Spectator Briefing

The smart path to net zero

The smart path to net zero
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Not long ago, Brexit used to dominate every debate. Now, it’s climate change. Political discussions can’t take place these days without some reference to the Government’s big mission: the legally-binding commitment to reach net-zero carbon emissions by 2050. Britain was one of the first countries in the world to sign up, and we did so with very little discussion about what it would involve. Britain’s chairmanship of the United Nations climate change summit in Glasgow (COP26) is likely to see Boris Johnson’s government position itself as a global champion of the agenda. But what will it mean? At what cost? And to what purpose? At The Spectator boardroom, we gathered together a group of people over lunch to discuss the project and its implications.

Guests included Kwasi Kwarteng, minister for business, energy and clean growth; Simon Clarke, the Exchequer minister; Chris Stark, whose Climate Change Committee has produced perhaps the most in-depth review so far into what the 2050 target will involve; and Carl Ennis and Steve Scrimshaw from Siemens, which sponsored the lunch.

Fraser Nelson, The Spectator editor, opened by highlighting the progress Britain has made in the last decade. The UK’s use of energy peaked in 2001 and has fallen by almost a fifth over the past twenty years. Our carbon emissions are not just lower than in 1980 - they are lower than 1880. Our air quality is the best it’s been since we began recording it. Britain has become a world leader in decarbonisation, and will be able to boast this to the other 25 leaders at COP26 in November. This, he said, had been accomplished not because of government targets but because of technology. As Matt Ridley argued in the Christmas edition of The Spectator, it’s driven by consumers who want cars that go faster on less petrol, on homeowners who want boilers less hungry for gas.

Carl Ennis, CEO of Siemens said that Britain's world-beating trajectory is still not enough to hit a 2050 target. The “energy trilemma of carbon reduction, cost and security”, could need serious government-led action. “You actually have to change the way people interact with energy”, he noted, though this Government has yet to indicate the extent of the changes to follow. Cities, he said, might also take the lead. “Manchester has said it wants to get decarbonised by 2038. We at Siemens have an internal target of 2030 which we are hoping to accelerate. But 2050 is only a fighting chance if we start to do things, at scale, very quickly - and if we don’t, we will miss that by a country mile.”

YouGov polling in September 2019 found that a third of businesses have no plans to meet a carbon-neutral target; but James Diggle, Head of Energy and Climate Change at the CBI, found through his travels and conversations with businesses that many industry reps are largely on board with the net-zero target - in theory, at least.

“There (is) huge enthusiasm to do it,” he said, noting that prospective employees are asking about climate change targets in their interviews. “Actually, that can be a ‘make or break’ as to whether someone wants to work there. As we look forward to the UK post-Brexit, we’re thinking about how we bring international talent here - but also, how we retain our own talent.” Having a net zero strategy, he said, helps companies become competitive in the recruitment of staff. And voters, said Simon Clarke: he was hearing it on the doorstep in the last election campaign.

Kwasi Kwarteng argued this was a crucial part of the 2050 agenda: it’s not a Whitehall wheeze, but being driven by consumers - and prospective employees. He said he visited an oil company that struggled to recruit “because people do not want to work for a company that is polluting the planet” - but if they had a decent sustainability strategy, this helped.

So, asked Fraser Nelson, doesn’t that make the former bad guys into the good guys? A leading article in The Spectator recently chastised BlackRock, the world’s largest investment fund, for saying it would ditch fossil fuel companies because the energy firms are the ones investing in new technology and clean energy. Baroness Brown of Cambridge, Julia King - Vice Chair of the Committee on Climate Change - wasn’t so sure. “If you look at how much investment is going into new technologies compared to how much is going into their current technologies,” she said, “it’s very small so they need to be pushed very hard to change that quickly.”

Nelson asked about the tension between climate policies and the ‘levelling up’ agenda. Surely the victims of the “net zero policy” would likely be the industrial areas - steelworks in Port Talbot, for example. Might communities already badly-hit by deindustrialisation be in for a double whammy if green taxes drove them out of business? “The UK has cheap electricity costs,” said Simon Clarke. “But we have high industrial costs because, unlike the Germans, we don’t share the burden as equally with homeowners.” Nelson said the industrial base is being hit by huge energy taxes, so the government could help industry with tax relief.

The cost of climate change

But even if the good will is there to hit net-zero, do we have the money? The Climate Change Committee said it would cost 1-2 per cent of GDP a year, which works out roughly at £20-40 billion a year: when Philip Hammond was Chancellor he said this would all add up to a trillion pounds, a figure recently endorsed by Paul Johnson of the Institute for Fiscal Studies. Chris Stark said such estimates are likely an overestimation, assuming no new technology, and that further transition “shouldn’t cost the economy that much in regard to pricing”. Julia King pointed out that the 2003 Energy White Paper said it would cost 2 per cent of GDP to reduce our C02 emissions by 60 per cent; yet the “dramatic reduction in costs in offshore wind and in batteries” means that the estimates now think the same percentage of GDP will take us to net-zero greenhouse gas emissions.

From a ban on hybrids to a ban on gas

Nelson asked if the 2035 ban on selling hybrid cars would just be the start. Chris Stark said it would have to be. The net-zero agenda, he said, is capital-intensive, but most of the cash will be private investment. What matters, he said, is the cost of capital - and that’s why dates and deadlines help. “What drives the cost of capital? Uncertainty. And what minimises that uncertainty is the government’s position. So, it turns out that naming the dates by which we will phase out petrol and diesel is very easy to make but it matters immensely.” So it matters, he said, to set a deadline for phasing out coal. “It matters immensely that we name a date by which we won’t be using natural gas - even if we don’t quite know what we’ll do leading up to. But it starts the engine, starts a mission. So, I’d like to see us be clearer about the date that we stop using natural gas in the UK.”

That might be a tough sell on the doorstep, said Nelson. Surely millions of Brits prefer gas to electric hobs and won’t take kindly to being told that the government wants to rip out their gas ovens and boilers. All depends, said Chris Stark, on what might replace gas. “In the future it could be an electricity network or it may even be something like hydrogen in the future.” By setting a date for phasing out gas, he said, the government would start a race to find something to replace gas. “The key thing for government policy is not just to name a date but to give some clarity and certainty about a manageable transition over that period.”

Boris and Net Zero

The PM is enthusiastic about net zero, but won’t say how he’ll get there until the publication of the much-delayed Energy White Paper, now expected at the end of the year. Kate Andrews, The Spectator’s Economics Correspondent, asked if the low-hanging fruit has been picked in terms of carbon emission reduction, and if the public should expect things to get a lot more expensive from here on out.

Kwasi Kwarteng said recent trends give cause for optimism. “In terms of energy supply and power generation – we’ve reduced emissions by 6.6 per cent in 2018; we have taken coal,” indicating off coal,” indicating that the removal of coal from power generation could happen a year or two earlier than anticipated. “Governments never meet their targets a year before they’re meant to - that never happens!” According to Simon Clarke, many of these challenges will also be reflected in the upcoming Budget: people’s tolerance for change “goes to the heart of the questions we are asking in the run up to the budget”, he says. “I think what you will see in March is the cleanest budget ever (because of) the requirement of net zero.”

Tech and net zero

And then there’s the rapid pace of technology development. “If you go back five years” says Will Steggals, Head of Group Strategy at SSE “people were really sceptical (of offshore wind)...but (the) technology matured.” Guy Newey, Strategy and Performance Director at Energy Systems Catapult said that tech is always changing the conversation:

“If we had been sat round this table just over ten years ago talking about electric vehicles, people would have said ‘Do you mean milk floats?’, The things that look as though they are about to fall over as they go round a corner? Today, you have had an announcement that you can end diesel in 2035. Now, I still think that is a politically risky thing to do. Time will tell how it works out - but it’s not mad. If you’d said that ten years ago, it would have been mad”

Offshore wind has grown sharply in Britain, accounting for 35 per cent of the offshore wind capacity in the world. Nelson said he has changed his mind on wind farms: he once thought they were an expensive con, but has been struck at the collapse of wind farm energy prices. In 2017 it was £60 per mewgawatt hour, and a few months ago it dropped to £40. No one, he said, anticipated such low prices even five years ago - some of the early offshore wind projects were given guaranteed prices of as much as £150/MWh. The French and Chinese backers of Hinkley Point were guaranteed prices of £92/MWh - and here we are with wind farms doing it already for less than half the price. Simon Clarke chalks up the success as a push from industry to do better. “Guess what - competition works.”

Tech vs habits

But tech, said Carl Ennis, has its limits. In the 1970s, he said, “Economy 7” was launched, where people had cheaper electricity for seven hours at night. “But you have to put your washing machine on overnight - and it was too intrusive to people’s expectations.” Technology without habit change won’t do much; sometimes, he said, the net-zero debate is conducted in a way that assumes power companies would do all of the work and consumers need not change their habits.

Chris Stark agreed. “The story of the last ten to fifteen years has been largely technological and behind the scenes...what comes next isn’t like that. A bit of it, maybe two-fifths, can be done by technology alone. But the majority of it - let’s say two-thirds - involves some element of changing behaviour. That doesn’t mean a dramatic change. It means heating your home in a different way, plugging your car in rather than filling it up. They are not great leaps.”

What next?

So what comes next in the net-zero timeline? Guy Newey framed the next several decades as the consumer’s experience. So far, “nothing has changed, right? You go home, you turn the light on, it comes on, it’s a bit more expensive, but it’s around the margins.” But the next phase could require real change, and more compromise. This will be a bumpy ride, if customers don’t think the new, greener options are better than their old appliances, tools, and cars. The biggest challenge is heat, according to Chris Stark, and it can’t be easily fixed. The move from gas boilers to more environmentally friendly options will require opt-in from millions of homeowners, and the price tag is likely to be hefty. How to address this? A “tax penalty or...incentive at the point of sale if you have made an improvement in energy efficiency, that could be one thing you can do,” he notes. “Council tax is another way into this. The Treasury I know is looking at this when it does its review into the economics of the tax penalty for electricity versus gas.”

Fraser Nelson brings up France’s gilets jaunes protests, warning that the public can turn quickly if there is a miscalculation on their tolerance levels or if taxes hit a certain demographic of the population. Guy Newey agrees this is a “real risk, particularly when we are going into the next phase” which may prove more intrusive than the last. But it’s running with the grain of public sentiment, said Julia King:

“There was recently a poll showing around 50 per cent would consider buying a low-carbon car as their next car. A 2030 transition to EVs for new car sales doesn’t require anybody to get rid of their car before it reaches the end of its life, it’s not creating stranded assets. We’ve already got almost half the people thinking of buying a new car thinking it could be electric - so I actually think it is well in tune with the change in public opinion.”

The net-zero movement may also have a language problem, according to Polly Billington, Director of UK100 Cities Network Limited, who argues the language of climate emergency does not go down well. “We’ve got to change the language around (climate change) - living in a cave in candlelight is not a way forward.” People are not motivated to change by fear, but rather by talking about “creating jobs and improving prosperity.”

Regardless of the challenges ahead, all eyes of the world are on the UK come COP26 for example - on very public stage, global leaders will be looking on the UK to provide leadership.

And there’s no silver bullet to reach 2050 with perfect ease. “It’s a combination of things,” says Steve Scrimshaw, Managing Director at Siemens Gas and Power, who thinks the net-zero target is in sight. “There is (a sense) of urgency...but I think the technology exists as well to allow us to deploy it.”

A few days after the lunch, the 2035 target for binning hybrids became a 2032 target. It’s a fast-moving area. And one we’ll be following every step of the way at The Spectator.