Net Zero: weak economic growth, high energy prices and stagnant productivity?
How many times have we heard the argument that there is no trade-off between pursuing Net Zero and economic growth? The argument lies at the heat of the country’s economic, climate and environmental policy debate.
The energy secretary, Ed Miliband, repeats the mantra at every opportunity – “clean energy and Net Zero equals good jobs and economic growth” – and he is echoed in this article of faith by an entire industry (in the public and private spheres) that have thrown their lot in with the clean energy drive, whether through opportunism or conviction.
But what if they’re all wrong?
The debate has animated politicians for years and has spilled over into the culture wars, with scepticism of the environmental consensus becoming a cornerstone of populist and insurgent parties. Cool heads are needed now more than ever, not least because decisions taken today (indeed, decisions taken five and ten years ago) will determine our future prosperity.
Fortunately, Kallum Pickering, chief economist at Peel Hunt investment bank, has undertaken a forensic analysis of the Net Zero policy landscape, and his findings deserve widespread attention.
Pickering traces the roots of the UK’s productivity problem to 2006, when electricity availability began to decline. It has fallen by 21 per cent since then. This fall is attributed to the decommissioning of coal, oil and nuclear production facilities. Coincidentally, this is also when the UK started to become a net-importer of oil and gas. Crucially, demand for electricity continued to grow and, given a deliberate squeeze on supply, the price went up – particularly for businesses, but also for consumers.
Pickering notes that the UK now has “the highest domestic electricity prices in the advanced world.” Translating this issue to the real world, Pickering notes that the US managed to keep its energy consumption stable while growing its living standards (GDP per capita) whereas the UK’s living standards have basically flatlined as energy consumption reduced. This is food for thought.
But have we at least contributed meaningfully to a reduction in global CO2 emissions? Not really, says Pickering, noting that while our own emissions have halved this accounts for less than 1 per cent of the global total.
He concludes that “the UK’s decarbonisation efforts, so far, have resulted in weak economic growth, high energy prices, stagnant productivity and no significant impact on global emissions.”
Politics is about choices, of course, but it should also be about evidence and recognising when and where policies need to change in reflection of reality.