Built for net zero

Owen Grafham

[Pause] Right, okay, hello, everybody. My name is Owen Grafham. I’m the Assistant Director of the Environment and Society Programme here at Chatham House, and yes, here we are in the snow, which I think makes it a very good day to talk about sustainable infrastructure. So, many thanks to those of you who have braved the weather to come and be with us in person here, and, also, thank you to all of those online, who are dialling in from their lovely warm homes, and yes, are probably having a lovely time there.

The discussion today is going to examine how construction design and infrastructure strategies should evolve, deliver on sustainability goals, remain competitive and maximise societal outcomes. We have a lovely group of speakers with us, two here, two online, and I’ll introduce them in a second, but first, some housekeeping. So, this session is entitled Built for Net Zero. It’s supported by EY. We are recording this session and it will be available on the Chatham House website afterwards. I do encourage you to tweet, because apparently this event is on the record, it’s not under the Chatham House Rule. So, please do tweet using the #CHEvents. And if you want to ask a question here in the audience, then please raise your real hand and if you are online, please raise that funny virtual hand and I’ll try and juggle those two things as we’re going throughout the discussion. I guess – yeah, I may call on those who are online to unmute in order to ask your questions, but let’s see how that goes. If it’s going very poorly, then I’ll stop doing that.

Anyway, so, where are we overall? Where do we sit? Well, we’ve just come out of the Sharm El-Sheikh Climate COP, where it’s been reiterated that, as an international community, we’re still falling far, far short of our Paris goals, with no real credible pathway to that 1.5°. Policy is currently in place, point to a 2.8° temperature rise by the end of the century and implementation of current NDCs will only reduce this to, kind of, 2.4/2.6°.

So, ambition needs to be ratcheted up across all sectors. We know, for example, in the buildings and construction sector, that around 37% of CO₂ emissions and 34% of final energy demand come from buildings and construction and we know in Europe that we need to retrofit on the order of 15,000 housing units every day for the next 30 years. So, how do we do this in ways that are genuinely sustainable? And this, of course, isn’t just a buildings challenge, this is an infrastructure session. So, as the impact of the war grips, it’s not just going to be the winter of 2022 that creates problems, and there will be problems in 2022, but, you know, if we’re thinking out to 2023 and the winter of 2023, it’s looking even more challenging. So, do we have the energy infrastructure that we need to cope with significantly less oil and gas from Russia? Are we able to take the political decisions that give us a modern and green infrastructure across transport and industrial the sectors? These are the type of questions I’m challenging our panellists to answer.

It’s not all doom and gloom. So, sustainable infrastructure was on the menu at Sharm. 88% countries already included buildings in their NDC commitments. France and Morocco leading us off in a kind of, buildings breakthrough agenda. There are things happening, solutions exist, and I want to cover some of those range of things. So, technology, design, public policy, financial tools, business strategies, again, these are some of the things that I hope we can tackle today.

So, with all that said, I’m going to pass over to this much more knowledgeable panel than me to give us the answers and first, I’m going to call on Sayeh. So, Sayeh’s the Business and Consulting Leader at EY in the UK and Ireland, and yes, please kick us off, Sayeh. Looking forward to hearing your remarks.

Sayeh Ghanbari

Thank you. I heard France and Morocco there and I thought for a moment we were going to talk about the football, and…

Owen Grafham

Well, yeah, I will say to you…

Sayeh Ghanbari

…maybe there’s a whole sustainability conversation over there, as well, but I’m going to try not to go there. I’m not going to predict the World Cup results.

Look, I think there’s a few points I’m going to try and make, quickly. I think the first one, look, we’re all here because climate change is a defining topic of our time and I think that there is a – the key – you know, collaboration and long-term thinking is absolutely key to solving complex problems, such as climate change. But I do want to stress that I really believe that the role of government is absolutely critical here, and I say that because, you know, some of the challenges that you’ve just spoken about, Owen. We’re in a situation, we’re, sort of, asking people to choose between heating their homes, in order to survive the winter, and making a shift to – and kind of, being part of paying for the energy transition, and I don’t think that is the right question to be asking citizens. I actually think that this is a role of government to be – really be able to strike the balance between focusing on the, kind of, current energy supply and cost of living issues, but really retaining long-term thinking around the sustainable solutions that will bring us closer to net zero.

And the com – the challenge with that, obviously, is the level of investment that’s required is quite significant and Nelson might talk a little bit about the seven trillion number that’s, sort of – that many people might be familiar with. And – but I think – I don’t think money, in itself, is the issue and actually, that investment can drive a lot of other societal outcomes. We’ve done some work with the Global Infrastructure Hub, which is a G20 initiative, and looking at, actually, where some of the – that money can be invested, and when you look at the different subsectors, so you look at transport, actually, what you’re also enabling is access to economic outcomes. You’re also enabling job creation. You’re also enabling, kind of, social mobility, as well, as that low carbon transition. I think when you’re looking at investing in social infrastructure, you – again, you’re getting, kind of, access to jobs and services and investment in energy, you know, it also has societal value, because aside from the decarbonisation, you’re also doing job creation. So, I think the role of government is actually much more about deciding where to place the money, but not losing sight of that longer-term thinking and that – and the ben – and sort of, the broader societal benefits.

I do think we need a mindset shift in the industry, is perhaps my final point, and for me, that means moving away from, kind of, greening poor design, and really thinking, actually, outcomes to start with. So, if I think about, like, transport, for example, the network load and congestion is not going to be solved by the fuel shift. So, there’s something about that point about sustainable infrastructure which, kind of, needs a different way of thinking and it is more about thinking the resilience and the use of the network, as well.

I mentioned about using, kind of, investment to create jobs and industries, again coming back to, sort of, the government investment. Like, you look at Denmark, for example, significant advancement in wind and offshore, you know, in wind energy. That initiates us and starts with government investment. You – the – it – we have an opportunity, I think, in the UK, if we focus where we are today, to really use the investment that we make in major infrastructure to create new skills and new industries.

And I think, fundamentally, there is a bit of a mindset shift, which is about building only when necessary and maybe that’s – you know, of course, in – some of the fuel shift requires building, but there is a bit of – you know, there is no such thing as a fully green build, until – you know, unless we use the investment to invest in those, kind of, new construction methods and new materials. So, my opening thoughts; I’m sure we’ll go into more detail on that.

Owen Grafham

We will. Thank you, Sayeh, that’s brilliant. And I’m going to keep the momentum going and I’m going to go through our four speakers first and then, we’ll start a bit of a moderated conversation after that. So, no further ado, I’m going to pass over to Ben Wilson, who’s the Chief Strategy and External Affairs Officer at National Grid. Over to you, Ben.

Ben Wilson

Owen, thank you very much and thanks for having me. It’s a real pleasure to join. So, National Grid, we’re a networks company, primarily in electric. We’re about 70% electric networks and about 30% still gas networks. And we’re UK-US, around 50/50 and I’m joining today from Boston in Massachusetts, which is one of our network areas. One of the world’s largest investor in utilities and we’re very committed to a 1.5° Celsius pathway to net zero.

I think one of the first observations I’ll make, and I will focus mainly on energy infrastructure, given my role and what National Grid does, is in many ways, 2022 is a year we made a significant step beyond the energy trilemma. So, traditionally, we talk about an energy trilemma, we talk about the need to decarbonise, but we talk about balancing that with affordability and reliability, because historically, renewables have been expensive and because solar and wind are intermittent, they’ve been seen to pose challenges for reliability. But what I would say now is that it is clear that renewables are now the lowest cost form of new entry power generation and in particular, in Europe at the moment, given the impact of Putin’s war and the weaponization of energy, not just by a little, but by a lot, right? Offshore wind is now multiples cheaper than gas fired generation, for example. And on the reliability side, renewables generally are domestic and if they reduce our reliance on imported gas, then, therefore, exposure, even if indirectly, to Russian gas, then they help with security of supply, too.

So, I would say now, we’re moving beyond the energy trilemma and that is true, perhaps to a lesser extent, but also in the US, as well, where we’ve seen high prices. Areas like Massachusetts are reliant on gas imports, and we have developments, like the Inflation Reduction Act in the US, which is clearly as much about jobs and growth and national security, as it is about climate change.

The scale of investment required is absolutely enormous and I’m sure that’ll be a feature of this panel discussion, and for every dollar that we need to spend on renewables, we need to spend a comparable amount of money, maybe a bit less, but comparable amount of money, on networks. And if you take the UK, to state the obvious, offshore wind, there are no customers in the North Sea, so it doesn’t do much good without lots of network capacity to bring that power, essentially, down to the South East of England.

And in the case of National Grid, our CapEx plan is £40 billion over the next five years, of which about £16 billion is in the UK, and £40 billion is very close to £1 million an hour, 24 hours a day, 365 days a year, investing in the energy transition. If we do that, that has the prospect of reducing energy prices in the UK. If we can get, say, halfway back to where prices were before the current crisis in the UK, that could take 100s of pounds a year off the end customer’s bill, as well as decarbonising and increasing reliability.

In order to do that, there’s a few things required and I’m sure we’ll touch on them in this discussion. Regulatory reform to allow us to invest ahead of need, rather than waiting until the connection request comes, that’s very, very important, ‘cause we’ll never invest at the pace, unless we can invest ahead of need. Planning reform to shorten the timescale for us to build new projects. It can take best part of a decade, currently. The ability to invest more in local communities that are hosting infrastructure, that’s very important. The ability to work with a supply chain on a strategic basis and, also, innovations in design of new infrastructure.

So, an enormous amount to do, it is achievable, but those non-price drivers are very important to allow us to make that build out and get prices down and get more secure, as well as lower carbon. Thank you.

Owen Grafham

Thanks very much, Ben. Yeah, very, very useful and yes, of the first of a series of big numbers that I think are going to hit us tonight. Going to turn now to Christina. So, Christina Gamboa, she’s the CEO of the World Green Buildings Council. Yeah, please go ahead, Christina.

Christina Gamboa

Thank you so much. Thank you for being here and thank you for this conversation. I’m learning a lot already from what I’ve heard from the previous two panellists. I have the privilege of leading a global network of green building councils that are around – that are in 77 countries. So, there’s 77 NGOs that are aligned towards a progressive vision of advancing whole life carbon thinking, solutions, advancing circularity, advancing social equity and regeneration. That’s possible, of course, because now, we have also a biodiversity crisis alongside the climate change crisis.

So, we’re in the business of how does good like? What does good like? Those NGOs convene stakeholders around the value chain, because construction and infrastructure has a lot of stakeholders, a big value chain and usually, a – the solution doesn’t reside in one actor. So, that’s the problem we have here, we have an integration issue here of different languages and expertise, even in – with this panel.

So, I – we’ve – at WorldGBC, we just came – I was – I spent two weeks at COP 27 in Sharm El-Sheikh and we hosted over, with a coalition of NGOs, calling the Building To COP Coalition, over 200 events on the build environment. And we talked about there, about solutions relevant for developing countries and developed countries, but they’re one and the same, eventually. Solutions are different, but it’s around what we’re talking, what does good like? And so, we were prioritising issues like energy efficiency and body carbon adaptation resilience, right? Climate change is here, and we need help people to adapt now. And nature-based solutions, which is the greener side of infrastructure, possibly.

So, the question we also have here, and we’re sharing, is how do we meet this demand? The demand comes from the world still is urbanising at a very high rate in the developing world, and we are going to see massive growth in infrastructure, which if it’s not done properly, there’s not going to be enough resources in the world to meet that demand, there’s not going to be enough energy to go there. And in the developed world, we have here a problem of retrofitting and understanding a holistic solution of the problem of use, if you like.

So, in another conversation I was and to simplify what I’m talking about, is that I agree where, at the moment, where we have to question the why we do things. Infrastructure comes at a point where it is needed for quality of life, but it shouldn’t be done without holistic or systems thinking or community-based prioritisation, because if not, we’re going to run into trouble, which is already happening. If the solutions are siloed in the developing world, growth will go into biodiversity hotspots, nature will continue to shrink and we won’t have, let’s say, safe environments for us to thrive as a civilisation.

So, I was saying, “What are we about?” In another language, there’s not enough resources, we need to reduce demand, reduce demand for energy. We’re wasteful in the resources we’re using right now, going into our solutions and the energy efficiency, the efficiency solution, the circularity, has to be top of mind. Right now, only 8% of the world our solutions are circular. We need – we have lineal systems and governments still promote just cost-effective solutions short-term, without thinking what does good like in a lifecycle?

Infrastructure decisions made today will stick with us around 50/80/100 years, so we’re still designing today – the webinar is net zero. We’re not designing for zero today, so how are we going to achieve net – halving emissions by 2030? We’re off track. Buildings emissions grew 5% last year and the rest of the infrastructure sector is very close to being called off, a very high emitting and polluting sector, unless we have wider collaborations and get our act together.

Owen Grafham

Thanks, Christina. I’m really glad you’ve brought, kind of, energy efficiency to the fore. I think it’s something that should be at the centre of our discussion tonight. I was looking at a slide from Amory Lovins just yesterday, which showed, kind of, the emissions we’d saved since 1975 based on our energy efficiency, and massively outpacing the emissions saved from renewable generations. Just, kind of, striking for us to keep in mind, I think.

Okay, last, but not least, Dr Nelson Ogunshakin, who’s the CEO of the International Federation of Consulting Engineers, FIDIC, and Nelson, I’m sure – we want some big numbers from you and yeah, looking forward to that and the rest of your presentation.

Nelson Ogunshakin

Thank you very much, Owen, thank you for inviting me to join you at Chatham House for this particular session. The subject is very topical, as you correctly say, Owen. I think it might probably helpful if I give an insight to who we are and then, that will backup onto the rationale for the big figure and where we’re coming from. I mean, FIDIC represent over 40,000 companies around the world, all in the professional services sector, involved with design, building and maintaining and operating, you know, infrastructure asset, and it goes through the whole lifecycle of that. With 40,000 company, over 100 countries that we represent, is huge in term of the footprint that we have, and as I remember those who they get involve with the whole project lifecycle. So, we are really at a key point in having major influence on what is being discussed.

I mean, of course, to go straight into the point, we’re talking about “Built for Net Zero.” My view on it is that the time is now to deliver on this agenda. There is no time to lose, and the engineering and construction sector is pivotal in the world or in achieving net zero. We will not forgive ourself if we get it wrong, as most of my colleagues already said, we are already running late on the target, so that’s important. Yes, Politician do need to step up, we do believe they need to step up and really, we also need to get the client to step up. There is no big social, you know, gain or losses for any individual, but actually, the significant gains here is really job creation and opportunity to boost economy as we know.

And we’ve gone through the whole issue of, you know, seven billion, where does the seven billion come from? Well, if you go through the OECD, they did suggest hitting about 5.6 billion – trillion that was required to be billed and to be invested over, if we’re going to achieve the 2030 or 2050. But with the COVID, the world stopped for nearly two and a half years, and then we had this shock of the supply chain, and then we have the ultimate goal, the big elephant in the room, Ukraine. So, the whole three event has happened back-to-back. In our estimations, that it isn’t 5.someting trillion we’re looking at, it is close to seven trillion we need to spend for us to even dream to catch up.

And that report, if you do have a look at the report, we’re talking about net zero, but also, we’re also talking about the need to deliver that net zero, so there’s the other concept we came up with, which is net resources. If we don’t have the resources to deny – to define and to design and to build, then we have a real major problem.

So, in my view, I think we need to keep our focus on the prize, despite the challenges and the economic constraint. We are an industry where we can build as a part of the issue, but I think, you know, we need to think, you know, and rethink the way we do things. The world has been, you know, slow to react to climate change and we, in FIDIC, not only do we produce the report on state of the world and talk about seven trillion, but we also produce a charter which really covered roadmap across the whole of the supply chain.

From our point of view, from us, as an organisation, what do we need to do to make sure we are working towards net zero? What does our members need to do to work towards net zero, in term of their own behaviour and the culture they need to understand? How do we need to apply this principle across – you know, to achieve net zero through the build cycle? How do we apply the principle across in the maintenance side of the asset and how do we look beyond that point, in term of the resources we require to move forward?

So, in my view, I think, you know, the whole of our industry need to work together. I hear the word ‘collaboration’, absolutely important, and, also, you know, we need to collar those who are not playing ball, it is important. Some are paying lip service to the whole idea. And we cannot ignore the role of investor, neither can we ignore the role of the funders or even the multilateral development bank, who need to look at different mechanics and different financing strategy, in term of, you know, how do we make project sustainable?

If I look at it from the point of view of what I do as the Chair of the Investment Committee, there are things that we need to look at without the ESG metrics. And we look at that, we make a decision whether we’ve tick all the boxes, but is that the only solution? Can we do more? So, my view on it is we are all in it together and there may be a need for us to actually start to actually price carbon. And then, we need to get to a point where we look at the whole lifecycle of any particular project and create what I call carbon balance sheet, to understand exactly what carbon emission before we even touch the ground, at the point where we start to look at touching the ground, to the point where we construct. And when we do construct, we also need look at the operation of the asset to look at what carbon is being emitted or being mitigated, and the combination of that multiplied by the price of the carbon, allows us to start to create carbon balance sheet, which is a new philosophy we’re trying to look at.

So, in short, I think we are all in it together, we are not doing enough and we all need to work together to make sure at least we achieve that. I do believe strongly that the consulting industry, who cut across the whole of the asset lifestyle group, have a key role to play and I do share the same view as my colleague who spoke earlier on. Yeah, seven trillion sounds like a lot of money, but actually, we are struggling to burn that and I think we need to have a different philosophy on how the investor need to think and the Politician, how they need to fast act in the way they operate, because, you know, waiting for the cycle, the political timeline, is not the best that can help us to achieve the goal. So, my take on it, we are all in it together, we need to work together, and we need to make sure at least we have the right policy and the right process in place to measure carbon, to be able to put value to it. Thank you very much, Owen.

Owen Grafham

Thank you, Nelson, and since we are talking about the money and the finances, I mean, maybe a good place to start is to ask all of the panellists here to what extent they think this is about money, to what extent this is a financial challenge of raising the seven trillion that we need? I don’t know who wants to kick us off. Maybe I’ll pick on someone. Christina, do you want to have a first go?

Christina Gamboa

I would like a clarification first, because the seven trillion is on all physical assets, including buildings, Nelson?

Owen Grafham

Oh, you’re on mute.

Christina Gamboa

Oops, sorry, got you on mute.

Owen Grafham

Sorry, can you…?

Nelson Ogunshakin

No, no, no, good question, good question. The view was that that was purely what I call on the hard infrastructure. I tend to take…

Christina Gamboa

Okay.

Nelson Ogunshakin

…infrastructure in two dimension. One is I call social infrastructure, which is building, property, hospital, education, then there is the economic infrastructure, which deals with the road, the rail, the airport, and that was really predominantly on the economic infrastructure. I believe that, you know, if you are to add the – you know, sort of, social infrastructure to it, the figure will be much bigger than that.

Christina Gamboa

Totally. Yeah, so I think…

Nelson Ogunshakin

Sorry, does that surprise you?

Christina Gamboa

No, no, no, no, no, that’s good. No, then, I’m qualifying what would be the answer on the seven trillion, because let’s say as citizens, we need to have a proper access to quality of life, infrastructure is pretty much our response or assets for us to be able to thrive, right? Including housing, which is our basic comfort. Humans are a very weak species. We were already complaining about a little bit of cold and we’re already out of our comfort zone. So, homes, connections, productivity. It means – productivity, it means opportunity, it means growth, but infrastructure can be part of that clean growth transition.

So, the resources are there. What I’m not seeing is our collective response in a wider infrastructure segment. For buildings, there are rating tools, there’re performance based, there is whole lifecycle, envir – and lifecycle assessments on products. There’s now different ways to go about it, procurement, electrifying buildings, bringing in renewables, energy efficiency.

First, the principles for net zero are there, but when we go into a community space, what does net – what does that look like? How do we make investors understand what are they fund? Because it’s not a problem – we need the resource and we need the investment as a society, but how are we making clear what the hierarchy of those investments from a wider space? What does success look like? So, I think that we’re in agreement that it’s low carbon, a high quality of life, right? That brings prosperity, and how do we ensure that we get the right, let’s say, policy signals to enable the private sector to do the right investments? There’s still some announcements in different directions, that the direction of travel for businesses is not right – is not clear.

However, I do want to say it’s investment in sustainability is the investment to futurepewf any – futureproof any assets, because we will – you will be having stranded assets not fit for purpose if they are p0lluting, high carbon and intensive. Eventually, we will catch up with the transparency that is asked upon us and then, we will see the financial sector more clearly driving the investments where they go, instead of us saying, “Do we need a roadmap?”

Owen Grafham

Okay, thanks, Christina, and Ben, maybe I could turn to you. I mean, you raised the scale of the challenge for the National Grid in terms of raising that finance. How big an issue is the money for you?

Ben Wilson

Yeah, thanks, Owen. I think utilities generally have strong balance sheets, good credit ratings. So, I think, generally, we can raise the money, as long as the regulatory regime is supportive and clear, and you know, the rate-based model in the US, the regulated asset-based model in the UK, I think is a great model for network infrastructure, highly investible. The Contracts for Difference model in place for new renewables, again, it’s highly investible. So, I think on the network side of the meter, if you like, I think it is really around regulation and policy. If you get the right regulation framework in place, the private sector will deliver the capital, no problem at all.

On the other side of the meter, and here thinking particularly about decarbonising transport and heat, I think it is a little different. On the transport side, I think we are now probably beyond a tipping point in the UK and getting close to it in the US, for the take-up of electric vehicles. Charging infrastructure is now probably what is lagging and so, more focus and effort around mobilising capital to invest in charging infrastructure, I think is important. But the really difficult one is decarbonising heat in buildings, both residential buildings and commercial buildings. The scale of heat in energy terms is very large and the dependency on gas, for example, is, you know, is very embedded. At network scale we can do it. I do think a second vector, so I do think green hydrogen and other renewable gases would be a very good thing to develop.

On the customer side, you know, redoing your own home in order to move to either an air source heat pump or a ground source heat pump, it may save you money once you’ve done it, but the capital cost upfront to do it is quite significant. And I think you mentioned, in your opening remarks, the number of homes we need to convert a year. I don’t think, as a society, we have the answer yet as to how those individual household expenditures are going to be financed, so I think more effort is required in that area.

Owen Grafham

Okay, and maybe, Sayeh, I might just ask you to come in there, ‘cause you mentioned the, kind of, onus on consumers to, kind of, change their own behaviours and Ben’s picked up on that point, as well. I guess, just…

Sayeh Ghanbari

Yeah, and I think…

Owen Grafham

…wondering…

Sayeh Ghanbari

…taking Ben’s points around, kind of, the challenger and the capital around the networks and stuff like that, you know, absolutely it’s there. I think there’s a, sort of – as I said in my opening remarks, I think there’s a flaw in, kind of, assuming that, you know, assuming that people can pay for these things and for me, that is what’s holding us back. Because if you’re basing it on an individual ability to pay for this at a time when, you know, cost of living and everything else, and we’re not making progress on something that actually is quite existential. Now, I’m not saying that as, kind of, citizens, we don’t have any responsibility, but I think our responsibility comes on, sort of, how we vote and who – and what policies, kind of, we support, rather than thinking that we will have to, sort of, pay for our own, sort of, our own personal transition.

I think that there’s a point, perhaps, around money that is worth also reflecting on, which is cost and the cost of – and sort of, the impact of investing in technology versus investing in commodities. Because, you know, you look at the – but when it comes to a lot of the, sort of, renewables and clean energies, the benefit from the same sort of exponential curves as any other technology, you know, a solar panel was, like, $100 a unit in 1975, is, sort of, 20 cents a unit today. You know, wind costs, sort of, 30 times declined in 40 years, batteries 40 times declined in 30 years. So, I think that is one of the benefits that sometimes gets lost around the fact that, actually, the cost of these things and their efficiency is going down and so, the return on it is really quite positive when you’re investing in technology. That’s my only add to Ben’s points.

Owen Grafham

No, thank you. Listen, I’m going to abuse my position as Chair to ask one more little round of questions, but then, after that, I’d like you to all get thinking of yours and we’ll start the, kind of, audience participation section of this. I guess the – and where shall I start? I guess the – you know, in the UK, here, there’s been a lot in the media recently about the Cumbrian coalmine. There’s been a lot about UK North Sea oil and gas. I guess my question to the panel is really if they think that these types of investments will ever fall into the bucket of sustainable infrastructure? And I’m, kind of, leaving that one out there for you. I don’t know, Nelson, do you want to start off there?

Nelson Ogunshakin

Yeah, thanks very much, Owen. Just to pick up on the comment that was said earlier on. I don’t want to spend too much time on it. I think when you look at the population of the world at the moment, we are eight billion and it’s focused to be about 9.7 billion by 2050, and you’ll find that the bulk of that is going to be in Sub-Saharan Africa, then the key issue about finance is actually quite important, about how we can actually achieve this issue. So, I think the cost of the finance implication is very important and really, policy. As, you know, Ben said, regulatory, you know, environment is very critical to unlock.

But to answer your second question, which is really about decision, I mean, the issue about coal and going more extraction in coal, it doesn’t go down very well, let’s be honest, as the right thing for us to be doing. But if we are going to be doing that, then it’s an opportunity for carbon capturing to be put in. This technology are already tried and tested and therefore, you know, if we are complementing such a decision with the use of carbon capturing, then it isn’t a big issue. But if we are doing it in isolation and we’re not thinking about this idea of carbon capturing, where we can store the carbon that come out of it, then I think we are sending wrong messages to the market.

And the other one that is talked about is you about – issue about, you know, North Sea oil. Of course, it’s what we have and there would be gas, gas would be part of the energy transition. We’re not going to be making that move overnight. The question is, are we better off to actually in – bring in from UK or bringing in for overseas? And if we are going to do that, how can we do it in such a way that we’ll see it as an interim measure, rather than a final decision? Because really, in going into the renewable, we need to start to invest at the right time and if we don’t invest at the right time, bring the cost of production down and increase the productivity, then we have a challenge that we may be in a difficult period to actually achieve our goal. Thank you.

Owen Grafham

Thanks, Nelson. Who wants to come in on that one next, either of you two?

Sayeh Ghanbari

I can do. Christina’s giving me the side eye, I think.

Christina Gamboa

Yes.

Sayeh Ghanbari

You can go next. Oh, God, it’s the – you know, in a way, I’m, sort of, glad I’m not a Government Minister, right, ‘cause we can sit here and make comments and obviously, it’s – you have some very difficult decisions to make in balancing cost of energy, sort of, you know, security of energy and everything else. But as Nelson says, of course, it’s really difficult to sit here and, sort of, defend those types of decisions, because they are, you know, in the end, more short-term than long-term. You know, this is not – we are not, with those decisions, investing in creation of, kind of, new skills, new technology, new sectors and industries that are about, kind of, the next 50 years. We are solving problems of today and, you know, that’s probably all I can say about that, that, to be honest, that’s my line. Christina will…

Christina Gamboa

Probably, and I wonder about the communities that are going to be invited to have those jobs around the coalmine, and their health, their wellbeing, the exportation of coal. We were talking about, in the UN process, about phasing it out, asking other countries to follow suit, coalitions of countries trying to clean up the systems and yes, we’re empathic with the short-term thinking. However, it’s not only about just bringing one more fuel. It’s about system thinking and you raised it well in terms of, yes, the – better to have natural gas, domestic if you like. But then there should be a proportionate response about – a comprehensive response, of renovating badly insulated buildings first, electrifying buildings, electrification, and making sure that there’s a programme for people to acquire and renovate heat pumps, install heat pumps and use renewable energy. As we were saying, renewable energy is a technology, the other are commodities. It’s just 20th Century solution for the – for an opportunity for our economies to create prosperity that is not doing away with the planet. It’s just I don’t understand.

Owen Grafham

Thanks, Christina. Ben, do you want the last word and then, I will open up to the pan – the audience here?

Ben Wilson

Yeah, thank you. When we think about energy, unabated fossil fuels, so coal or gas generation, clearly, it’s not sustainable in the long-term. So, if we do any of it, it has to be clearly consistent with a credible pathway towards net zero, that’s where we need to get to. That coalmine is not for energy, it’s metallurgical coal, so it’s outside of, yeah, our focus area.

On the gas side, right now, I checked just before the panel started, about – more than 50% of power generation in the UK right now is coming from gas, right? So, we have a long way to go. We needed to stick to that pathway, get it down as fast as possible, but within that envelope, if we are going to have gas, it’s better that it’s domestic gas than imported gas. That’s more secure, it’s also lower emissions.

Owen Grafham

Thanks, Ben. Okay, so, this is where I open up to you guys. So, please put up your hands. We’ve got questions coming in on the online audience, but I’ll start at the back, here, with this gentleman. If you could introduce yourself when you ask your question, please.

Shabanga

Hi there, my name is Shabanga and I’m from the FS side of UI, and I wanted to ask, what role does the panel think financial institution have on the transition to net zero? Because often, construction and infrastructure projects need to be financed and, also, importantly, insured, as well, and they have a big role in, you know, perhaps divesting from carbon intensive construction projects, but we’re not seeing that at the moment. So, what role do they have and is there a way for us to convince them to perhaps transition to more sustainable infrastructure?

Owen Grafham

Okay, thank you. I’ll take a couple and then, we can go around the group. One here.

Prakash Sharma

Hi, I’m Prakash Sharma. I’m a Research Analyst from Wood Mackenzie. So, my question is more about the global temptations, so, for example, now in Europe, we think batteries are very important for the electric vehicles and energy storage. However, now, for the US Government, they provide more incentives and, also, in Europe, currently, because of the cost of energy and some of the European battery plants, they are thinking about a move to the US. So, what we – is your view on this?

Owen Grafham

Okay, thank you. We’ll start with those two questions, then, and I’ll come back and take some more, including from some of the online audience. Who wants to jump in here? Christina?

Christina Gamboa

Yeah.

Owen Grafham

Yeah.

Christina Gamboa

There is a lot of financial innovation around promoting sustainable buildings. So, from green mortgages, right, banks can provide less interest rate, more loans, if the housing qualifies to standards that promote high energy efficiency, high quality, air quality, holistic solution to a good home, there’s that. There’s also a – let’s say the opportunity to also link into sustainability linked loans that’s happening more and more often. So, companies are linking getting a loan to their performance towards their science-based target or their 2030 decarbonisation goals. We see it through WorldGBC’s Net Zero Carbon Buildings Commitments signatories. So, they have those financial innovations that keeps them transparent and with that transparency and disclosure, the financial sector can also, let’s say, give them a reward for that.

It’s not every practice in the financial sector should be this. I hope it’s scaled up and mainstreamed. Those sorts of innovations are the ones that we need for us, as consumers, also, to understand better what are we funding too.

Owen Grafham

Thank you. Others? Any signal from Nelson or Ben that they want to come in on these?

Nelson Ogunshakin

Let – can I come in, please, on the finance…

Owen Grafham

I think Nelson is…

Nelson Ogunshakin

…exercise. Yeah, sorry.

Owen Grafham

Yeah, please, Nelson, go ahead.

Nelson Ogunshakin

Okay, sorry. It’s funny, I mean, that I sit within TfL as the Deputy Chair for what I call Programme and Investment Committee, and we go through a very stringent, you know, compliance process on all our investment, and whether it’s renewal or via existing asset or looking at, you know, a new build, and so, it’s very important. But I think in term of the overall concept, it’s worthing mentioning that a lot of investors now are looking for ethical investment and they are genuine about every ethical investment. They’re, you know, they’re looking for green, sustainable infrastructure and they make a condition of the ESG as a priority before they are actually, you know, eventually into drawdown. So, I think a lot of investors are very much looking into this, here. The pension fund who are looking to go into what I call long-term asset ownership, they’re really keen about understanding the whole process of, you know, how do you decarbonise the existing asset or even building out, you know, carbon out of the new development?

So, I think, you know, a lot of investors are now looking in a very sophisticated area. What I do believe that is missing out is the whole idea of how do you measure, you know, carbon throughout the whole of the project lifecycle? And that’s why in FIDIC, we are now developing this concept of what I call the carbon balance sheet, to look at a particular project throughout the whole lifecycle and to measure the carbon emission or what will be mitigated out of it and be able to put a price on that.

I think if we can get to that stage where we can put a price on carbon, then makes life much easier for investor to say, “What is it that I’m acquiring having completed the building itself?” Because a lot of the investors are looking at post-construction acquisition of the asset. I’ll give you a classic example. On the so-called, you know, Crossrail, which is now Elizabeth line, we built that particular project. It was very, very consider, digital tuning was apply and the whole process, we look at the carbon emission, and then, investor came and acquired the rolling stock, on the basis that they know this an ethical investment and it address the issue of carbon. So, I think investors are looking more sophisticated than ever before. Thank you.

Owen Grafham

Thanks, Nelson, and Ben, maybe you could come in on the, kind of, battery question that came in. So…

Ben Wilson

Yeah, sure. If I understood the question right from Wood Mackenzie, it was around the significance of the Inflation Reduction Act and some of the support that the US is putting behind, you know, new technology. I do think it is seminal, I do think it’s very, very significant and I think, in particular, to pick one sector, I think it will be an absolute gamechanger for hydrogen, for – in particular, for green hydrogen, and we see a lot of focus moving to the US. And I think it is an example of the comment I made earlier around “we’re moving beyond the trilemma,” right? So, the Inflation Reduction Act is about emissions reductions, but it’s also about jobs and growth and it’s also about national security for the United States, in terms of making sure that supply chains are onshore and so on. So, really shows the end of the trilemma.

I suspect we’ll see policy response in Europe, providing similar support and I would very much like to see the UK, also, you know, think strategically around some of these sectors. And certainly, you know, we see those signs coming from base, in particular around hydrogen, and I think it’s very, very important. The IRA Act is a gamechanger.

Sayeh Ghanbari

And it’s also a good example of the point about, actually, where government intervention can really actually create, you know, a real step change, isn’t it? Then, like, the – and that, I think it’s an example of that, ‘cause actually solving, you know, moving from, like – moving to alt – I mean, so, going to, like, long range storage is long – it’s – is – it would be gamechanging. And so, I think the other point, just on the financial institutions, I think worth adding, is the – maybe one stat, for years, kind of, the issuance of green bonds, kind of, exceeded half a trillion in 2021. I think that was something like a 75% increase on the year before. So, there’s definite – you know, there’s momentum there. Is it fast enough, or is the – you know, and most of the issuance comes from US, China and Europe. So, something about how does it get – you know, where – who benefits from it and the distribution of that, and needing to even that out, can – particularly, Nelson, to your point about actually, like, thinking about the population shift towards the Global South, as well. But I would say I think there’s definite movement and interest. It’s just, yeah, moving it faster and distributing it appropriately.

Owen Grafham

Okay, thank you. I’ve got loads of questions online, so I’m going to try and cover a couple of them now. So, first one from Murad Qureshi, who says, “Globally, the IEA has shown the Chinese lead on reducing costs of renewables, like solar and wind, and their investment in renewables for another – for many years. Is it them that will lead further via adapting their BRI initiatives in the emerging developing world?” So, role of China in driving down renewable costs, and then, we have one from Bali Kochar, who I’m going to paraphrase. But broadly, the question is about how important is consistency of government policy in incentivising moves towards, for example, energy efficiency in housing? So, two questions. If we could have some quick responses, then we can get in another round from the audience. So, who wants to go first with – maybe Christina, if you could kick us off?

Nelson Ogunshakin

Owen, can I – do you want me to…

Owen Grafham

Oh, yes.

Nelson Ogunshakin

…jump in?

Owen Grafham

Nelson, go on, yeah, please, jump in, that’s great.

Nelson Ogunshakin

I will try and address the first one, the China one. I think, you know, there is a challenge in the world at the moment that the biggest supplier of most of the solar problem – panel that we need is actually from China, and then, there is the issue about the ethical behaviour that happens within that. Most of the multilateral development by now very, very concerned about this issue. Are they going to take the lead? I think they are actually leading the market.

The question is – it goes back into what Sayeh was saying earlier on. I think if we can actually encourage more government intervention through looking at how can they bring the price and the cost of production down, you find that, you know, other country will follow. But frankly speaking, right now, we are very much at the beck and call of the Chinese on this particular area, which I think when you look back on the issue of COVID now and the lockdown in China, the price is only going to do one thing, which is to go up.

So, really, I think if you look at what happened, with, you know, the wind firm, when the whole system started, the blade was so expensive, limited number of supply, the price got up. But government intervention came through, the local production came through and then, you see changes coming through there. So, I do believe this is where we need government policy, government intervention, to make the cost of production cheaper. Thank you.

Owen Grafham

Thanks, Nelson. Any of our two on stage?

Sayeh Ghanbari

I mean, I think Nelson’s point’s well made. It’s a bit like if you think about, kind of, the supply constraints around chips from Taiwan, or you know, any sort of, extreme concentration of technology in one place, comes with risk, right? Even if there’s been enormous investment in there, I mean, so, yes.

And I suppose the other question around, how important of the – is the consistency government policy? Very. And so, that was a quick answers your question, Owen. I think – feel like I might be a broken record, otherwise, on that. But I think, you know – and consistency is critical in – particularly when you also want that collaboration and the response from the financial markets, because that is how you maintain that, sort of, investability in the assets and, kind of, continue to keep, sort of, the cost of financing down and then, the worst thing you can do is flipflopping on policy from that perspective. And if you want to add something, sorry.

Christina Gamboa

Hmmm hmm. Yeah, I was thinking, as I heard you speak, of course, consistency from governments, yeah, we need it, but I think just looking into what happened at COP28, the inconsistency of governments, also, in the leadership is quite evident. So, I think in the infrastructure space, we need to continue to champion private sector leadership and those that are winning the clean energy transition race and connect the infrastructure solutions to that sort of thinking, and then go back to government and show how conservative and old-school they’re being.

We still, in the infrastructure sector, have a way to go. In some segments, productivity has been very low. Mackinsey cost curves on productivity for infrastructure are the worst in many years. We – there’s still people doing projects like they’ve done it 50/60 years ago. So, I think if we are ambitious in asking for the infrastructure sector to disclose their numbers, create datasets and then, go back to governments and ask them for better regulation, we’ll have a better shot. And at WorldGBC, we’re doing this. The Building Life project has delivered ten national roadmaps for decarbonisation of buildings, including the EU roadmap for decarbonisation, bringing along 100s of stakeholders.

So, business leading, saying private – the private sector’s got this, but we need some regulatory signals and then, let’s go to facilitate the investments going where they are needed. If not, we will get most of the same outcomes, and just because there’s so many competing priorities, the private sector can show what good looks like to government and to have the confidence that they can promote changes and it will still be good business sense. There’s still – the green economy is the best solution if they promote it right.

Owen Grafham

Thanks, Christina. I’m going to come back to our audience again now. So, if you have questions, raise your hand. If you don’t, there’s plenty online who are going to take your place. Let’s go down here.

Kirsty Hamilton

Thanks very much. Kirsty, excuse me, Kirsty Hamilton. I’m an Associate Fellow here. I’m also of relevance on the Scottish Government’s Green Heat Finance Taskforce. But I want to ask a question of my personal, sort of, frustration, as we’re all, in this audience, energy consumers. Now, if any of us, I’d be slightly interested in a hands up, are trying to do anything involving retrofit on our own properties, it – I cannot imagine anyone is finding it easy.

So, what I’d be very interested in is what you think the primary obstructions are for scale rollout, including the role of the utility sector itself, because they have a primary relationship with us on energy, all of us as consumers, and yet, I am left trying to make enormously complicated assessments of what needs to be done and not finding anyone to do it. And yet, I’m not getting any help from my utility, who prefers to sell me power. So, I’d really be interested in – because we’ve known the retrofit problem for, you know, at least – well over 30 years, as you mentioned yourself, Owen, Amory Lovins…

Owen Grafham

Yeah.

Kirsty Hamilton

…MAC curves, the whole lot. So, anyway, love to hear what the answer is.

Owen Grafham

Thanks, Kirsty, and if I could just add a little addendum onto that question. We have one from Victor Kitange online, which asks about whether skilled labour is a shortage. So, maybe that’s one of the obstructions that the panellists could address. Over here.

Ben Wilson

Yes, thanks…

Owen Grafham

Oh, sorry, Ben.

Ben Wilson

…very much.

Owen Grafham

Oh, Ben, I’m just going to take a couple of questions from the audience and then, I’ll…

Ben Wilson

Oh, apologies.

Owen Grafham

…let everybody come in.

Ben Wilson

Yeah.

Owen Grafham

No problem.

Charles Keith Ellison

Thank you. I’m Charles Keith Ellison. I’m at King’s College London. I was just wondering what the panel’s views would be on expanding nuclear power infrastructure. We’ve already talked a little bit about Cumbria coal and North Sea oil and the Green Party in Germany is currently finishing getting rid of the last nuclear powerplant there. But, you know, 15 years ago nuclear power was almost the future, so what’s the penalties? Thank you.

Owen Grafham

Thank you, and I’ll take one final one, down here, in front, and then I think we may have to rush through some answers, everybody.

Alasdair Ramage

Thank you. Alasdair Ramage, and I specialise in systemic change consulting. I find myself surprised to hear how much emphasis there was from the panel towards government action, very strong theme. In working with a client recently, very interested in investing in green African infrastructure, probably the biggest back pressure at the moment in that market is the high price of the dollar, which is a consequence of government action. So, there’s a little bit of, kind of, robbing Peter to pay Paul in all of this, some disingenuous incentives and similar. I wonder how we reset that so that the incentives align towards the outcomes we’re actually seeking?

Owen Grafham

Thank you very much. Okay, we have three very good questions, five minutes and four fired up Panellists. And Ben, you’re allowed to go first, because your hand shot up as soon as the talk came of utilities.

Ben Wilson

Yeah, thank you. I’ll address the retrofit question and the nuclear question and leave the other questions to other panellists. I very much agree, and I referred to it in my remarks earlier, that customer side challenge is the key one. Energy efficiency has been mentioned a number of times. It is the most important thing that we can do. I think – I mean, we’re working at the moment with Lloyds Bank and Octopus, with the Prime Minister’s Business Council, on working with local councils to see if we can put in place schemes for retrofit, and we’ve got a pilot one up in Leeds retrofitting social housing, which is quite interesting.

I think the issue is one of upfront capital and then, a question of trust. I think it’s quite hard at the moment, it’s not obvious. If you say you’ve got a Victorian house, which needs significant upgrading, where do you go to get information that you can trust about what the solution is? I think people find it very, very complicated to navigate.

Utilities, I think, can have a role in this on the advice side, but I think, actually, bodies like local councils are very well trusted and they may well be a good place to take a lead on that. And then, I made comments earlier around the financing stuff and I think it’s a big challenge. We are seeing a significant – if we unpack what’s happening as we head into this winter, if we unpack it and weather correct it, we can see a significant price response already. So, the incentive is there, given the high price of energy. It’s not a question of incentives, it’s a question of capital and trusted advice.

On the nuclear side, I think – look, this energy transition to net zero is hard. Let’s not – let’s be realistic, let’s not underestimate the scale of the challenge, and I think we need as many tools in the toolbox as possible to do this. So, absolutely, we would support, you know, new nuclear projects in the UK. To have some solid baseload zero carbon generation to complement intermittent wind and solar, also provides inertia and so on, I think is a very good thing to have.

Owen Grafham

Okay, thanks, Ben. We’ve got a hand up from Nelson. I mean, yeah, I’m sure there’s many people who would want to come back, but we’ll keep rattling through our panellists. Nelson, over to you.

Nelson Ogunshakin

Okay, very quickly. I mean, I think, you know, what is said by my colleague is very, very supportive of that. Just on the nuclear side, I think yes, you know, there is a need and a few years back, it was something that you don’t mention, but I think it’s reality. Can we go for mini nuclear power station? Can we do it very quickly? Do we have the resources and the capacity? Do we have the guts, you know, as a country, to move in that area? I think it’s a challenge, but I think it’s something we need to look at into the energy mix.

On the issue about retrofitting, I have a very strong view about what actually the government can do, and I know a lot of people are confused as to what is the right solution? I think it comes down to policy and it comes down to creating the capability to be able to do what needs to be done, but also, the ultimate is if you invest this frontman, how does this cascade down into the value of your property? And if we can address those three point: policy, the skill and the solution, and the ultimate value of that particular asset, then we start to make a positive move. Without that, then we continue talk about it and nothing will happen.

On the issue about systemic issue on Africa, you know, you’re absolutely right. A lot of the project that I was involved with in West Africa, they are, sort of, gas powered, you know, project, and when you look at the cost of the equipment, it’s all in dollars and the local currency doesn’t actually match that, so you have a gap. And all the time we look at the return on investment, it’s not viable. So, I think unless we can get to a point where you look at the project from the point of view what I call, you know, sort of, blended finance, to look at the frontend of the project, then have government support to get those project to make it a banking one. Otherwise, by time you go through the whole project lifecycle, you find that the whole project will not deliver the return on investment. So, it comes down to the structuring of the deal and the local policy. Thank you very much.

Owen Grafham

Thank you, Nelson. Christina?

Christina Gamboa

Yes, it’s – it is – there is something there about the systems layout, right, where utilities are in the business and they’re changing, right? But they sell more and more and more, and I said that we have a problem of waste, and the more and more – instead of the efficiency, and how to get the incentives to help consumers to address the immediate urge to improve their leaky, wasteful houses. The building stock in the UK is the worst of the Europeans. I would say that to meet the Paris Agreement, we need 3% renovation grades across Europe, we’re at 1%, in the UK possibly not as good there.

We have – there’s – collaboration is the answer. Cities – we – there is a collaboration called BUILD UPON2, also supported by the EU Commission, in 30 cities, and local councils, as you were saying, also, Ben, collaborating on the right datasets to understand greenhouse gas emissions, energy poverty and job creation and the skills. And with that collaboration, we’ve understood, also, that the barriers are that sometimes national regulation doesn’t help, and so, going local and figuring it out where are the pinch points that are not facilitating the process? Working through innovations in finance, so there’s some sort of either understanding the payback, or getting us, as consumers, more confident that we are empowered to act to improve our homes. It’s like there has to be a stronger campaign for people to have confidence that it can be done, because right now, there’s silver linings here and there, but we don’t have scale and the problem is huge.

Sayeh Ghanbari

Absolutely, and I think the lack of scale comes the lack of skills. So, even if you get it done, then the first time it breaks, you know, you’re going to spend six months trying to find someone to try and maintain it and fix it for you. But I think those problems have been solved by other countries. So, you know, I mean, I grew up in Sweden, which is why 2cm of snow doesn’t faze me when I need to get in today, but you know, that’s a place where, actually, this – you know, a – fine, the housing stock is in much higher quality, much better insulated, in the first place. But that, sort of, retrofitting is also easier because there’s – policies are in place, both in terms of the capital, but also in terms of the skills and the people who can come and do it.

And I think I’ll just make one last comment on nuclear. I’m sure you want to close us off.

Owen Grafham

Okay.

Sayeh Ghanbari

Which is, I am with Ben on you need – you know, I, kind of – you need every tool in your arsenal to deal with this, so absolutely yes to nuclear. I think the question is for the communities that are hosting that type of in – you know, infrastructure, whether it’s nuclear or any other type of infrastructure, what’s important is that we recognise that it is a community that is hosting that on behalf of all of us and how do we look after that community as a consequence? I think that would be my comment to that.

Owen Grafham

Okay. So, I’m aware we’ve ticked over our time limit, so I’m not going to continue to entertain you with lots of conclusion. I’ll just say, you know, I think we’ve heard a lot from our panellists today about money, about the scale of the challenge, of course, but we’ve heard so much more than that, as well. You know, that there had been talk about various different bits of tech, there’s been talk about design strategies that can change the way we configure that investment need. Public policy has come up a lot and yeah, maybe we can dig more into the financial tools and the business strategies that might change us, as well.

So, with that said, I’m just going to say thank you to all of our panellists, who’ve done a sterling job of entertaining us tonight, so a round of applause for them, and…