Investor fury over Rishi's rollback

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 0:11

Hello listeners and welcome to the Montel weekly podcast, bringing you energy matters in an informal setting. In today's pod, we discuss some of the backlash growing against climate protection policies. Several countries have had to drop or scale back measures aimed at mitigating the impact of climate change. But today, we focus on recent announcements by the UK Prime Minister Rishi Sunak, pledging to overhaul the UK plans to meet its net zero targets. Is this, as critics say, mere electioneering, political posturing, siding with climate change sceptics, or do the plans make sense amid the high cost of living? And in addition, are these measures scaring off much needed investments? I'm Richard Sverresen, and joining me to discuss this and much, much more is Helena Anderson of Ikigai Capital. A warm welcome to you, Helena.

Helena Anderson, COO, Ikigai Capital: 1:01

Thanks, Richard. Nice to be here.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 1:04

Um, were you, were you surprised by, by Rishi Sunak's announcement last week?

Helena Anderson, COO, Ikigai Capital: 1:09

I can't say I was surprised, but I was really, really disappointed, uh, and quite angry, to be honest. Um, because the nature of the announcements was such that many of them go beyond this parliamentary turn. Many of them will only hit his successors, um, and they do not have a budgetary impact. They are sending, uh, a regulatory signal that involves no commitment from Treasury. And in that context, I think it's pure populism, and I think it shows a lack of understanding of how far the electorate and how far businesses come towards seeing, uh, environmental protection measures, climate change measures as business as usual.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 2:00

So is this a new approach by the UK government, or is it kind of seen against the context of the... by election in July where the Conservatives narrowly won on a sort of basically an anti uh, ultra low emission zone or U less platform.

Helena Anderson, COO, Ikigai Capital: 2:15

I think this is a continuation of the, the fear that the, that Westminster has, that number 10 has in the backlash against Sadiq Khan's announcement that they were going to expand the low emission zone in, to greater London. And the, that specific policy has its. Challenges, because it's very complex, both to understand whether or not it has a positive impact on pollution, uh, which is the primary reason for it, it's not about carbon emissions, it's about pollution, and the impact that pollution has on, on health, um, which is very significant in London, thousands of people die every year because of it, um, and whether or not creating a low emission zone just pushes pollution out to Um, other main roads, clogs up, uh, the, the arteries means that people are just stuck in traffic and doesn't actually have a real impact. It's also complicated and lots of people were very fearful of it in Greater London because they don't have other transport choices. So you're making, uh, uh, you're creating a policy that forces people to, um, find an alternative to their day to day commute that is not public transport. And therefore, inherently, there's a feeling that it's going to be very costly. Sadiq Khan has argued that actually there are plenty of second hand electric vehicles on the market or other vehicles that meet the low emission requirements. But that's a very difficult measure. A very difficult policy to explain if you're someone who, um, is, is on a low income and you're facing a capital cost of a replacement of a car.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 3:58

I mean, I, I think is this generally as part, would you, would you, would you see this as an overhaul of, of policies aimed at helping the UK meet its legally binding target and net zero by 2050? I mean, up to now, there's been kind of a cross party consensus on the, on the issue. Is that being ripped up now?

Helena Anderson, COO, Ikigai Capital: 4:17

Yeah, I mean, it has, there has been a cross party consensus. It is a topic where there should be a cross party consensus. If, if the existential crisis that we are facing is not a cross party issue, I'm not sure what is. Um, but more importantly, I think the electorate has moved beyond this as a political issue. It's now seen by most of our clients, most of. The businesses that we deal with as fundamentally an opportunity for us to keep pace with, uh, what the rest of the world is doing for us to create a supply chain here that both benefits us locally, but also creates export opportunities. Um, and this has to be seen in the context of a huge amount of investment that is going on primarily in the US and in the rest of Europe. Where the one thing that we could hold our hands up and say we are leading on was these non budgetary effect targets. Uh, where now, what do we have to say to the rest of the world as to why they should invest here? What do we have to say to our existing car manufacturers that actually it's worth a commitment to the UK economy post Brexit? Where we're not in alignment with, with the EU in terms of the way in which, um, the standards are, are, are upheld. What do we have to say to them as to why they should invest in manufacturing here? And who loses out of that? What makes me incredibly angry is there's a, there's a, um, a sell job going on from the Conservative Party right now that actually these measures hit the poor. These measures hit the outside London populace. When in reality, the opportunity we had was to create an advanced manufacturing, green advanced manufacturing, uh, opportunity that would primarily benefit the region, the North, Scotland, Wales. That was the opportunity. So instead, for no budgetary impact whatsoever, we've not gained anything in Treasury by doing this. What we've done is deprived people outside London of high quality jobs, of businesses outside London of an export opportunity. And we're doing that in the context of an already difficult environment where we were hearing from investors, why would we invest in the UK when the money's been thrown at us in the US? Why would we invest in the UK when there are so many support systems, subsidies and otherwise in the EU for the conversion to low emission vehicles, both trucks and cars. So you've just made it much harder to justify to international investors and you've made the very community that you're claiming to support infinitely poorer in terms of their life chances. And you've made it more expensive for us to have a supply chain that meets the inevitable move. So all that's going to happen is we're going to create a shock to the system now, and a shock to the system later. When we all have to catch up, having done nothing, towards an inevitable goal. So, for me, there is just, on no level does any of this make sense. Politically, financially, it makes no sense.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 7:54

And in, and in, of course, in the medium to long term, it'll actually increase prices, because you're, you're, you're not lowering the, the dependency on outside sources of, of, of fuels.

Helena Anderson, COO, Ikigai Capital: 8:02

We already pay a UK premium for most of the manufactured goods that are incorporated into my sector. Renewable energy decarbonization. It's a well known fact. There's a 10 to 20 percent premium on anything you buy into the UK market compared to Europe. And we just increased that overnight because we haven't sent a signal that pulls forward manufacturing capability here now, that we will become an even greater importer, we will be, our balance of payments will be thrown out further. So all the things that SUNAC professes to care about. He's fundamentally misunderstood and I have absolutely no idea who is pushing this agenda. He is typically being quite neutral because he's a treasury minister and by definition they just take facts, they get representations, and I say this having been in government, they take representations from other ministries. So I don't know who's pushing this, but he's obviously getting advice that a portion of the electorate is susceptible to this message. Without them fully understanding the complexity of pulling this lever and pushing that button. In

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 9:12

essence, as you said at the start, you know, it's short term populism, basically to try and get them to win some votes in the next election.

Helena Anderson, COO, Ikigai Capital: 9:18

Yeah, but I think that he's underestimated a lot of segments of society that have moved on. Obviously the youth, uh, are terrified of the future that they are about to face. Many of them feel disempowered and this was at least a signal that the UK was trying to lead the world in some respect. I think you find that actually the older generation care about their grandkids. And so they have shifted in their mentality towards acting now. And certainly business, if you have any interaction with other markets, with the majority of successful businesses, whether that's in manufacturing or otherwise in the UK, certainly financial services, you have an interaction with other markets who are leading. So we do a lot of work in decarbonization of airports, in decarbonization of ports. Fundamentally, those are interregional, international businesses. If we are working, at the moment we're working on the decarbonisation of the port of Dover, the ferries and the cargo vessels that operate through the port of Dover, our most important export port, they are all subject to EU regulation, which will require them to reduce their emissions. So the fact that the UK does not keep pace with that does not mean that they do not have to shift their behaviour. It just means that if they have a choice as to whether they have to come into a UK port and there's not the support there to enable them to electrify or to use hydrogen in the case of aviation or what have you, if that support's not there, it just means they don't prioritise that market. They find a way around it. They're not going to avoid caring about climate change. That's the new reality. So it just feels so outdated and so out of sync. With the way that the majority of the electorate has moved their thinking. I

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 11:19

mean, what are you hearing from investors, from your, from your clients, Helena? Are you, are you hearing, are they actually, right, okay, that's the last straw. We're, we're, we're upping sticks or we're going to invest our money in the, in the US or in Europe instead.

Helena Anderson, COO, Ikigai Capital: 11:32

Well, the changes that SUNAC announced hit specific sectors. So the one that I was particularly frustrated by, uh, affects the haulage sector, and that is the obligation to shift away from fossil fueled internal combustion engines, um, earlier than, than Europe. That's, that's the fundamental point. We were leading. We, now we are, he argues we are in sync with Europe, but we don't have as many leaders as they do. Financially to play with. So we have to lead through regulation and the consequence of that hits the car industry who, you know, we have a lot of interaction with because we deal a lot with the supply chain on critical minerals like lithium. Uh, we deal a lot with the battery sector, um, and fundamentally we work in industrial decarbonization. So we engage with the car sector and that signal you will definitely have strong demand and there is an advantage in moving early towards. Um, electric vehicles, electric car, car, cars, and, and, uh, passenger vehicles. That was a really strong signal for them to move across their manufacturing capability. And we were starting to see the green shoots of the supply chain growing in, in the regions. Uh, it was also starting to stimulate, uh, a van industry. So commercial vehicles, three ton, uh, vehicles for, which are majority diesel right now. And, uh, it was a really strong statement to this haulage industry that they need to be moving towards low emission trucks. And that then has flown on impacts for the infrastructure required to support those vehicles. So investors could make a decision to invest in not just car charging, but also looking forward to truck charging, uh, or biomethane or hydrogen fueled, uh, trucks for, for heavy duty vehicles. They could start to see that this is inevitable. So we better move now. Now, if the government can roll that back, what else will they roll back? That's what it, it creates an uncertainty and a lack of confidence in the policy infrastructure. So that, that, that is, that has contagion effects because people think, well, if you can do this in relation to this specific sector, what are you going to do in relation to other sectors just for popularist purposes? So it has broader impacts, but it also means that, where is the, where is the incentive to do anything now? Let's just wait 10 years, shall we? What does that do to the hauliers that only operate within the UK in terms of their capital investment decisions? It means they just wait. So we have 10 more years of doing absolutely nothing. And that, yeah, not, not just within the vehicles, but within the wider value chain supports those vehicles, within the wider supply chain that incentivizes their hauliers to change their behavior. As a consumer of haulage services, it has massive flow on impacts.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 14:41

What about the car industry more generally, Elena? What, what about

Helena Anderson, COO, Ikigai Capital: 14:44

In, in what sense?

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 14:45

What's their reaction, uh, been to these

Helena Anderson, COO, Ikigai Capital: 14:47

Well, you saw Ford come out on the day that Sunak made the announcement and say how disappointed they were. And so I think that there are arguments going on within government where aspects of the car industry are maybe saying we can't keep up. This is too ambitious. We cannot retrofit in time. I, I have heard that argument. But those same car manufacturers have operations in Europe where they're switching. So the argument is really based not around the vehicle manufacturing, but around the supply chain that supports the vehicle manufacturing, so batteries. But if we had, like Europe has, like the U. S. has, if we had a sophisticated critical minerals policy that supported processing of the minerals required for batteries, which is what Ikigai is involved in at the moment, we're supporting a company called Green Lithium that's building a refinery in the northeast for, um, lithium hydroxide. If we had a sophisticated approach to investors in the middle of the supply chain, the cathodes and the anodes, we don't have any manufacturing of that right now, but it wouldn't be difficult to attract it if we had a coordinated response as a country. And we then looked at how we were going to attract investment into gigafactories in a, in a really strategic way, recognizing that this is an industry that will determine the competitiveness of economy in the future and acknowledging that the car industry. Is our most important manufacturing segment. It's the last thing that we export in this country. So in that context, why, why would you create a lack of confidence in the need to, to shift behavior? Why wouldn't you instead find ways of using the tools that are already in the toolkit? To create the supply chain necessary to help the manufacturers of those vehicles meet those targets. Yeah, I mean, uh,

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 16:43

if you, you're putting it very succinctly and very eloquently there, Helen, I think, you know, it's a, it does in that sense, beg a, beg a belief. And it says what, what is, you know, uh, going too fast for some parts of the population, you know, that, that's been the...

Helena Anderson, COO, Ikigai Capital: 16:57

I think the reason that people like me are speaking out now, where we would previously not have done so, other business leaders are speaking out. Thanks. is because when you can argue that there is a financial trade off, a legitimate financial trade off, or a legitimate issue with a just transition, or a regional benefit that doesn't accrue to the rest of the country, we will listen, and we will understand the arguments, and we will discuss. But when it makes no sense, Most people, like me, who are close to this activity every day, who are listening to international investors every day, and local investors, we cannot reconcile this. There is no intellectual basis for this. This is not good policy. And in that context, we are speaking out because we want to encourage change. We don't want to see this policy implemented, and many others that I'm sure will come up before the next election. This is not a political statement. This is not a partisan issue, as you put it. We are not here saying, oh, we're all Labor supporters. Quite the opposite. We are saying, there is no intellectual basis for this decision. You are going to put the UK even further behind the rest of the world on something that is an inevitable outcome. So why not participate in the growth and the opportunity? Rather than hiding from it. So, so who benefits from this? I have no idea. In, there are aspects of what he's done where there is an argument either way. So for example, on gas boilers, were due to be phased out by 2025, that's now being rolled back, less support for heat pumps. Heat pumps was one of the industries where we were actually encouraging investment into growth in manufacturing of heat pumps. Um, they are expensive. Uh, we've done lots of cost analysis of the inclusion of heat pumps into, into homes, and when you combine them with, uh, renewable generation, you know, they do have a payback period that is long, but viable from a financing perspective. They're very challenging for older homes, particularly homes in London. It's a challenge because of the lack of space. There are reasons why heat pumps are challenging. The reason why the phase out of gas was initially, uh, created was partly for safety reasons. Taking gas out of homes reduces the risk, lowers your insurance bills, etc, etc, lowers maintenance bills, all of those things. It wasn't just about climate change. So, I think, you know, I can understand why there are people on different sides of the debate, but it was a really important growth industry, it is a really efficient way to produce heat in homes, in the right conditions, it wasn't excluding alternatives like the move towards more low carbon gases within the gas network like hydrogen, uh, and hydrogen ready boilers, that wasn't, the current policy was not excluding that. So, there, there are new options there. But when it comes to changing the phase out date for fossil fuel internal combustion engines, I, I can't, there are no sides to that. That doesn't make

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 20:24

no, absolutely. That's a, that's, that's, uh, comes through very clearly. And I think, uh, you know, just, uh, just sort of like to, to round off the, the discussion here by talking a bit about the, uh, the international impact. I mean, this is, these policy measures. Come, you know, as we're heading into another cop, I mean, what, what kind of impression does this give to, to, you know, global leaders in terms of where the UK stands on, on these environmental policies?

Helena Anderson, COO, Ikigai Capital: 20:48

Well, as you will have gathered from my still accent, I'm Australian, uh, but I have lived in this country for 17 years and my business partner, uh, he literally became a British citizen yesterday. So having worked in the UK government, being very proud of what the UK has achieved. We've been leading in the environmental stakes for the last, I would say 10 years, for all of the mistakes of the current government, that was one thing that we could be proud of. In the context of Brexit, where we have arguably voluntarily reduced our impact on the global stage, for, for various reasons, I'm not going to get into the Brexit debate, but what's really important if we as a country decide that's the way that we are moving. We need to punch above our weight with other tools. And we just made ourselves average or below average. So we don't have any gravitas in this debate anymore. Who cares what the UK thinks? Unless you're in Scotland, of course, where people look to the Scots and say, well, good policy, budget allocation, progressive thinking, but where, where's our gravitas on the world stage when it comes to the environment now, we have a king who is incredibly highly respected in this domain. Who is making announcements in France about how the UK is wanting to work together with other countries to achieve climate goals. On the very same day, our Prime Minister is announcing that we want to be average. Or, or follow.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 22:37

Yeah, I mean, is it, is it, is it too much to hope that these, some of these, uh, they can make a little bit of a U turn on these announcements, Eleanor? After seeing the reaction from industry leaders such as yourself, the automobile industry, I mean, there seems to be very few voices of support here.

Helena Anderson, COO, Ikigai Capital: 22:55

I think it will be difficult for him to make a U turn now. He's obviously got forces within, uh, the advisors within number 10 that are telling him that this is an electoral winner. I think if we are serious about climate change, those of us who are serious about environmental protection, serious about sustainability, preserving natural capital, uh, we have to make this an, the electoral issue because the cost of living crisis is temporary and largely driven by external factors. The other challenges that we have as an economy are either historic and will not be helped by not focusing on the green opportunities, or they are also temporary. And therefore, those of us who understand and care about these issues, we have to put our money where our mouth is, or our vote where our mouth is, and we have to say, Whatever you do, government, this is the path we're taking. So you're with us. Or you're against us, but we're not changing. I, I really think that the onus is on us now in business to lead.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 24:08

And let's hope some, um, some others are listening and, and do the same as you, uh, uh, Helena. So, um, thank you very much for being a guest on the Montell weekly podcast. Thank you, Richard.