Environment

The economic case for net zero carbon emissions is hokum

BY Andrew Montford   /  24 June 2019

Last month, the Committee on Climate Change issued itsreport 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.

And as you trawl through the rest of the CCC’s report, you see again and again that the gap between what is the net zero case and business as usual has been narrowed by means of wildly optimistic assumptions about the future. In essence, the whole of the CCC’s case for net zero can be summarised as “everything we believe in will become cheaper; everything else will not”.

Take offshore wind power for example, which the CCC has suggested might be at the centre of our future electricity supply. The International Renewable Energy Agency recently reported that cost declines in offshore wind have stalled, having barely reduced at all in the last three years. It expects little change in the foreseeable future either. Yet the CCC is basing its projections on costs falling by half in the next two years and by another quarter by 2050. Meanwhile, by also assuming that the cost of gas-fired generation becomes more expensive between now and 2050 (they don’t explain why – it’s their own analysis apparently), and by ignoring the costs of fixing the intermittency of the renewables, they are able to reach the conclusion that spending money on offshore wind power will save us money.

In places, the plan verges on dangerous fantasy. Bioenergy with carbon capture and storage (BECCS) is touted as a way to generate electricity on demand so as to deal with the intermittency of renewables. The CCC freely admits the problem with this idea, namely that “relying entirely on BECCS could require very large amounts of land and may create conflicts with food production and biodiversity.” So in their example generation scenario, only 41 TWh of electricity generation, 6% of the total, comes from this source. Unfortunately, the land requirement for bioenergy is in the range of 1-2000 km2 per TWH, so we are looking at something like 80,000 km2 for the Climate Change Committee’s plan. That’s roughly a third of the UK’s land area. The idea would be comical were it not so dangerous – recall the drive for biofuels ten years ago, which resulted in hunger across Africa in a disaster that the United Nations described as “a crime against humanity”.

The CCC’s plan to get us to net zero is in essence a dodgy sales pitch rather than a serious attempt at policy development. It uses a series of tricks and deceptions that if tried by someone promoting shares in the City of London would see them unceremoniously flung in jail. As this analysis makes clear, if the plan is put in place, the best-case scenario is that we end up worse off by £1.5 trillion, or £50,000 per household, than if we did nothing. Given the disastrous record of government in delivering projects a fraction of the size, the reality could be still worse.

Yet the remarkable fact is that as it sits to consider the statutory instrument this week, Parliament is being asked to believe that the plan will have “no significant impact on businesses” and no impact on local government. Extraordinarily they asked to consider the legislation without an impact assessment. This, parliamentarians are told, is unnecessary.

In an era when politicians are increasingly viewed with contempt, a decision to embark on such a madcap scheme without even considering the costs or benefits will surely be seen as wholesale dereliction of duty, the ultimate virtue-signalling insult to the electorate. Supporters of the scheme can surely no longer claim to be a serious party of government.

Andrew Montford is deputy director of the Global Warming Policy Forum


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