The chancellor needs to confront the costs of net zero

This is a government that likes to talk up its green credentials. Ministers embellish their ambitions with constant references to a “green industrial revolution”; in his budget last week Rishi Sunak namechecked it several times and said, “we need a real commitment to green growth”. 

Unfortunately, he offered little sign of that commitment. The budget was another example of the government’s difficulties in matching its rhetoric with a willingness to confront the challenges ahead. Above all, with eight months to go to the COP, it still lacks any sense of a plan for how to pay for net zero.

Net zero is primarily a huge investment challenge  

At the heart of any path to zero greenhouse gas emissions will be a set of massive changes to the built environment – our energy system, our transport system, and our homes. The best idea we have of the cost of financing these changes comes from the Climate Change Committee’s sixth carbon budget advice, published in December.

It said there would need to be a “major nationwide investment programme, led by government but largely funded and delivered by the private sector and individuals”.^[1] Of around £390bn of total investment across the UK in 2019, only £10bn went towards low-carbon projects. The CCC think this needs to rise steeply to about £50bn per year by 2030 – and stay at that level for the next three decades. The cost of financing this investment could range from £3bn–17bn per year, according the committee’s modelling, depending on factors like how much government reduces risk for investors through strong and reliable policy signals.^[2] 

In a report almost 500 pages long, the killer chart, however, is the one below. It suggests that, if these levels of investment are reached, by the mid-2040s capital expenditure will be eclipsed by operational savings, largely due to the extra efficiency of electric vehicles. On top of this there are wider societal benefits: warmer homes, cleaner air, healthier lifestyles.  

Yet even if the investment case is attractive – as well as being necessary and within the cost envelope agreed by parliament when it signed up to the target – shifting public and private money towards net zero will require political commitment, persuasion and action.

The budget was another missed opportunity

The Treasury holds most of the levers for doing this, but Sunak has repeatedly failed to use them. His latest budget focused on encouraging business investment through a new “super-deduction” aimed at bringing forward investment. But ministers said attaching “green strings” to this would undermine its purpose as a stimulus measure. Sunak also established a new National Infrastructure Bank, replacing the loss of access to the European Investment Bank, but he has neglected to give this a clear net zero mandate, which means it could easily lend greater support to high-carbon activities. 

The trickiest area in which the public will be expected to bear most of the costs is the estimated £12,000-£15,000 each household will need to find for retrofitting. The budget could have started a conversation about enabling low-interest loans, supporting low-income households, and investing in the workforce to bring down costs. Instead, it was silent, with the Treasury licking its wounds after the failed Green Homes Grant. There were measures to boost digital skills, but nothing on training people to replace gas boilers. There was ‘Help to Grow’, a management scheme for SMEs, but no ‘Help to Green’.

The continued freeze on taxes on the burning of petrol and diesel marks a decade-long failure to nudge people more forcefully away from the UK’s biggest source of pollution – and means remaining vehicle sales will continue to drift towards fuel inefficient cars, including SUVs. Nor was there a move to start shifting the tax burden from electricity to gas or any sign of a wider ‘net zero tax strategy’. In fact, as train fares rise, the government is mulling a cut to air passenger duty on domestic flights. This may boost connectivity within the union but sends exactly the wrong signal on mobility.

At every fiscal event since this government took office, we have asked “is this the moment when the Treasury turns green?” At the 2020 budget, the 2020 spending review and the latest budget the answer was pretty clearly “no”. The Treasury’s interim net zero review made the right noises, and we await the full report this spring. But what matters are political choices, and it is increasingly hard to avoid the conclusion that net zero is not really a priority for this chancellor.

Ducking the costs of net zero will only make things harder

It is not surprising that Sunak has other concerns. Our research found that consecutive governments have ducked climate change measures that impose costs on voters, with the Treasury repeatedly acting as a brake on progress. He is looking to repair the public finances after covid and honour the pledge to “level up”. He may also have an eye on future elections.

Yet, the calculus in No.11 should be changing. There is strong evidence that bringing forward net zero investments could aid the UK’s recovery from coronavirus.^[3] And the sixth carbon budget, which the government accepted, was predicated on the idea that delaying action (and not allowing supply chains to develop) will ultimately make changes more expensive.

Nor will delay make the politics any easier. Failing to make a positive case for distributing costs fairly cedes ground to those who would argue that they do not need to be paid at all. There are already signs of fringe parties across Europe profiting from opposing “unaffordable” climate policies. ^[4]

Hosting the COP affords UK politicians greater space for domestic climate action, but in return it means the eyes of the world are on the UK’s record. If the chancellor continues to waste that opportunity by shying away from the costs, the government’s rhetoric about its green credentials will look increasingly empty.