As if Covid hadn’t caused a big enough disruption to the economy and investors, along comes another shocker: the government’s announcement of an even-tighter target for reducing carbon emissions. Britain has now been put on a legally-binding commitment to reduce carbon emissions by 78 per cent on 1990 levels by 2035.
What does it mean for your money? Quite a lot. For one thing it means that it is more likely that the government will adopt the proposal by the Committee on Climate Change to ban the sale of all homes by 2028 unless they achieve a ‘C’ rating in an Energy Performance Certificate. That potentially exposes millions of homeowners to bills of £20,000 or more for insulation and other energy improvements. At present, just 10 million of Britain’s 29 million homes qualify for a ‘C’ rating. Many – especially the 7.8 million homes with solid walls – may have to be fitted with external or internal wall insulation at a cost of £10,000 to £15,000 as well as with heat pumps (another £10,000 if you are lucky). Solid Victorian homes which form a huge part of the country’s housing stock, could become a financial burden.
Then there is the stock market. We have become used to former Bank of England governor Mark Carney and others warning about ‘stranded assets’ in the oil and coal industries. But the new target will have far more serious implications than that, not least because, for the first time, the target will include emissions from aviation and shipping. We don’t as yet have any means for running passenger planes without fossil fuel, so either it will require the development of new technology (which could prove elusive) or it will mean flights becoming wildly more expensive as they are forced, perhaps, to offset emissions through very expensive carbon capture and storage. Airlines, already laid low by Covid, could take another massive hit.
Again, without the rapid development of technology as-yet unproven on a commercial scale, steel and cement-making could be driven from Britain – there is simply no way to conduct these industries at present without creating vast quantities of carbon dioxide. Indeed, all heavy industry is likely to disappear from Britain to countries which have not committed themselves to such tight, legally-binding carbon targets. UK manufacturing had been enjoying a modest renaissance in recent years, but this is likely to be reversed and the long-term drift of manufacturing to South Asia renewed. That won’t just include ‘dirty’ industries. Manufacturing wind turbines, for example, generates significant carbon emissions – making it unlikely that they could be made in Britain, where those emissions would count towards Britain’s territorial emissions.
What about construction companies? The Prime Minister promised them a bonanza in the shape of a huge infrastructure programme, including a tunnel to Northern Ireland. The new target is going to make it far harder to make that a reality. Setting legally-binding targets for reducing carbon emissions makes it easier for environmental activists to challenge any new infrastructure project in the courts – and they will win, just as they did over Heathrow’s third runway. New roads and airports will become virtually impossible to build, but so will new high speed railways, given the vast quantities of steel and cement used.
The winners? The financial services industry will be licking its lips at the prospects of even more carbon trading schemes. Expect a new growth industry in environmental law. Hydrogen is likely to be a big winner – as a means of storing energy from intermittent wind and solar plants. On the losing side will be most industries which involve physical processes – many of which will prove very difficult to decarbonise.
There is a contrarian view, perhaps – that the implications of Britain committing itself to such a tough, unilateral target will be so severe that future governments will balk at the cost and repeal the measures, enabling heavy manufacturing and the like to survive. But given the current mood among politicians, and how little opposition there is to these targets, that seems unlikely at present.