The UK government has finally published its net zero strategy, which sets out proposals for meeting the national target of net zero greenhouse gas emissions by 2050. These include grants for electric heat pump installation, a ban on new petrol and diesel vehicles by 2030 and an aim to triple the rate at which new woodland is created.
Meeting a net zero target means transforming how energy is generated, what industries make and how homes are heated. Alongside the strategy, the Treasury – responsible for directing public investment and economic policy – published its review of the costs and opportunities involved in pulling it off. This review essentially indicates the kind of financial backing the Treasury intends to offer the government’s net zero strategy.
Some experts have already said the strategy does not go far enough, with only a fraction of households receiving support to replace gas boilers and no real plan for home energy efficiency.
And while the Treasury’s review does consider some of the benefits of a green transition, most of its content deals with the costs, and fails to grapple with the opportunities inherent in a transformation of Britain’s economy and infrastructure.
As hosts of the 2021 UN climate conference, where the UK will urge countries to increase their targets for cutting emissions, the government needed to produce a plan for delivering on its own net zero by 2050 pledge.
But the UK Treasury does not have a strong track record on aligning its policies with government emissions targets. In recent budgets, Chancellor Rishi Sunak has committed £27 billion (US$37.2 billion) to road-building programmes which experts say would lock in more and more cars at a time when car travel must fall, as well as cutting incentives for greening homes and transport.
Transforming the UK economy to reach net zero emissions could create over one million new jobs by 2050, as well as whole new industries delivering massive growth in exports. But from the start, the Treasury framed its long-awaited review as an assessment of how to share the costs of the transition and ensure everyone contributes fairly. Many in business and the non-profit sector had hoped the review would pay as much attention to the long-term benefits, and that it would frame these costs as investments.
Even if it wanted to, the Treasury is probably not equipped to account for the long-term benefits of policy changes on this scale. The methods which civil servants in the Treasury typically use to analyse and model the effect of policy are only appropriate for detecting marginal changes. When it comes to understanding the radical changes necessary for reaching net zero in all aspects of daily life and economic activity, these tools just aren’t appropriate.
Three charts in the review betray the Treasury’s short-sighted appraisal of the net zero strategy.
The first chart in the document notes that the UK has the lowest public and private investment rate of the G7 countries – about a fifth lower than the US and a third lower than Japan. The review acknowledges that the UK, regardless of climate change, needs to increase investment to improve productivity.
It also maintains that achieving net zero requires substantial investment – a focus on the costs. Yet the review fails to connect the two points and explore the productivity benefits of getting to net zero.
This one-sided focus occurs again further on, in a chart which is described in the text as a summary of “how the costs and benefits of decarbonisation pass through to households”. The problem is that it presents only costs and omits the benefits.
When benefits are finally acknowledged, they are underplayed. A third chart shows that with all the investment, the actual costs of energy to households will be lower in 2050 than they were in 2019, through a transition to electric vehicles and heat pumps.
But this doesn’t take account of the fact that even the government projects the costs of fossil fuels will be higher in the future. So a fairer comparison of 2050 petrol cars and gas heating would show a much larger benefit to households from the transition.
A missed opportunity?
The review also warns that moving too fast to decarbonise the country could push certain industries abroad. It highlights a reduction in tax revenue from the fossil fuel industry of 1.5% of GDP, which means taxes will need to rise elsewhere. It fails to say that the benefits of tackling climate change will probably lower the need for government spending on things like healthcare in the future, offsetting these losses.
The UK is poised to miss the opportunity to share the returns on its net zero investments, to retain and attract innovative industries and to reduce the risks of climate inaction and continued exposure to the global fossil fuel sector.
However limited, the government now at least has a plan for net zero. What’s missing is the proper investment and proposals for sharing the returns fairly across society. The review has instead quibbled over the costs, and struggled with its own tools for fully understanding the returns on investment that a green industrial revolution will bring.