-market for renewable projects. In the U.K, the complexities of its contract-for-difference scheme means developers of renewable projects have clarity on support only two years out (at best). A biennial scheme, whose rules change from one round to the next, risks disincentivizing earlier stage development. A longer-term, consistent support mechanism will be more successful in supporting both the build-out of future technologies like floating wind and their associated supply chains.