Net Zero: both a climate and economic imperative

5 minute read

Ed Simpson

Director, Head of Energy and Infrastructure, Member of the Investment Committee

The UK's commitment to achieving Net Zero carbon emissions by 2050 is not only a response to the global climate crisis, but also a strategic economic move.

The way in which we power our homes, our industry and our transport has to change to minimise the effects of climate change. There are many reasons for these changes, but the fundamental driver is that if we want to continue to live with the same - or better - quality of life that we currently enjoy, without destroying the world for our children, we need to stop using fossil fuels.

However, investing now to facilitate a low emission way of life is not just about minimising costs. Investing now to achieve Net Zero means lower overall cost and more time for the UK to reap the benefits of a sustainable economy.

In this Q&A, Ed Simpson, Head of Energy and Infrastructure at Gravis Capital Management, shares his thoughts on the economic considerations surrounding the future of net zero in the UK, exploring the costs of implementation, potential long-term consequences of inaction, and the crucial need for diversification in energy generation.

Why are we spending so much money trying to achieve Net Zero?

It is true that to have an economy that overall produces no incremental emissions of CO2 will require massive changes to the ways in which we live and work. To allow people to make these changes will require up-front investment, ranging from the development of renewable energy infrastructure to the retrofitting of existing buildings. While the financial commitment is substantial, viewing it solely as a cost overlooks the long-term economic benefits.

The investment in renewable energy projects and green technologies stimulates economic growth, creating jobs and fostering innovation. The renewable energy sector, including wind and solar, has already become a significant source of employment, and further expansion is expected to bolster job markets.

Furthermore, had we all insulated our homes and put solar panels on our roofs, then the energy crisis over the last few years would have been significantly less marked, costs would likely have gone up less, and the impact on households would have been significantly lower.

Finally, there are other external costs of maintaining the status quo. The World Health Organisation has declared air pollution to be a public health emergency. In the UK alone an estimated 40,000 deaths per year are linked to air pollution, and it costs health services and businesses an estimated £20 billion per year*. 

By investing to reduce emissions from energy generation, travel, industry and heating our homes, the UK should also benefit from improved air quality and reduced costs of looking after people who suffer from pollution derived respiratory illness or premature death.

Why are we rushing to achieve Net Zero?

Some people argue that we should wait before investing in Net Zero, either because they think it will cost too much now, costs will be less in future, or there will be a technological “silver bullet” that will solve the climate crisis. However, I would argue that because it takes so long to change, making investments now, that will deliver environmental and economic benefits for years, is better than delaying and risking incurring greater costs to change in future.

This temptation to delay has been seen in the UK recently when the government pushed back its plans for banning the sale of vehicles with internal combustion engines. However, the car industry - whilst highlighting that it needs consistency of policy - has not changed its plans because it recognises how long it takes to invest and develop new products. Plans for electric vehicles (EVs) are continuing anyway on the basis that consumers will be demanding EVs for cost, efficiency and environmental reasons, regardless of government targets.

At a macro level, a failure to address climate change can result in severe economic consequences, including the loss of jobs due to extreme weather events, reduced agricultural productivity, and damage to infrastructure. Moreover, the toll on public health from air pollution can lead to increased healthcare costs and a higher incidence of respiratory diseases, contributing to a less productive workforce. The financial burden of dealing with these consequences far exceeds the costs of proactive mitigation and adaptation measures.

Can we rely on renewable energy alone just yet?

Lots of people question what happens when the wind is not blowing and the sun is not shining. This period, when little to no energy can be generated with the use of wind and solar, is known as the “dunkelflaute” – a term that combines the German words for “darkness” (dunkelheit) and “little wind” (flaute).

In such situations, there may be a temptation to rely on fossil fuels for energy security. However, this short-term approach contradicts the long-term goal of achieving Net Zero. Investing in energy storage technologies, such as advanced battery systems, can provide a buffer during periods of low renewable energy production. At Gravis, we have always believed that diversification ensures a more resilient and secure energy supply. Not only do we invest in solar, wind and offshore wind, but we have also been early investors in other renewable energy technologies like large scale battery energy storage, waste to energy and anaerobic digestion (AD).

This diversification helps to reduce risks. We can earn revenue when the wind blows at night and the solar farms are in the dark, our batteries buy cheap electricity when the wind is blowing, and the sun is shining and then sell the electricity at peak prices when the generation is not so high. Cows, as we know, produce methane when they eat. AD is just like making an exceptionally large cow’s stomach, feeding it, and collecting the gas to then use it as a renewable alternative to natural gas.

Diversification also improves returns. If we can only invest in wind generation then we are competing to buy wind assets when lots of other investors are looking for the same thing, reducing our potential returns. If, however, we are technology and geography agnostic, then we can buy the best assets, wherever they are.

A diversified energy portfolio not only enhances energy security but also promotes economic resilience. By reducing dependence on a single energy source, the UK can mitigate the impact of price volatility and geopolitical uncertainties. Diversification also fosters competition and innovation within the energy sector, driving down costs and increasing efficiency. As technologies advance, the continued exploration and integration of diverse energy sources will position the UK as a leader in the global transition to a sustainable energy future.

How would you summarise the move to Net Zero in the UK?

The future of Net Zero in the UK is a multifaceted challenge that requires a holistic and economically sound approach. While the costs of implementing Net Zero measures may seem substantial, they pale in comparison to the potential long-term economic repercussions of inaction. The temptation to prioritise short-term energy security through fossil fuels must be tempered by a commitment to sustainability and resilience.

Diversification in energy generation, incorporating nuclear, wind, storage, and biogas, emerges as a strategic imperative for achieving both energy security and total cost mitigation. In embracing this comprehensive vision, the UK not only secures its own economic future but also sets an example for the world in the transition towards a sustainable and resilient energy landscape.

Find out more about Gravis' funds here.

This article was first published on ESG Clarity.

Important Information

This article has been prepared by Gravis Capital Management Ltd (“Gravis”) and is for information purposes only. ​

This article is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any recipients of this article outside the UK should inform themselves of and observe any applicable legal or regulatory requirements in their jurisdiction and are treated as having represented that they are able to receive this article without contravention of any law or regulation in the jurisdiction in which they reside or conduct business.​

This article should not be considered as a recommendation, invitation or inducement that any investor should subscribe for, dispose of or purchase any such securities or enter into any other transaction in a fund affiliated with Gravis.  The merits and suitability of any investment action in relation to securities should be considered carefully and involve, among other things, an assessment of the legal, tax, accounting, regulatory, financial, credit and other related aspects of such securities.​

No undertaking, representation, warranty or other assurance, express or implied, is made or given by or on behalf of the Company or the Investment Manager or any of their respective directors, officers, partners, employees, agents or advisers or any other person as to the accuracy or completeness of the information or opinions contained in this article and no responsibility or liability is accepted by any of them for any such information or opinions or for any errors, omissions, misstatements, negligence or otherwise for any other communication written or otherwise. In addition, neither the Company nor the Investment Manager undertake any obligation to update or to correct any inaccuracies which may become apparent. The information in this article is subject to updating, completion, revision, further verification and amendment without notice.​

Past performance is no guarantee of future performance.

Gravis Capital Management Ltd is authorised and regulated by the Financial Conduct Authority; registered in England and Wales No: 10471852 and its principal place of business is at 24 Savile Row, London W1S 2ES.​


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