Betting on nuclear energy, CCUS will do nothing to close “glaring gaps” in the UK’s climate action plan.
The UK Spring Budget avoided generating tremors through the market as Kwasi Kwarteng’s plans did, but Chancellor of the Exchequer Jeremy Hunt’s announcement that nuclear energy will be labelled as environmentally sustainable in the green taxonomy was met with scepticism by industry experts.
“Nuclear power may be a low-carbon fuel source which provides much-needed baseload capacity, though it is hard to avoid the long-term impact caused by nuclear waste, leading to questions about its overall sustainability,” said James Alexander, CEO of UK Sustainable Investment and Finance Association (UKSIF).
Hunt said the inclusion of nuclear energy would be “subject to consultation”, but that the government views the technology as an “essential” part of the country’s transition to net zero, targeting 25% of electricity being created by nuclear power.
By including nuclear energy in the taxonomy, the government hopes to incentivise increased private sector funding.
However, Alexander noted “the taxonomy is just one tool used by our members to inform investment strategies, and will not necessarily be a primary factor in determining access to capital in the markets for various economic activities”.
Mike Childs, Head of Policy at environmental campaign group Friends of the Earth, pointed out that nuclear power is far more expensive than renewables, adding that innovations in energy storage will “soon make [nuclear energy] redundant for balancing energy needs during periods of low wind or solar”.
Josh Burke, Senior Policy Fellow at the London School of Economics Grantham Research Institute on Climate Change and the Environment (GRI LSE), agreed, saying that the costs of nuclear make it “harder to justify on economic grounds”.
The budget will ultimately “do nothing to close the glaring gaps in the UK’s failing climate plans,” Childs said. “When it comes to the environment, this government isn’t working.”
The UK’s net zero strategy has been deemed unlawful in its current state and is due to be updated this month.
However, some experts are cautiously optimistic.
“Nuclear can be a marmite topic when it comes to energy investment,” said Tom Gilbey, Equity Research Analyst at discretionary investment management firm Quilter Cheviot.
“There tends to be a reluctance from people to have nuclear reactors near where they live but ultimately this source of power is going to be needed if we want to get to net zero,” he said.
Reclassifying nuclear power as environmentally sustainable opens up “a whole host” of investment opportunities, Gilbey added.
“Starting from a strong base [of nuclear], the UK may be in a unique position to capture supply chain opportunity,” said Burke, noting that the UK is “a highly specialised innovator in nuclear fusion reactors, and within these, tokamaks in particular”.
Hunt further announced plans to launch Great British Nuclear (GBN), which aims to address constraints in the nuclear market and support new nuclear builds. Under GBN, a new competition for small modular reactors (SMRs) will be launched, with the winners securing funding to develop their designs.
Beyond SMRs, “further large gigawatt-scale projects will also be considered subject to value for money, relevant approvals, and technology readiness and maturity, to help deliver net zero”, the budget summary said.
Follow the leader
The UK is following in the footsteps of the EU. Despite some pushback, in January, nuclear energy and gas were officially included in the EU’s Taxonomy Regulation through a delegated act.
In contrast, the UK’s green taxonomy was delayed at the beginning of this year, and the budget yielded no further details. It is expected those details will form part of the UK’s Green Finance Strategy update.
Last month, the Green Technical Advisory Group (GTAG), 18 industry figures providing advice on the design and implementation of the taxonomy, published ‘Promoting the International Interoperability of a UK Green Taxonomy’, which outlines ten new recommendations for the UK government to ensure increased alignment with taxonomies across jurisdictions.
The GTAG guidance included recommendations that the taxonomy aligns with the EU taxonomy as much as possible and that the government produce guidance on how relevant KPIs can be applied to activities abroad under the UK’s reporting regime.
“The Principles for Responsible Investment (PRI) will continue to engage with government, investors, and through the GTAG to ensure that the development of the UK taxonomy supports the urgent transition to a 1.5°C compatible financial system,” said Eliette Riera, Head of UK Policy at the PRI.
Last year, UKSIF, PRI and Institutional Investors Group on Climate Change (IIGCC) published an open letter to the UK government, noting their “very serious concerns” on the prospect that the UK will also include natural gas activities within the scope of its green taxonomy.
“Our respective organisations stated that this action would undermine the credibility of the UK’s taxonomy for many investors, while significantly damaging the UK’s leadership position on sustainable finance for years to come,” Oscar Warwick Thompson, Head of Policy and Communications at UKSIF, told ESG Investor.
The Chancellor also announced that the government will be providing up to £20 billion in funding for the early deployment of controversial carbon capture, utilisation and storage (CCUS) technologies, building on its previous £1 billion commitment to create four CCUS hubs by 2030.
The budget summary noted that certain oil and gas assets can be “repurposed” for use in CCUS projects, with the government planning to introduce legislation in a future finance bill that will establish the tax treatment of payments made into decommissioning funds by oil and gas companies in relation to the repurposing of oil and gas assets for use in CCUS projects.
A shortlist of projects for the first phase of CCUS deployment will be announced later this month, Hunt said.
The announcement is a welcome response to the incentives available for CCUS in the US Inflation Reduction Act, UKSIF’s Warwick Thompson said.
“Drawing on its well-established oil and gas sector, the UK has a mix of comparative advantages in production and innovation on which it can capitalise to drive sustainable growth from CCUS domestically while contributing to tackling climate change globally,” said Burke from GRI LSE.
However, both told ESG Investor that the government’s support in this space has previously been “inconsistent”, and the £20 billion is more of a “headline figure” when a more credible and firm funding commitment is needed.
“Consistent, long-term signalling continues to be very important for our members across different climate technologies and solutions,” said Warwick Thompson.
Childs remains sceptical. He said that industries such as steel are instead turning to green hydrogen as the “energy source of the future”, thus making the development of CCUS less critical.
“CCUS is starting to look like a technology aimed at prolonging the life of the fossil fuel industry – funded by the taxpayer and higher bills,” he said.