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The Economic Case for Net Zero Carbon Emissions is Hokum

Andrew Montford, Reaction

Last month, the Committee on Climate Change issued its report on how the UK could reduce its carbon dioxide emissions to “net zero”. Since its recommendations are for a complete upending of the economy and our way of life, it is, not to put too fine a point on it, a document of historic importance.

You might, then, have hoped for some careful consideration of the report’s contents, but alas that is not the way of the political class. This week, Parliament will be asked to pass the statutory instrument to embed a net zero target in law and will probably do so on the nod.

The public debate, such as it has been, over the last few weeks has been almost entirely superficial. In particular, nobody seems to have worked out that the CCC has pulled the wool over everyone’s eyes about the scale of what is planned. They did this through a carefully worded headline message, which said that net zero could be achieved at a modest cost of 1–2% of GDP in 2050.

This claim seems to have caused some consternation at the Treasury, who issued their own claim that the cost was going to be £1 trillion or more. The result was a public lambasting, with Ambrose Evans-Pritchard in the Telegraph saying the claims were “innumerate nonsense”. He alleged that the Chancellor had conflated spending with investment.

In order to get to the truth, this all needs very careful unpacking. First let’s look at the claim that the cost is 1-2% of GDP in 2050. If you dig and dig and dig through the CCC’s reports and the supporting information on its website, you end up at an obscure spreadsheet from which it is possible to work out that the 1–2% figure represents a sum of £50.8 billion, set against £3.9 trillion GDP. But this is the annual figure, not the total to 2050. Over 30 years, it will add up to £1.5 trillion. So we can see that the Treasury’s figure is indeed innumerate nonsense, but as a result of having understated the number and not, as Ambrose Evans-Pritchard suggested, because they had overstated it.

Moreover, Evans-Pritchard’s claim that spending has been conflated with investment is not true. The returns are included. The CCC explains in its report that when it refers to “cost”, it is talking about something called “resource costs”, which it explains are:

…estimated by adding up costs and cost savings from carbon abatement measures, and comparing them to costs in an alternative scenario (generally of a hypothetical world with no climate action or climate damages).

The quote repays careful reading. The CCC says that the resource cost of getting to net zero is 1–2% of GDP. But they aren’t using the word “cost” – in the way normal people do – to mean “how much you have to spend”. They are talking about the extra spending over business as usual, and net of any savings generated along the way as well. The “impact” might be a better word. There are hints elsewhere in the report that the gap is narrowed by adding a value for climate damages to the business as usual case, completely ignoring that the most likely scenario is that most of the rest of the world fails to follow suit – in other words the climate damages value should appear on both sides of the equation. I have been unable to ascertain what value the committee has used though, so whether it is reasonable is anyone’s guess. But what seems clear is that we are being told that we are going to be considerably more than £1.5 trillion worse off than if we did nothing at all. This is a rather extraordinary argument for a policy proposal.

How much actually needs to be spent is not a subject that the CCC addresses, but it’s clear that it is a mind-bogglingly large sum. To give just one example, Professor Michael Kelly, a former chief scientist at the Department of Communities and Local Government, has reported the results of a government project to retrofit insulation to houses. The spending, of £150,000 per home, reduced energy bills by more than half. But this means that, even if the cost could be halved in future, retrofitting all of the UK’s 29 million homes would still cost £2 trillion, money that would have to come out of the pocket of homeowners or taxpayers.

Normally in a cost-benefit analysis, you discount future benefits somewhat to recognise the fact that a pound in the pocket today is worth more than one arriving ten years in the future. However, it’s  clear from the CCC’s quote that they don’t do this, which is probably just as well, since applying even a modest 2% discount rate to Professor Kelly’s figures would mean that the payback period becomes absurdly long. Telling voters that they are going to have to spend £75,000 on an “investment” that will never pay for itself is going to be a hard sell at the ballot box.

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