Net Zero’s days are numbered
Another think-tank idea bites the Big Radish. Scope 3 should follow.
Net Zero’s days are numbered
23 February 2024, 12:18pm
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If a week is a long time in politics, then 2023 belongs to a different age in the politics of Net Zero. Less than eleven months ago, the government was saying that ‘Net Zero is the growth opportunity of the 21st century. Earlier this week, former IMF chief economist Oliver Blanchard effectively poured water on that claim when he told the House of Lords Economic Affairs Committee that there would be a ‘substantial fiscal cost to achieve anything close to Net Zero’.
‘The public does not believe, or has not been made to understand, that [it] is going to be costly for them,’ Blanchard cautioned. He then went on to suggest that Net Zero should be funded by higher public borrowing.
In similar vein, Sir Dieter Helm told the committee that it was ‘delusory to think’ that the Net Zero transition would pay for itself. It was his 2017 cost of energy review that warned ministers the energy policy was not sustainable. Sir Dieter could also have added that it is a delusion promoted by climate lobbyists.
As if to validate what the two economists were telling the Lords committee, the German-owned electricity producer RWE briefed the Financial Times that the level of government support – funded through the guaranteed prices electricity consumers are forced to pay for wind energy –is too low to offset rising wind power costs. The government’s model used forecasts of wholesale electricity prices that were too low and its assumptions on wind power performance assumptions too high.
That in itself is a big story: The wind industry is admitting that the ability to generate wind power has been vastly overestimated. With the bursting of the wind bubble, the industry’s messaging has switched to crude blackmail. As RWE’s German boss, Markus Krebbers, told the FT in September, ‘it is, of course, concerning because the UK climate targets cannot be achieved without offshore wind.’ Translation, if any were needed: consumers better pay up or else the government will miss its legally-enforceable decarbonisation targets. Yet only eleven months before, the climate lobby was making the ludicrous assertion that offshore wind was nine times cheaper than natural gas, a claim repeated by Boris Johnson in one of his last appearances as prime minister.
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It’s understandable that elected politicians are not candid with voters about the sacrifices entailed by climate policies. In his presidential memoirs, Barack Obama writes of what he calls his ‘happy talk’ of a painless shift to a carbon-free future, which the former president justified by quoting David Plouffe, his 2008 campaign strategist. ‘We won’t be doing anything to protect the environment,’ Plouffe remarked ‘if we lose Ohio and Pennsylvania.’ The inference is that saving the planet necessitates concealing from voters what it’s going to cost them. Dishonesty is thus baked into politicians’ claims about how Net Zero will make voters better off or, at the very least, have minimal impact on their standard of living.
The constraint of needing to get elected does not apply to the Treasury and the Office for Budget Responsibility (OBR). Rather than speak truth to power and produce anything remotely resembling objective economic assessments of Net Zero, both bodies are deep in the tank with the climate lobby. In its July 2021 Fiscal Risks Report, the OBR states that unchecked climate change ‘would ultimately have catastrophic economic and fiscal consequences’. It cites accelerated melting of the Greenland ice sheet as an example of a climate tipping point, but doesn’t mention the scientific opinion of the Intergovernmental Panel on Climate Change that a hypothetical warming of 3-5°C is projected to lead to a near complete loss of the Greenland ice sheet ‘over multiple millennia’. This is a timescale that hardly fits with the OBR’s end of century fiscal horizon that sees public debt exploding to 289 per cent of GDP as a result of a series of unspecified climate ‘shocks’.
If anything, the Treasury’s Net Zero review, produced three months later, is even more controversial. The review had been set in train by Philip Hammond when he was Chancellor of the Exchequer pushing back against Theresa May’s desire to write the policy into law. Indeed, Hammond is the only senior politician who has flagged up the costs of Net Zero, last year criticising Conservative prime ministers for being ‘systematically dishonest’ about the costs.
In its review, the Treasury review assumes wind power costs of £50 per megawatt hour (MWh) based on non-binding subsidy allocation bids by wind investors. ‘It is not unreasonable to expect lower strike prices,’ the Treasury says of the government-guaranteed price received by wind investors. Estimates of break-even prices for offshore wind were, however, at the time in the range of £125-152 per MWh and are considerably higher now thanks to higher interest rates and materials costs.
However, the Treasury’s most egregious misstep concerns its analysis of the implications of Net Zero for productivity growth. Although it acknowledges that extent to which additional investment will translate into additional GDP is ‘uncertain’, it argues that Net Zero offers the opportunity for innovation, as if there is no opportunity cost to innovation. ‘All other things being equal’, the Treasury says, ‘additional investment will translate into additional GDP growth’. Other things aren’t equal, as Net Zero policies are forcing investment into less productive means of generating electricity.
Publicly available data, which the Treasury didn’t bother analysing, shows that between 2009 and 2020 there was a 28.3 per cent decline in output per unit of generating capacity. In 2009, one megawatt (MW) of generating capacity produced 4,312 MWh of electricity. In 2020, 1MW of capacity generated 3,094 MWh of electricity. Producing less with more is the fundamental fact of the energy transition. It is why having more wind and solar on the grid makes electricity more expensive.
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The OBR correctly notes that long-term productivity growth is the key determinant of fiscal sustainability because it underpins the growth of the tax base. Productivity growth also drives the rise in living standards. Net Zero’s more-to-produce-less paradigm depresses productivity. It is an anti-growth strategy that makes public spending less affordable and reduces the government’s borrowing capacity. For this reason, Blanchard is mistaken in suggesting Net Zero should be financed with higher public borrowing. Instead, Net Zero inflicts unending public sector austerity and a rising tax burden.
The purpose of writing Net Zero into law is the anti-democratic one of putting Net Zero beyond politics. Both Rishi Sunak and Sir Keir Starmer are trapped by it. All their other policy priorities must be subordinated to the government’s legal duty to meet the Net Zero target in the Climate Change Act. As eminent economists like Blanchard and Sir Dieter begin to speak out about its costs, the firebreak between Net Zero and democratic politics becomes less tenable by the day. Sooner rather than later, politicians are going to start telling the truth about it. When that happens, Net Zero’s days will be numbered.
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WRITTEN BY
Rupert Darwall is a senior fellow of the RealClear Foundation and author of Green Tyranny
Very similar to the sounds of TotalEngeries CEO Patrick Pouyanné. Those closest to the implementation of the balancing of the carbon budget know the cost, it's just telling the citizens that it's going to cost them that won't happen.