Energy prices and war

Following Russia’s invasion of Ukraine, global energy analysts are predicting further uncertainties and challenges on global energy price and availability.

Foreign Policy predicts that sanctions on banks and other entities will impede Russia’s oil, natural gas, and coal exports, in turn wreaking havoc on global energy markets.

The Financial Times quotes Boris Johnson, noting that Britain must endure yet higher energy prices as the cost of inflicting ‘pain’ on Russia via sanctions.

“At Energys we are deeply saddened to see any violent engagement between countries, and even more so when these stoke global energy insecurities for businesses finally seeking a period of relative calm following the Covid pandemic,” comments Kevin Cox, Managing Director, Energys.

“Any war is horrific but the timing of this particular invasion beggars belief given the global suffering of the last two years and the additional suffering this will cause for people and businesses.”

More on the potential impacts…

The House of Commons Library (HOCL) writes that the conflict in Ukraine will also influence UK inflation, directly impacting businesses.

Russia’s military action in Ukraine will also have implications for the world economy. For the UK, the most likely economic impact, at least initially, will come through higher energy prices, HOCL says.

For the UK, higher energy prices would first be felt in petrol prices and then potentially energy bills for businesses.

HOCL also notes that if inflation does rise further, this would put additional pressure on household budgets and increase business costs. Consumer and business confidence could also be hit. More caution could result in the public spending less, lowering economic growth.

Tax for Net Zero

ICAEW, the membership accountancy body which seeks to build greener economies, is calling for a reevaluation of how tax might hasten takeup of UK clean tech and thereby Net Zero.

It writes that the UK has a vibrant research and development (R&D) industry, yet neither R&D tax relief nor the patent box has any requirement for a Net Zero contribution. Is this a missed opportunity?

Its argument runs that Government quickly realised that making a CO2-emitting manufacturing process more expensive to pursue in the UK by, for example, imposing a climate levy on a polluting activity, simply moves that activity overseas and creates an import opportunity.

ICAEW says it is clear that tax reform is needed and that the electorate is likely to expect climate change to be taken seriously. This is not going to be simple; it will be expensive and will require some difficult decisions, but a coherent strategy is needed.

Corporation tax is due to increase to 25% in 2023 and will be part of a new two-rate system where smaller companies pay at a lower rate, it concludes. Should we consider more rates allowing a discount for businesses that achieve green targets?

Manufacturers warned

The Guardian is reporting that as well as driving up costs for energy intensive companies, western sanctions on Russia could hit the availability of materials used in the aerospace, automotive and electronics industries.

Mike Thornton, the head of manufacturing at the accountancy firm RSM, said: “As the Russia-Ukraine conflict unfolds, UK manufacturers should brace for some additional headwinds. The surge in energy prices is the most obvious for heavy industry.”

“In this scenario, we advise energy intensive firms to do all they can to maximise energy efficiency,” comments Kevin Cox. “This is quite literally the most secure option against price; use less of what is costing you more.

“We can advise and embed efficiency solutions very fast, and we can help you get them online equally hastily. These needn’t be deep or major investments with major planning; that’s great when the time is right, but if you need to move quickly to navigate market conditions, options are there too.”

IPCC report calls for more and faster energy efficiency

Finally this month, the IPCC’s latest global climate change report contains damning evidence the world’s businesses and government’s must rapidly scale their response to global warming.

The paper notes that while transitions in energy efficiency, carbon intensity of fuels, electrification and land-use change are underway in various countries, limiting warming to 1.5°C will require a greater scale and pace of change to transform energy, land, urban and industrial systems globally.

An energy system transition is happening, says the IPCC, and efficiency is a key part, but deeper emissions reductions are needed, especially in energy intensive industries.

The paper argues; energy efficiency in industry is [more] economically feasible and helps enable industrial system transitions, but would have to be complemented with greenhouse gas (GHG)-neutral processes or carbon dioxide removal (CDR) to make energy-intensive industries consistent with 1.5°C.

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