Has the true cost of net zero finally been revealed?

When the Commons nodded through Britain’s legally-binding net zero target in 2019 all MPs had to go on was the Climate Change Committee’s estimate that the whole process would cost £1 trillion. MPs failed to probe this figure and the government didn’t even try to calculate one. Indeed, when the Treasury attempted to come up with its own figure in 2021 it gave up, saying it couldn’t be done because there are too many unknowables. Net zero will require technologies, such as hydrogen production via electrolysis of water, which are still in an early stage of development and have not yet been scaled up.

Now the think tank Civitas has weighed in with its own analysis. And its conclusion? The Climate Change Committee (CCC) has seriously under-estimated the costs of achieving net zero. Far from £1 trillion – or £1.3 trillion at today’s prices – net zero it claims will cost a minimum of £4.58 trillion – or £6,070 for every household. 

The CCC put the cost of decarbonising the electricity grid at £334 billion. Civitas says this is a substantial under-estimate, partly because it assumes that the cost of renewable energy will fall by half, in real terms, between now and 2050.  

While the cost of wind and solar fell dramatically in the decade up to 2019, it has risen sharply since the pandemic – with the government unable to attract any bids for the right to build new offshore capacity when it last held an auction in August. Wind farm companies complained that the long-term guaranteed prices offered under the Contracts for Difference structure are no longer enough to cover their rising costs. The CCC, says Civitas, also failed to properly consider the cost of retiring existing infrastructure before its time and the inflationary costs of building electricity infrastructure given the huge amount of investment required in so short a time (the quantity of generation will have to double). A more realistic figure for the cost of decarbonising the grid, it says, is £883 billion.

The CCC put the cost of decarbonising the heating of residential buildings at £253 billion. This, too, says Civitas, is a serious under-estimate, given the cost of heat pumps. Its own analysis puts the figure at £627 billion. The CCC came up with a figure of £331 billion for decarbonising surface transport; Civitas says it should be £455 billion. The CCC, it says, has failed to appreciate the cost and complexity of an electric vehicle charging infrastructure, nor taken into account lost fuel duty, nor the loss of 186,000 jobs in vehicle manufacturing as the UK loses out on battery factories and production is transferred abroad.

Another area where the CCC has failed to assess properly the costs is agriculture and food. Moving away from intensive farming, says Civitas, would inevitably be inflationary. Even if it increased food inflation by just 1 per cent per annum, that would add £4,273 to annual food bills by 2050, costing the country £403 billion (the CCC put the cost of decarbonising agriculture at just £17 billion). But above all, says Civitas, the CCC worked out its calculations in a near zero-interest rate environment. The Bank of England’s base rate has since climbed from 0.5 per cent to 5.25 per cent. Include the costs of financing the transition to net zero and it adds £1.64 trillion to the cost.

There is no reason to suppose that Civitas’ figures will turn out to be right; indeed, like most economic forecasts, they are a crude estimate which will almost certainly turn out to be wide of the mark. But they are an important contribution to a debate – the cost of net zero – which until now has been dominated by assertion and wishful thinking.