5 November 2021 was Climate Law and Policy day at COP 26 in Glasgow. I was lucky enough to speak on an expert panel hosted by the EBRD on “Reallocating International Capital and the Role of Law”. Wearing my McDonald Clan tartan tie, and beamed in via Zoom, I delivered an abridged version of the following. 

Hi, I’m Lewis McDonald and I lead the energy team at Herbert Smith Freehills.

Herbert Smith Freehills is a global law firm with a major focus on energy & infrastructure. Our clients are sponsors, banks and governments and our lawyers work on energy projects all over the world.

Personally, I’ve been lucky enough to work across all energy sub-sectors and to work on projects all over the world across a 20 year career in the energy industry.

It was fantastic to see Mark Carney announce that his Glasgow Financial Alliance for Net Zero now has $130 trillion committed to net zero.

That’s a lot of zeros committed to net zero. To put it into context, the annual GDP of the whole world is roughly $87 trillion.

So it seems we have all the money in the world available to get us to net zero.

There have been some doubts expressed about how these numbers add up. However, the key takeaway from the announcement is that it is a very very big number. One doesn’t need to quibble with the details, with numbers that large. The International Energy Agency (IEA) says we need to invest $5 trillion dollars per year into the energy industry to get to net zero. So it seems we definitely have enough to deal with the energy sector.  From a climate change perspective, it really matters what happens in the energy sector, as over 70% of global emissions are generated here.

I know from my conversations with companies in the energy sector around the world that there is no shortage of enthusiasm to invest in net zero projects.  Climate change and ESG are now two of the top issues discussed in their board rooms.

The problem is not availability of money, and it is not desire.

The real challenge is how to create enough investable net zero projects for all of that money to be invested into.

To get to net zero, we need the full range of technologies to be available. This is clear from all of the scenarios. However, a number of the technologies that we need are not currently investable.  For example, hydrogen, carbon capture and storage, nuclear, and some of the battery technologies.

For some of these types of projects the costs are currently too high and the technology for most of them is too raw.  For others, the required pay-back time may be too long without greater certainty.  So the market alone is not able to support them at present.  I know this – I started working on my first carbon capture & storage project in 2005… but the projects have not been supported and so they don’t happen. Projects like this just aren’t economically feasible without financial support.  Mark Carney’s money will not be attracted to them – there isn’t enough magnetic pull.  We need something more.

We have seen that the costs of technology come down as you get to scale and the costs of financing come down as you increase certainty.  It wasn’t that long ago that solar and wind needed subsidies to compete with fossil fuels. This is not the case anymore. The subsidies that were provided to solar and wind over the past 15-20 years, together with obligations to invest in renewables and carbon pricing, have created a massive surge of interest in these projects around the world. Onshore wind and solar are truly magnetic in their own right, and they are booming globally. We don’t need to talk about them at these conferences anymore. They are away.

Over time, subsidies for onshore wind and solar have been tapered and eventually removed, and we have now seen exponential growth in these projects all over the developed and developing world. There are some fantastic graphs from a study released by Oxford University in September that show very clearly how costs fall and energy output rises over time. They are remarkable.

As for the other net zero technologies (hydrogen, carbon capture etc), we have already developed the legal mechanisms to create these “first of a kind” (FOAK) net zero projects and to make them work. Regulated Asset Base (RAB) models and Contracts for Difference (CFDs). These mechanisms have been shown to work across massive public infrastructure projects (such as the £4.2bn Thames Tideway project in the UK) and for the very biggest large-scale energy projects (such as the £22bn Hinkley Point C nuclear project in the UK).  The CFD mechanism has been modified from that developed for nuclear and used for offshore wind in the UK. Companies bid against these model CFD contracts to create the lowest possible pricing for offshore wind, which drives efficiencies and brings the price down. It’s quite brilliant, really. Lawyers at our firm and at other firms in London have been responsible for designing these legal mechanisms, in conjunction with accountants, economists, engineers, sponsor companies and Government.

So, there is a reason why the UK has taken a leadership position in offshore wind – it has created the most investable projects, using these mechanisms.  It’s the same reason why onshore wind and solar projects have proliferated. These projects were initially supported by subsidies in the form of feed-in tariffs and renewable obligation certificates, and they got better and cheaper as they got to scale. In some cases, wind and solar are now the cheapest and the most efficient energy solutions available, as well as the cleanest.  We’ve just been involved in some mega solar projects in India and the Middle East and the energy prices achieved there are eye-wateringly low.

The point is, once knowledge is gained, and efficiencies are achieved in one part of the world, these are then available everywhere and to everyone. This is perhaps the main way that the UK and other OECD countries can really lead the world get to net zero.

We unfortunately can’t solve the climate problem with wind and solar alone. The issues with intermittency are well known. However, we can use the same approach we took with solar and wind, and with nuclear and public infrastructure, to support the new net zero technologies, including hydrogen and carbon capture.  Lawyers have a huge role to play in working with private sector clients, banks and governments to create investable projects in the new net zero technologies. A blend of public and private involvement is needed.

It will require a lot of public funding at first (in some cases tens of millions, hundreds of millions or even billions for individual projects), but as we gain more practice, the costs will fall, and the support will taper. This is the essence of the UK Government’s net zero strategy. The more countries that adopt this approach, the better. After all, practice makes cheap.  Just ask any engineer.

Firms like ours, and the companies we work for, want to get these methodologies right for net zero projects in the UK and other OECD countries, so that they can be exported all over the world.  With our solution-oriented mind-set and bank of experience, we’ve already helped our clients to create investable conventional and renewable energy projects in some of the most difficult to invest in countries in the world. I was myself recently involved in an $11bn project financing for an energy project in Mozambique. This one project will double the GDP of Mozambique. Anything is possible, when you really put your mind to it.

We urgently need to replicate these mechanisms and this effort, this commitment, for the new net zero energy technologies and projects. To speed up development of these projects, we need to get more governments around the world doing what the UK is doing: nominating which kinds of projects they are going to back with public money – and then getting on with it.

This takes guts from our politicians. Not all the new projects and technologies will succeed. The urgency of the problem means we need to be prepared to move forward quickly with a “safe to fail” approach, and we need to share the risk and reward around.  Of course, we’re going to have to bring the public along with us, as it’s their money that will fund these projects. There is a huge role for the politicians here. Money from multilateral development banks like the EBRD and ABD, as well as philanthropic money and overseas aid is also going to be very useful to enable these projects – particularly in the developing world. Food for thought for Bill Gates and his friends…

It may be boring, but by supporting some of the new net zero energy technologies with bespoke legal mechanisms and public money, we will make them investable. The price will fall, the quality will rise, the returns will be more certain, and they will attract the trillions in private sector money. The money simply won’t be able to resist the magnetic pull of these projects – as we’ve seen with wind and solar. And then we can stop talking about them too.

So, let’s get to it and let’s work together to find a home for all of Mark Carney’s trillions!

Thank you.


Lewis McDonald
Lewis McDonald
Partner, Global Head of Energy
+44 20 7466 2257