The transition to net zero and economic growth are complementary trends. The global economic story of the 21st century will be dominated by the investments, innovation and consequent transformations in productivity that decarbonisation entails. Renewables, electrification, energy system digitalisation and efficiency all enjoy significant economies of scale, unlike fossil fuel-based energy systems. Recent research from Oxford University found that, given significant improvements in renewables energy cost and deployment rates in recent years, transitioning to a net zero energy system by 2050 is economically beneficial even without accounting for climate damages or climate policy co-benefits.
The net present saving of transitioning to net zero energy globally is between $5 and $12 trillion, using the range of widely accepted reasonable discount rates. Soaring oil and gas prices, geopolitical tensions, and the likelihood of continued volatility serve to underline that transitioning to net zero is also an energy security imperative.
Accounting for climate damages makes the cost-benefit picture even more stark. Recent events have shown how serious the impacts of the damages the UK is exposed to can be. European floods in July 2021 cost Germany, Belgium and the Netherlands $43bn in damages. The total costs of climate damages are projected under current policies to increase to 3.3% of UK GDP by 2050 and 7.4% by 2100. HM Treasury projections must include these costs in order to take sensible, pro-growth and pro-net zero decisions in the years ahead.
The fundamental ingredients that drive economic growth – reducing energy inputs costs, using resources more efficiently, making productive investments, encouraging innovation, digitalisation, upskilling, and creating export opportunities – are at the core of the net zero transition.
The UK has comparative advantage in several key sectors, including in the professional services and financial industries that will be essential as countries and companies across the world re-allocate their investments, and as global capital expenditure flows into clean energy infrastructure. Our North Sea wind resources could be an engine of future economic activity, as a source of domestic energy and exports and through developing world-leading expertise in renewables. The UK’s leading universities and science and tech centres will give the country an edge in many of the new technologies and services that net zero will generate. Moreover, supplying the goods and services for the global net zero transition could be worth over £1 trillion to UK businesses by 2030 – with high growth opportunities for the City of London such as in commercial (re)insurance and rapidly scaling green bond markets.
Energy efficiency is a critical piece of the economic, energy security and climate case for net zero. Reducing final energy demand in homes would raise household disposable incomes, shrink the UK’s trade deficit – increasing the value of the pound – and bolster our energy security. There are also domestic manufacturing opportunities and the potential for hundreds of thousands of skilled jobs across the country in sectors like home decarbonisation, in addition to productivity-boosting health co-benefits.
This submission focuses on three areas where the UK has an important opportunity, and where successful UK leadership could have the biggest impact on economic growth:
- Finance: The UK has an opportunity to secure its status as the world’s leading global financial hub by delivering an ambitious Net Zero Financial Centre. The UK could become the main provider of financial and related professional services for the global net zero capital reallocation process, and lead in setting standards and norms for sustainable investment.
- Energy and power: Massively increasing renewable generation, decarbonising the power sector and electrifying as much of the economy as possible is the core task of the net zero transition worldwide. The UK has made huge progress decarbonising its power sector. With the right regulation and market structures in place to attract investment in generation, transmission and digital technologies, UK consumers and businesses can be among the first in the world to benefit from the net zero promise of clean, abundant and cheap energy.
- Homes and buildings: The gas crisis has underlined the need to waste less energy in inefficient buildings and to protect consumers and businesses from unaffordable prices. The built environment is also the source of around one-fifth of UK emissions. If the UK acts decisively to decarbonise the buildings, households and businesses will save money, the government will be less exposed to volatile gas prices – which pose a significant threat to fiscal credibility while its energy support schemes are in place – and our energy security will be improved.
Read E3G’s full review here