The Chancellor’s announcement on Wednesday of an additional £3.5bn of capital for the National Wealth Fund to unlock investment in the UK’s growth and clean energy industries is great news. It will help support private investment to drive the energy transition that we need.
Against the slowdown in green policies by the US and EU, it is good to see the Government supporting investment in low-carbon technologies. There are huge risks if we delay energy transition and net zero goals. University of Surrey academics have shown how delayed and disorderly transitions can trigger wider economic instability and systemic financial risks.
Economic growth and net zero are not an either/or but two sides of the same coin. Net zero is an economic and financial imperative—it enables investment, economic growth, onshore jobs, and energy security.
Our reports, in collaboration with Exeter University, highlight the urgency of climate action. The Earth’s climate may be more sensitive than we thought, meaning the planet may warm more quickly than expected for a given level of greenhouse gases. This is leading to more frequent extreme weather events across the world.
Regions such as California are seeing insurers withdraw. Without strategic adaptation and policy reform, insurers may abandon high-risk markets, leading to unaffordable premiums, financial crises, and social unrest. This could exacerbate economic instability and widen protection gaps, leaving communities vulnerable.
Seizing the energy transition opportunity will support more resilient growth, provide energy security and help mitigate climate and nature risks.
According to the Climate Change Committee (CCC) Seventh Carbon Budget, electrification and low-carbon electricity supply will make up the largest share of emissions reductions in its pathway of 60% reduction by 2040.
To meet the Government’s 2050 net zero target, the CCC says the UK will have to increase low-carbon investment from £10bn per year in 2020 to around £50bn per year by 2030. It predicts investment will lead to net savings over the Seventh Carbon Budget period, 2038-2042.
Renewables, electrification, and efficiency are rapidly transforming the energy system. Green technology costs have fallen by up to 80% over the decade. As clean technologies become cheaper than fossil fuel-based alternatives, the markets for these will grow.
Climate projects tend to involve large upfront costs without the promise of short-term returns. We therefore welcome the Government’s statement that increasing the National Wealth Fund’s economic capital limit will allow it to take greater risk and to support more projects that struggle to access private finance.
China has shown the significant advantages of being a first mover in green technology. It has cornered the market in batteries, electric vehicles and solar panels. It is estimated that around half of China’s GDP in 2023 was in exporting clean goods and services. This is an opportunity for the UK to use its considerable research resources to kickstart green innovations to lower energy system costs, drive green growth and secure a competitive edge.
The announcement from the Chancellor is just the start and much more is needed to truly catalyse investment in the transition – it has a solid business case and the risks of not doing enough are clear. Clear, ambitious and long-term public policy measures will be essential to minimise hurdles, build market demand and accelerate the investment opportunities for low-carbon solutions.
Actuaries stand ready to play an active role in addressing the sustainability challenge – where our long-term thinking, financial system understanding, risk management mindset and probabilistic reasoning combine powerfully to complement climate science, communicate risks clearly to policymakers and help financial services firms position themselves for the opportunity.
