updated on 21 April 2020
QuestionHow are the UK's net zero commitments affecting commercial law firms?
On 27 June 2019, the UK became the world's first major economy to legally commit to net zero by legislating to amend the Climate Change Act 2008 to create a legally binding requirement for the UK to reduce all its greenhouse gas emissions to net zero by 2050. This amendment replaced the country's previous target of reducing emissions by at least 80% from 1990 levels and followed a recommendation from the Committee on Climate Change (CCC). The CCC concluded that net zero is not only necessary on the basis of an overwhelming scientific consensus and the UK's commitments as a signatory to the 2015 Paris Agreement, but it is also as feasible through technology and innovation as it is cost-effective.
This single legislative change will have significant implications for our clients across the major sectors and industries that make up the patchwork of our modern economy. While we await more formal measures from the government on how it plans to achieve net zero, the significance of announcements from private companies should certainly not be underestimated. The announcement last month of Barclays' plans to reduce the carbon footprint of its business to net zero by 2050 is just one such example.
"Any business or government that wants to build anything… needs a genuinely credible and legally watertight net zero strategy," according the editor in chief of Business Green in a recent article and iwe are already seeing Net Zero become a driving force for both public policy and business strategy. The relative resilience of investments in highly energy efficient office space and funds with particularly strong environmental and social governance (ESG) credentials reveals how net zero is making its mark both on real estate investment and the stock market.
Net zero is a key point of discussion with clients and the challenge presents a spectrum of opportunities for Burges Salmon as a commercial law firm. The scale of change is enormous and the pace of innovation is rapid so it is important to monitor the situation day by day and to demonstrate both a commercial and legal understanding of the key issues and developments as they happen.
As a trainee solicitor at the firm, I have been fortunate enough to gain a fascinating insight into the work our net-zero Lawyers are doing to facilitate the transition. Our lawyers are experts across the four sectors we consider to be central to the decarbonisation of our economy: transport, energy, land use and the built environment.
Carbon emissions from transport must be addressed if we are to achieve what is needed for net zero. The UK government is currently in the consultation stage of developing policy proposals for decarbonising our transport systems. One mode of transport that is taking much of the limelight at the moment is the electric vehicle (EV). The government has pledged to end the sale of all new conventionally powered vehicles by 2040 and the CCC anticipates that a speedy uptake of EVs by individuals and organisations will create demand for around 27,000 EV charging points by 2030.
In January this year, the EV energy taskforce published its report on the impact of EVs on the energy system. Key takeaways on how the system can assist in the roll out of EVs included the need for EV charging points and supporting infrastructure to be designed as part of a smart grid, addressing consumer concerns around data protection and a push for private sector investment in EV charging infrastructure.
This presents opportunities aplenty for lawyers to advise on new legislation and regulation, as well as facilitate legal arrangements for private organisations who can provide the necessary EV infrastructure. Car parks, offices and retail spaces lend themselves especially well to the development of EV charging points and the nature of each space will influence the type of infrastructure required. Landowners and operators both have much to gain from this and there will be many opportunities for lawyers to assist in the appropriate legal arrangements to facilitate such infrastructure.
Increasing EV uptake will create a surging demand for electricity and this is something the energy market regulator Ofgem is actively recognising. Its decarbonisation action plan published on 3 February displays the interdependence between the need for a more flexible supply of electricity and the rise of EVs. The EV energy taskforce report also referred to the potential cost benefits to EVs if electricity comes from flexible renewable sources.
Energy is most often at the forefront of discussion around net zero and it will be at the heart of the UK's route to decarbonisation no matter which avenues we pursue: the sector will determine how we power our low-carbon transport, our buildings, our homes and our heating systems in a net-zero future.
More ambitious targets for increasing the percentage of renewables in the energy mix shows how net zero is commanding policy development on the deployment of renewables. At the beginning of March the Department of Business, Energy and Industrial Strategy (BEIS) announced a consultation on amendments to the Contract for Difference (CfD) support scheme for low-carbon energy generation. This came as major news for the industry: the return of support for onshore wind and solar, in addition to a variety of other changes were announced, including the possibility of giving fixed offshore wind increased recognition, a specific 'strike price' for floating offshore wind and an extension of the end date of the CfD scheme. The outcome of the consultation will have varying implications for stakeholders who should make their voices heard in the process to see their interests taken into account.
The scale of the increasing rollout of renewables provides fertile ground for a steady stream of projects to kick off and this is something we are assisting with more and more, particularly for wind and solar. There are legal considerations specific to each type of project, from the initial planning and consent stage through to build out and operation. The increased deployment of offshore wind is primed to play an especially prominent role in providing an additional supply required for electrification across the economy, confirmed by an updated BEIS policy on offshore wind in early March this year.
No discussion on the work we do advising on and facilitating low-carbon energy developments would be complete without a mention of hydrogen. The CCC has acknowledged its significance for meeting net-zero goals and in a recent report on the power sector, the National Infrastructure Commission (NIC) predicted that costs could as much as 30% lower based on scenarios where hydrogen is used to support electricity generation from renewables - more on this below.
Hydrogen has some attractive attributes as a fuel source and could provide opportunities for the rail industry, for example, replacing diesel-only trains on regional rail routes where rolling out electrification may less be commercially viable.
We know that government support will be an essential building block of the developing hydrogen economy and an announcement of funding in February came as welcome news for a number of projects . We know that innovation around the conversion of surplus renewable energy into hydrogen through electrolysis (known as 'green hydrogen') is needed. Green hydrogen is referred to as 'energy storage' as it has potential for storage in volume for later use in times of high demand or in fuel cells for transport. The production of large volumes of low-carbon hydrogen using carbon capture and storage technologies is tipped to play an important role in the emerging hydrogen economy. The hydrogen economy is in its early stages and it is clear that rapid commercialisation will be required, but the promising pipeline of projects and investment in research indicates how seriously the sector considers hydrogen as having a part to play in our low-carbon future.
An important area where commercial lawyers can add value to these projects is regulation. It is vital that organisations understand the regulation governing their projects, not only to ensure compliance but because energy regulation can positively impact return on investments where it enables projects to be deployed faster and to innovate and be resilient against likely regulatory changes.
One of the key transformations required to decarbonise the built environment will be how we heat domestic and non-domestic buildings. This is less of a challenge for new builds, which can and should be built using low-carbon materials to operate energy efficiently, not least to avoid the risk of falling short of more stringent standards in the future. What is less straightforward is decarbonising much of our existing built environment, where we are recognising the scale of the work that is required to help organisations retrofit buildings away from burning fossil fuel gas for heating.
Heat networks or 'district heating' refers to heat generated from a centralised source distributed to buildings through a network of pipes. In the context of net zero the source of this heat would need to be low carbon. The heat can be produced in a number of ways such as using a combined heat and power plant (CHP) which can use excess heat generated in the production of electricity from renewables. Heat pumps, central solar heating or heat waste from nuclear power stations offer other potential sources of heat for use in district heating.
The cost savings stated in the NIC report on the power sector were modelled on two scenarios for a low-carbon heating system and both showed material cost savings where hydrogen was used to support generation from renewables. The first scenario was modelled on electrification predominantly with heat pumps and the large-scale deployment of hydrogen turbines; the second using low-carbon hydrogen produced by reforming gas and storing the carbon by-product.
Land use and food production
Land use may perhaps one of the most challenging areas to decarbonise, though that is not to say the sector is not capable of rising to the challenge.
In February of this year, our firm held a net zero roundtable event where key stakeholders discussed likely changes to the sector to achieve net zero. One of the conclusions was that the sector expects the emergence of a ‘net zero land use’ category. Rural land and estates have the potential to offer a wide range of environmental opportunities for investors seeking to maximise their ‘natural capital’. A report published on 8 March by advisory body the Natural Capital Committee set out how using this natural capital can aid in reducing emissions, but any strategies to do so must be carefully planned, for example, with tree planting contracts.
Rural land also offers opportunities for landowners to capitalise on the pressing need for increased renewables deployment. The development of onshore wind and/or solar is particularly well placed, especially given the proposals for the CfD scheme discussed above and we are seeing more and more landowners who are making the most of this potential.
Net zero is influencing the development of legislation in this sector: we saw this recently in the government's responses to a consultation on reform of agricultural tenancies. This consultation included how potential revisions to succession rights under the Agricultural Holdings Act 1986 might include a reference to sustainable or low-carbon farming methods, as well the potential introduction of provisions in tenancies to ensure access to future funding schemes or statutory obligations in relation to the environment is not prevented.
How we can help
Our economy is rapidly evolving to the challenge net zero presents and we are seeing new developments every day. Collaboration between the four key sectors and government is needed to achieve our net-zero target: that much is clear. This must be met with a similarly collaborative approach between lawyers who are skilled at helping clients to innovate and realise the opportunities this almighty challenge presents. The situation is certainly keeping us busy as we work with our clients to help them achieve and capitalise on these opportunities on the path to net zero.
Joanna Peasland is a trainee solicitor at Burges Salmon.