Funding the Future The UK’s energy transition in a global context Part of The Clean Growth Gap – a series of reports and economic analysis from Energy UK, supported by Oxford Economics Funding the Future: The UK’s energy transition in a global context Executive Summary: The UK’s Energy Transition in a Global Context Net Zero presents knotty challenges of global collaboration and competition. This is especially true in our world of globally connected finances, where investment flows across borders to where it can be put to best use. These flows are shaped by the decisions of governments around the world, and if we are to understand how to attract investment to the UK, we must first appreciate how the UK compares to other countries. “Funding the Future” - the second in Energy UK’s “The Clean Growth Gap” series - sets out what governments around the world have done to attract investment in their clean economies and what this means for the UK as it considers its next steps in the energy transition. China dominates global activity, boasting nearly half of the world’s clean technology investments in 2022. Investment is key to the energy transition Investment is the way the world will fund the transition to a Net Zero economy and in turn shape all our futures. The UK’s energy security, future prosperity and the potential to achieve our climate goals are all reliant on the ability to attract investment. Around the world, this investment mostly comes from the private sector (60% in 2022 according to The International Energy Agency (IEA)1), but government action and strong policy support is vital to unlocking it. The world is investing China dominates global activity, boasting nearly half of the world’s clean technology investments in 2022. Its $546 billion spend in low carbon technologies was over three times the spend of the European Union which totalled $180 billion in 2022 (Fig. 1). The United States came in third, with $141 billion invested. Governments have made significant, long term financial commitments There has been a recent flurry in new, large scale investment incentive regimes. 2 There has been a recent flurry in new, large scale investment incentive regimes. The $369 billion Inflation Reduction Act in the United States and the European Union’s REPower EU initiative (€270 billion) and Recovery and Resilience Fund (€250 billion) are by far the largest. Multi-billion dollar incentives in other key markets including Japan, China and India make the competition for clean investments even more intense. Funding the Future: The UK’s energy transition in a global context This is already having an impact Even though these schemes are very new, signs of a surge in activity are emerging. Bloomberg NEF has found that since the introduction of the IRA, automotive and battery sectors have announced 20 times more funds for new factories than in 20212. Equity price data suggests that markets viewed the passage of the IRA as being something that would notably boost US clean technology companies’ future profits. Since the passage of the IRA, automotive and battery sectors have announced 20 times more funds for new factories than in 2021.2 These shifts have major implications for the UK The UK has significant strengths as it faces the challenges of decarbonisation. These include our world-leading universities and financial services, and our early success in offshore wind and established industries (such as in the digital and oil and gas sectors) that can support clean growth. However, the UK ranks 30th out of 38 OECD nations on the average proportion of capital investments businesses are able to recover3 and is yet to see new investment incentive regimes that can meet the scale of global competition. The rest of The Clean Growth Gap series will explore in more detail the importance of clean investment for the UK and how the Government can take action to address it. The UK is yet to see new investment incentive regimes that can meet the scale of global competition. Fig. 1: Energy transition investment, 2022 ($, billion) 546 China 180 European Union 141 US 55 Germany France 29 UK 28 Japan 23 India17 Italy16 Source: Bloomberg NEF; Oxford Economics 3 Funding the Future: The UK’s energy transition in a global context How investment incentive regimes vary around the world Governments in major economies (US, EU, China, Japan and India) are undertaking significant programmes to attract private sector in