“Crisis? What crisis?” Has the energy crisis dealt a fatal blow to attempts to tackle the climate crisis?

  • Market Insight 11 October 2023 11 October 2023
  • UK & Europe

  • Geopolitical risk

On 3 October 2023 Clyde & Co and FTI Consulting co-hosted a seminar entitled “Crisis? What Crisis”.

The seminar heard from speakers from industry, economists, solicitors, barristers and academics, and took an holistic look at whether the interaction of national and supranational policy, economics and the law was giving the right signals to encourage the investment in the energy transition needed to tackle climate change. The insights provided were enlightening, worrying, and in some cases eye-opening. This article draws on the legal and political insights shared at the seminar.

The context

The title of the seminar derives from a headline in The Sun during 1979’s “Winter of Discontent”, when beleaguered Prime Minister Jim Callaghan tried to play down the economic, labour and political troubles which the UK was facing.[1] We thought the words were rather apt, though, to describe the strange situation the world finds itself in in Autumn 2023. The energy crisis sparked by Russia’s invasion of the Ukraine, and the subsequent cutting off of natural gas supplies to Europe and imposition of sanctions on Russia, seems to be abating. However, the climate crisis has apparently worsened: the Northern hemisphere summer of 2023 has been one of the hottest on record, with catastrophic fires in Greece, Canada and the USA and devastating floods in Libya, India and China. And yet, some politicians have adopted policies which seem to downplay the climate crisis and seemingly retreat from previous commitments to achieve Net Zero. “Crisis? What crisis?” indeed, but which crisis is being denied?

How policy, the law and regulation encourages investment in the energy transition

It is against this geopolitical and natural background that companies around the world are making decisions on investment in energy projects. It’s important to remember that the energy sector is the single biggest contributor to worldwide greenhouse gas (GHG) emissions. Reducing energy sector emissions is therefore crucial to achieving the goals agreed in the Paris Agreement, i.e. to reduce GHG emissions with a view to limiting temperature increase to 1.5° C.

The energy transition aims to reduce GHG emissions by reducing (unabated) use of fossil-fuel power sources such as coal and oil by adopting cleaner energy sources in the form of renewables, energy storage and “clean” hydrogen, as well as enhancing energy efficiency and removing fossil fuel emissions via carbon capture use and storage (CCUS). Many of the technologies involved in the transition are sophisticated, cutting-edge and untried, and consequently carry considerable technical risk while requiring significant capital expenditure.

The law plays a wide role in encouraging investment. Generally speaking, a mature and predictable law of contract, impartial courts with skilled judges and the ability to challenge government decisions and actions all build investor confidence. Similarly, simple, stable and non-interventionist regulation tends to enhance a state’s attractiveness for investment.

However, national and supra-national policy, implemented via legislation and regulation, can significantly stimulate investment into clean energy in a number of different ways:

  • Outlawing fossil fuel-powered generation, heating or vehicles;
  • Making fossil fuels less competitive e.g. by imposing a carbon tax such as the EU’s and UK’s Emissions Trading Scheme (ETS) and the EU’s Carbon Border Adjustment Mechanism (CBAM), which imposes a carbon tax on carbon intensive goods entering the EU from elsewhere;
  • Making clean technologies more competitive and stimulating demand, e.g. by offering subsidies, tax breaks, development grants;
  • Changing companies’ behaviour e.g. by expanding directors’ duties to include impacts on the environment, or imposing climate risk reporting requirements in financial statements such as EU Corporate Sustainability Reporting Directive (CSRD);
  • Commissioning infrastructure to support new technologies e.g. hydrogen storage and transportation/distribution facilities, enhanced electricity transmission and distribution networks, or electric vehicle charging facilities;
  • Creating new markets (e.g. for clean hydrogen) or encouraging nascent markets through pricing mechanisms e.g. feed-in tariffs, contracts for differences (CFDs);
  • Encouraging foreign direct investment by bi- and multi-lateral investment protection treaties and stabilisation clauses. These protect foreign investment from expropriation and unfair treatment;
  • Generally, sending signals of the direction of travel from pollutive industries to clean energy e.g. via adopting binding Net Zero targets such as the UK’s Climate Change Act.

What guides energy policy? By and large, an attempt to balance the so-called “energy trilemma”:

  • Security – meaning both availability of energy sources like gas, but also dealing with the intermittency of renewable energy production caused when there is an absence of wind and sun, requiring baseload generation and/or storage solutions.
  • Affordability; and
  • Environmental sustainability – i.e. minimising the environmental harm caused by energy generation.

These issues tend to pull in opposite directions – for example, coal fired power stations might offer cheap electricity, but they cause significant environmental damage and unless you have extensive coal mines, pose potential security of supply issues. States and supranational organisations legislate to maintain a delicate balance. Shocks can lead to one arm of the trilemma becoming more important than the others and result in short-term interventionism – so, for example, the cutting off of Russian gas following the Ukraine invasion led to the EU introducing its RePowerEU programme which capped gas prices and increased support for renewables.

Mixed signals on investment in the energy transition?

Since the Paris accord, though, it seemed that most nations had adopted a similar approach to the environmental aspect of the energy trilemma, i.e. inexorable reduction of unabated fossil fuel use and to the adoption of clean energy solutions. That certainty has been crucial to encouraging investment in new, expensive and risky technologies like CCUS or green or blue hydrogen. If you are proposing to invest millions of Dollars in risky, cutting-edge clean technology, you want to have comfort that the host state will continue to encourage markets for your output, provide subsidies and support and invest in complementary infrastructure.

Recently, though, the policy messages from various states has become less clear and stable. In the UK, on 20 September 2023 Rishi Sunak announced the watering-down of key policies aimed at achieving Net Zero by 2050. That seemingly populist move prompted some negative reaction from businesses involved in clean technologies, including Ford which issued a statement stating that business “needs three things from the UK government: ambition, commitment and consistency”. A week later it was announced that the Rosebank oil and gas field had been given the green light, with little explanation of how producing more oil and gas would enable the UK to meet its legally-binding Net Zero target. Finally and perhaps most worryingly, on 8 September 2023 the results of the 5th CFD auction for renewables were announced, confirming that no bids from offshore wind producers had been submitted; industry figures stated that this was because the Government set the offer price too low, despite warnings.

This apparent walk back from commitment to climate change goals has been reflected elsewhere. EU proposals to phase out conventional combustion engines in new cars by 2035 were opposed by Germany until more allowances had been given to “e-fuels” that can be used in combustion engines, while domestic proposals to ban new gas boilers are hugely unpopular. New EU renewable energy targets were opposed by France until more allowances were obtained for nuclear power. In the USA, Republican presidential candidates have indicated that they would scrap the Inflation Reduction Act, which has been so successful in encouraging investment in clean energy. And all this is happening against a background of investor protection arguably being watered down by states pulling out of the Energy Charter Treaty (ECT)[2], which protects foreign investment in signatory states’ energy sectors, and bilateral investment treaties[3], just at a time when investment in new clean technologies should be being encouraged.

Will investment in the energy transition dry up?

The question is whether these uncertain signals will deter investment in the energy transition. Views of panellists and delegates at the seminar varied. At a general level it was felt that the overall direction of travel was, indeed inexorable, and while the pace might change, there is no going back and investment into the energy transition will continue. As someone pointed out, infrastructure projects are long-term whereas governments tend to change, and so the pronouncements of a leader, especially one in an election cycle, might not carry as much weight as one might expect.

However, at a project-specific level – for example, clean hydrogen and synthetic fuels – it was felt that legislation and regulation is moving far too slowly and with the rising cost of capital, investment in certain projects might be stymied. Moreover, at a more general level, there is a real need for the right signals to be given by governments in quickly establishing enabling legislation, regulation, market rules and support in order that investment in the necessary infrastructure can be made. The “phase 1” of new projects requires that certainty, as well as government subsidies, tax breaks and other initiatives. With the move to electrification, there is an urgent need for an expansion of transmission and distribution infrastructure and the elimination of bottlenecks and access constraints. And processes and procedures which were rooted in market assumptions and analysis at the beginning of the energy transition (e.g. the UK’s CFD auctions) need to be updated and become more flexible and adaptive.

It was also felt that greater co-operation at international level is required. Climate change is a global phenomenon and addressing it should not be seen as a zero sum gain; investment in clean energy should be being attracted to every country in need of it, especially China and the USA. Investment in new products like green and blue hydrogen will be encouraged if there is certainty that they can be sold in potential export markets, which can be achieved by standardised/harmonised regulation.


Perhaps, despite the somewhat confusing signals and apparent watering-down of support for net zero policies, we have not entered the “crisis? What crisis?” phase of dealing with the climate crisis, and there continues to be widespread support for the energy transition. However, it is also clear that external shocks can slow down, if not derail, the move to clean energy, and there is a need for urgency and more joined-up thinking. If the goals of the Paris Agreement are to survive, there is precious little time to act.


[1] In fact, Callaghan never used the words, which actually entered the public consciousness in the 1973 file Day of the Jackal and were subsequently was adopted as the title of a Supertramp album.

[2] Eleven states, including France, Germany, Spain and Italy, have indicated that they will resile from the ECT. In July the European Commission proposed that the EU, Euratom and all member States withdraw in a coordinated manner.

[3] For example, South Africa recently It was recently terminating treaties with Switzerland, the Netherlands, Spain, Luxembourg and Belgium and Germany.


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