Why are net-zero investments stagnating and failing to live up to the hype? Many say it is due to failing markets or supply chain constraints. Doubtless, we are bound by market forces, and with weak, lumpy and poorly funded demand for net zero, this means success stories in the supply chain struggle to emerge. But is it all about supply and demand, vision and investment? Or, as our members suggest, are the rules and policies set against us from the start?
FID rates remain stubbornly low
EIC data red-flags chronically low FID rates for fixed offshore wind projects, which are showboated by governments of countries with windy shorelines as the linchpins of their net-zero commitments, including by the UK’s new Labour government. There is therefore no shortage of demand, with nearly $2t of projects announced globally. And yet, outside of China only 7% of these are at FID, as projects flounder with negative margins when today’s higher capital costs are priced in, requiring reluctant governments to reintroduce subsidies to try to attract investors again. This 7% compares with around 40% FID rates for large nuclear and upstream oil and gas.
Longer term, hydrogen and carbon-capture are painted as solutions to the harder-to-abate sectors, but FID stats are even lower. The reason here is a lack of demand, with projects requiring eye-watering levels of financial stimuli and complex new regulations to get them off the ground. Outside the US, with its innovative Inflation Reduction Act, governments are fearful of lame-duck projects and rising national debt, so are dragging their feet.
The consequences of mismatched high policy net-zero ambition against low industry reality, which ultimately result in lack of opportunities for companies across the energy value chain to get involved in net-zero projects, are far-reaching. Large corporations are beginning to withdraw from their net-zero pledges. Our members in the supply chain report many of the renewable contracts they have been able to secure have come with low or negative margins. They are now also tired of hearing yet another net-zero pledge that fails to accept the inevitable—what everyone seems to know except policymakers—that absolute net-zero deadline dates, especially interim target dates, are not going to be met. But publicly declaring this still feels too risky, so we battle on.
Lack of global governance and consensus
Shared global urgency about COVID and the climate in 2020 is behind us, with vaccines delivered, net-zero not. The UK has flip-flopped on its oil and gas policy, from anti to pro and back again. The London mayor has announced that electric vehicles (EVs) will pay the congestion charge in 2025, surely sending already wavering EV sales into sharp reverse. Globally, the world is using more hydrocarbons in 2024 than ever before.
Nowhere is the absence of cohesive and realistic global governance for the energy transition more apparent than at COP meetings. At COP28, countries were unable to agree on measures for Global Stocktake dashboards, an essential tool for tracking each country’s progress towards their own publicly declared national decarbonisation commitments—a league table of those performing best to worst, if you like. They could only agree to declare a global 43% shortfall in emissions reduction to 2030. This absence of transparency not only stalls progress and raises doubts about equity and investment risk, but also reveals deep-rooted challenges in establishing a unified approach to a global net-zero policy.
As populist and far-right political movements gain traction, the political landscape becomes increasingly polarised, further undermining collaborative efforts essential for a successful energy transition. The short-termism of political cycles overshadows the long-term investment decisions crucial to energy infrastructure. Projects with high upfront costs and extended development timelines, such as nuclear energy, suffer as a result despite growing recognition that nuclear power serves as the answer for many countries as a reliable low-carbon baseload power source.
Is meeting in the middle feasible?
Supply chain companies and policymakers are at odds, separated by developers and operators. Global political discourse is growing, conflicted by global north-south tensions and wars in Europe and the Middle East that send worrying undercurrents of fuel insecurity. Can we bridge the divide?
Talking about net-zero while engaging in virtue-signalling achieves worse than nothing: it degrades trust in policymaking and exhausts investors who look elsewhere for surety of returns.
The argument for a long-term, global industrial strategy is compelling. EIC’s annual ‘Survive and Thrive’ research and our new ‘Net Zero Jeopardy’ research reveal a common view from the supply chain: nations lack a long-term strategy that extends beyond the political horizon and election cycles.
We need certainty, and to achieve this we must look ahead to where we need to be, then work backwards to develop a structured pathway that leads sustainably to our net-zero goals. This includes aligning national grids, enhancing shared capacity and embracing cross-border collaboration and trade to unlock cost-competitive net-zero technologies.
We must recognise that the issue is not market failure but erratic energy policies, lacking coherence and foresight. A sustainable energy future demands robust, global governance frameworks, offering the clarity needed to drive investment and innovation. Once such structures are established, governments can develop national energy policies to support meaningful global commitments. This will be true global cooperation.
Ultimately, the blame game about market forces must yield to assuming responsibilities for systemic obstacles in policymaking. It might feel risky for policymakers to say it, but it is time to do what is needed to confront the pressing challenges facing our global energy landscape to build the sustainable future we all want. Those are the policymakers of the future.
Stuart Broadley is CEO of The Energy Industries Council.
This article is taken from Outlook 2025, our annual publication examining the year ahead in energy. Subscribers can click here to read their free copy. The publication can also be bought from our store here.
Comments