Follow us
Publications Commentary Research People Events News Resources and Videos About IFS
Home Publications The law of averages cannot apply to our pursuit of a net zero future

The law of averages cannot apply to our pursuit of a net zero future

Newspaper article

Life goes on in Whitehall even as the combined crises of Covid and Brexit come to a head. It is to the credit of our system of government and those who work in it that, over the past couple of weeks, the fruits of much labour on the longer-term crisis that is climate change have emerged in the form of three important policy documents.

The first came from the Climate Change Committee, of which I am a member. It set out a recommendation, and at least the elements of a plan, to reduce greenhouse gas emissions by more than 60 per cent between now and 2035. That is a necessary step towards achieving the government’s stated ambition of reaching “net zero” by 2050. If we are serious about achieving net zero, then that is the reduction that will be required over the next 15 years. A second document, a white paper from the business department, contains a range of policies and commitments aimed at achieving that reduction.

It is necessary. It is also challenging. We are kidding ourselves if we believe otherwise. It will mean that within ten years the only new cars we can buy will be electric. Today they account for well under 10 per cent of sales. At least 90 per cent of electricity generation will be low-carbon, requiring a quadrupling of offshore wind capacity, for example. Rather than installing 30,000 or so heat pumps per year, as we are at the moment, by 2030 we will need to be installing more than a million a year, with no more gas boilers being sold. Manufacturing industry will need to make dramatic changes to its energy sources.

The long-term benefits are big, not only in mitigating climate change but also from less polluted streets, cheaper-to-run cars and healthier diets. Yet all that will come at a cost. The public and, especially, private sectors will need to be investing tens of billions of pounds a year over the next decade and beyond. Given the present need to get the economy going again, this is not a bad time to be planning some big investments. Nevertheless, the costs are real.

I don’t say all that to scare you. It’s genuinely doable. And in the long run the overall costs could turn out to be remarkably low. Much low-carbon technology is pricey up front but a lot cheaper to run than stuff that depends on buying oil and gas. It looks likely that electric cars will turn out to be cheaper overall to buy and run than petrol cars. The cost of wind and solar power has been plummeting at an extraordinary rate.

So the overall cost of getting to net zero should be more than manageable. However, as we have discovered time and again, overall costs and benefits aren’t really the point when it comes to getting the public to buy in. They’re not really the point at all. We may be on average better off because of expanded international trade, for example, but we are individuals, not averages. If free trade leaves communities in Britain devastated because the local textile factory has closed down, there’s no point telling the unemployed workers and their newly benefit-dependent families that we are better off on average. It is incumbent upon government to manage such change and to support those who are losers.

The same applies to climate change policy. It may not be costly on average, but that’s not to say there won’t be losers. Polish coalminers have real reason to fear policies aimed at ending the use of coal. We largely lost our coalmining industry more than 20 years ago. The cost of that loss in long-term sickness, unemployment and deprived communities remains with us.

That’s why a third recent document is so important. It comes from a Treasury review of how the costs of the transition to net zero should be shared. We may not have coalmines any more, but we do have industries and very many jobs dependent on fossil fuels and the technologies that use them. There will be plenty of new jobs associated with the low-carbon economy, but that will come as scant comfort to redundant gas engineers or steelworkers if they don’t get those new jobs.

Most at risk will be workers in the most carbon-intensive sectors. They tend to be less highly educated and less well-paid than average. Employees with GCSEs or below work in sectors with carbon emissions per worker almost double those of the sectors in which those of us with degrees work. Some of those who always seem to lose out from economic change have reason to fear the coming transition. We absolutely must ensure that they are not the fall guys yet again.

The changes and potential costs will be much more widespread, of course. The cost of the transition to renewables has been felt already in higher electricity costs, on average (that “average” word again) fully mitigated by increased efficiency of electrical appliances and improvements in insulation. Widespread installation of heat pumps will be costly; we need to decide who will pay. As we move towards electric cars, the exchequer will lose more than £30 billion a year in fuel tax revenues; that will need to be made up. A carbon tax, the instrument for tackling climate change most beloved of economists, will hit the budgets of the poor; if we go down that route, we will need proper compensation.

The Treasury document is notable for the warmth of its embrace of net zero. If we are to keep the country onside and equally warm, then the real-world policy effects that the document considers will need to be front and centre. Thinking in totals and averages won’t do.

This article was written for The Times and is used here with kind permission.