1 July 2021

Net Zero by 2050 may be the law, but we still have no idea how much it will cost

By Karl Williams

Not since Churchill promised victory over Germany in his ‘blood, toil, tears and sweat’ speech of May 1940 has the UK set itself a more expensive or ambitious policy goal. The initial, official cost estimates for getting to net zero greenhouse gas (GHG) emissions by 2050 range from £1.5 to £2.1 trillion. That equates to somewhere between 69% and 97% of pre-Covid GDP – 83% at the midpoint. By way of comparison, World War Two cost Britain about 84% of its 1939 GDP.

Of course, MPs in 1940 probably had a pretty good idea of what they were getting the country into. Like Churchill, many had served in the trenches during the Great War. Likewise they had lived through the social and economic upheavals of its aftermath, not least the 1920 depression, the General Strike and the disastrous return to the gold standard at pre-war parity. ‘Victory at all costs’ was not simply rhetoric: men with skin in the game put serious thought into that vital undertaking.

The same cannot quite be said of Net Zero 2050. The general idea first gained traction through a 2018 report produced by the Intergovernmental Panel on Climate Change (IPCC). It was then fleshed out in the British context by the Committee on Climate Change (CCC) in May 2019. But it became official policy when a political window was opened up by completely different debate at the time – Brexit.

Think back to May 2019. The Tories came fifth in the European Elections, but like General Melchett in Blackadder Goes Forth, Theresa May lined up her troops for yet another ‘meaningful vote’. That was the final straw, and she was forced to resign, her premiership having been a chaotic disaster. By the end, her appearances outside No.10 started to elicit pity rather than animosity; friends and foes alike were just relieved to see her go. Politics moved on to a noisy Conservative leadership contest and its implications for Brexit.

So when May seized on Net Zero 2050 as a substitute prime ministerial legacy a couple of weeks later, most people – besides committed environmental campaigners – weren’t paying very close attention. In a quirk of political history, Net Zero 2050 was thus ‘quietly committed’ into law in June 2019 with minimal parliamentary scrutiny, as recently acknowledged by the then energy minister, Chris Skidmore. The CCC’s report could have been the basis for a broad-based discussion about Britain’s long-term environmental political economy. Instead, it was a missed opportunity.

A number of senior Tories are now genuinely committed to the goal of net zero, but the policy has also been sustained by the foreign policy dynamics of Brexit – the imperative of asserting the relevance of ‘Global Britain’. It was also seen as a good way to find common ground with the Biden administration and distance Boris Johnson from any lingering association with Donald Trump. Again, this was a political move, rather than an economic calculation.

So we are still in the position where there are some ballpark figures for Net Zero 2050, but no real sense – certainly not among the general public – of how to get there, how to pay for it, and who will have to make what sacrifices. A very different situation from 1940.

This might help to explain why, for example, the Chancellor was unclear on the topic when interviewed by Andrew Neil recently. A particular point of contention was who would pay for residential gas boilers to be ripped out and replaced with heat pumps at roughly £10,000 a pop. Should it be down to individual homeowners (i.e. the classic Tory voter), or the general taxpayer (including, of course ‘generation rent’).

The rushed adoption of the policy also helps to explain unresolved tensions in the Government’s wider agenda. When it comes to ‘levelling up’, for instance, delays to the Cumbrian Metallurgical Coal Project reflect embarrassment over greenlighting a new coal mine in the run up to COP26, even though the mine is for coking coal (for producing steel) rather than thermal coal (for power).

The new grand strategy for Global Britain as outlined in the Integrated Review, meanwhile, entails a more confrontational stance towards China. But China controls about 85-95% of rare earth elements, which are essential to green tech. Until supply chains diversify, China’s potential leverage over a rapidly decarbonising Britain looks set to increase.

So, having well and truly put the cart before the horse, the Treasury now plans to publish a detailed cost-benefit analysis of Net Zero 2050 this autumn (an interim review was published in December 2020). Doubtless it will try to emphasise jobs and trade opportunities arising from Net Zero 2050, like Nissan’s electric battery gigafactory in Sunderland. Perhaps it will also find that the goal can be reached without the sort of outlay required to fight a global total war. It might even be said that this is not a perfect analogy anyway. WWII took six years, not 30: even if comparably expensive as a single policy item, Net Zero 2050 should be a fair bit cheaper per annum.

However, that assumes the state is any good at estimating the long-term costs of grand projects. As the interim review notes, there is a high degree of uncertainty around underlying assumptions. On the one hand, the costs of solar and wind are plummeting. On the other, the costs of government infrastructure projects – rolling out electric charging points or building new nuclear plants, say – tend to balloon. Look at HS2, where costs have tripled in 10 years. Suppose the Treasury does forecast a net zero cost of around £1.8 trillion. Would it really be that surprising if it rose to £5.4 trillion (250% of 2019 GDP)?

Moreover, while uncertainties around vast costs are worrying in themselves, these figures stand in for a bigger problem: mobilising a society to achieve a substantive goal comes with other costs – to individual freedom, consumer choice and the fabric of civil society. The top-down directives of such an enterprise association can reach into every aspect of daily life, from food and travel rationing through to restrictions on freedom of speech and association. Unlikely under a Conservative government, maybe (though Covid restrictions have been pretty draconian at times). Not so unimaginable under a future Labour-Green-SNP coalition influenced by Extinction Rebellion.

Hopefully, however, the societal impact of net zero won’t be quite as dramatic as WWII. It’s worth remembering, however, that the energy transition relies on rapidly scaling up technologies that either don’t yet exist or are still in their infancy. While many nascent green technologies have potential, there is a risk of government reverting to the disastrous dirigisme of the 1950s-70s, where committees of state technocrats attempted to pick winners. The rhetoric of the green industrial revolution certainly has something of Harold Wilson’s ‘white heat’ about it.

Given the above, it is more important than ever to think about how to minimise the costs of decarbonisation and maximise the benefits. Instead of going down the central planning route, Britain should embrace market-based solutions to solving environmental problems. A recent report by my Centre for Policy Studies colleague Eamonn Ives, ‘Clean Free Trade’, shows in detail how “capitalism and international free trade can be perfectly compatible with good environmental outcomes”.

Ultimately, the success or failure of the energy transition in liberal democracies (where voters have regard for their own wallets) is likely to depend on how far and fast renewable energy prices fall. Free markets are key here. They act as discovery mechanisms, driving innovation as entrepreneurs and engineers try to bring down prices to undercut competitors (as happened with US shale oil, for example). The applied technologies needed to make Net Zero 2050 less than a multi-trillion pound endeavour are far more likely to emerge through these decentralised processes than by government design.

In summary, the rapid and relatively uncontested adoption of Net Zero 2050 was facilitated by the tragicomedy of Theresa May’s premiership. The net zero paradigm is now firmly entrenched, despite a highly regrettable lack of initial scrutiny for such a vast and open-ended commitment. Britain may be clear that the aim is Net Zero, but we need to ask ourselves much more clearly how we get there – through top-down planning, or through the decentralised power of the market?

The latter, as our work at the CPS has shown, can reconcile freedom and environmental stewardship, and is far more likely to lower the economic cost of the energy transition. Remember, the last of Britain’s WWII debt was paid off in 2006. Let’s try to make sure our grandchildren aren’t still paying for Net Zero 2050 in the year 2110.

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Karl Williams is a Senior Researcher at the Centre for Policy Studies.