Fast-tracking net zero ‘would cost 9% of GDP’

Demands by the Extinction Rebellion campaign to eradicate emissions by 2025 are “practically impossible” and would cost the equivalent of nine per cent of UK gross domestic product (GDP), a new report has warned.

Even the softer target of 2030, endorsed by the Labour Party’s recent annual conference, is “implausible” and would cost £100 billion per annum, equivalent to 4.5 per cent of UK GDP, according to the study, published today by right of centre thinktank Onward.

The Costing the Earth study examines the costs and hurdles involved in trying to hit the net-zero target under these accelerated timescales, while recommending a replacement of the Contracts for Difference (CfD) regime in its blueprint for how the next government can deliver its decarbonisation goals.

According to the analysis, carried out by the thinktank and based on figures from the Committee for Climate Change (CCC), the total cost of delivering Extinction Rebellion’s target of net-zero emissions by 2025 would be an “absolute minimum” of £200 billion for the next five years, equivalent to nine per cent of GDP.

The 2025 target would require three times the current global manufacturing capacity of electric vehicles to be sold in the UK a year, the report estimates.

Decarbonising the UK’s car fleet would require six million motorists to trade in their petrol or diesel vehicles for an electric model each year until 2025, up from the current figure of 25,000.

A similar drive to eliminate emissions from domestic heating by 2025 would need the replacement of gas boilers with low carbon alternatives, like electric heat pumps, in 22.8 million homes.

At an estimated cost of £8,400 per installation, the total cost would work out at £192 billion, as well as demanding a three-fold increase in the number of plumbers working in the UK and a huge expansion of the power system to service the additional demand for electricity.

But the report outlines a blueprint for how an incoming government could use market incentives to achieve the 2050 net zero goal, which was unanimously endorsed by Parliament earlier this year.

It recommends replacing the current CfD regime for subsidising low-carbon generation with a system of “Carbon Contracts” that would incentivise the delivery of low-carbon generation by pricing emissions into the cost of electricity.

It also backs removing energy levies from consumer electricity bills and rebalancing VAT so that the rate on electricity, which it says has been “significantly decarbonised” is cut to zero while that on gas is increased to 20 per cent. It says these changes are designed to spur investment in low carbon heating options.

And it recommends turning the Winter Fuel Payments, which all pensioners receive and cost the taxpayer £2 billion a year, into an Energy Efficiency Capital Grant scheme for fuel poor households to upgrade their insulation and energy efficiency.

In order to improve coordination on decarbonisation across government, the report calls for the creation of a new Net Zero Secretariat to support the recently established Climate Change Cabinet Committee, mirroring the apparatus that exists for national security policy.

These efforts would be boosted by requiring the Office for Budgetary Responsibility and the CCC to report on emissions as part of the annual budget framework, expand Ofgem’s objectives to include net zero and reframe the remit of the Red Tape Challenge and Regulatory Policy Committee to consider environmental as well as business costs and benefits when deciding on whether to scrap regulations.

The analysis adds a caution that its figures are very likely to still be underestimating the true cost of a more rapid net-zero goal. The figures are condensed versions of the CCC’s estimate that net zero would cost 1 to 2 per cent of GDP, and therefore excludes the frictional costs of accelerating decarbonisation activity, for example through the need to train personnel, deploy capital resources over a shorter timescale, or accelerate the deployment of technologies before they have reached maturity.

Richard Howard, co-author of the report, said: “The government’s net-zero pledge is a huge and necessary step forward, but it is not sufficient – they now need a plan to deliver it. This plan needs to be rooted in centre-right beliefs in open markets, prudence, pragmatism, and investment in innovation – to avoid UK competitiveness, hard pressed consumers or taxpayers being excessively hit.

“This is not only the best electoral strategy, but also the right thing to do – and essential to avoid the climate debate being used as a trojan horse to overthrow the market economy and impose state control.”