Will net zero really cost UK households £500 a year? | Climate crisis
The UK’s official energy system operator has attempted to calculate how much it will cost to reach net zero carbon emissions, with figures showing spending will rise in the coming years.
The size and pace of the transition to a low-carbon economy and how it will be financed are hotly debated by political parties.
Governments need to drastically reduce emissions over the next decade to avoid a catastrophic situation in which extreme weather around the world destroys lives and livelihoods as well as food systems and wildlife, according to the Intergovernmental Panel on Climate Change, a group of the world’s leading climate scientists convened by the UN.
The report suggests that investing in cleaner production projects, distribution networks and replacing fossil fuel cars and boilers could be billions of pounds cheaper if the UK were less ambitious. But one downside is that the benefits from net zero emissions, which include much lower energy costs, will be delayed.
Here we look at the different scenarios presented by the energy system operator and the costs for households, businesses and the planet.
How much will the government’s net zero plans cost?
In the first analysis of its kind, the National Energy System Operator (Neso) has revealed the costs of meeting a range of scenarios that align with the government’s green agenda.
The UK currently spends around 10% of its gross domestic product on net zero-related investments, and Neso expects these costs to rise in the coming years and remain higher than today until the 2030s.
In its most ambitious green scenario, costs peak at around £460bn by 2029 and then start to fall to around 5% of GDP by 2050, or around £220bn a year. In the “fallback” scenario, which models a future of slow climate action in which Britain misses its net zero target and ignores the cost of climate damage, total costs are around £350bn lower.
This calculation does not include the impact of “carbon costs”; This means any tax that puts a price on pollution to discourage the production of greenhouse gas emissions and help offset the harmful effects of fossil fuels on the economy.
If these are taken into account, the greenest scenario would be the lowest cost over the next 25 years, saving £36bn a year compared to a scenario where the UK would take slower climate action. However, this will still mean a sharp increase in costs in the short term.
Does this mean higher energy bills?
Not necessarily. The Neso report sparked headlines claiming households could save £500 a year on a slower path to net zero, but – a) these savings rely on ignoring carbon costs and b) the reality of how energy costs are passed on to consumers is much more nuanced.
First, the total bill includes spending on a wide range of low-carbon investments that are not included in our energy bills. These include replacing old fossil fuel cars with electric models or replacing old boilers and gas stoves with heat pumps and induction cooktops.
Second, how to pass the costs on to consumers is an issue for the government, which spreads the bill over a longer period to ease the burden on households, businesses and industry. Investment in the new Sizewell C nuclear power plant over the next decade could reach £38bn; however, the cost to consumers and taxpayers will be spread over the 60-year life of the project.
The government says energy costs applied to household bills, such as improving networks and supporting low-carbon electricity, will reduce costly bottlenecks on power grids and reduce the need to buy gas in volatile global markets.
But higher investment costs significantly increase the chances of households paying more.
The UK’s chief climate adviser warned earlier this year that ensuring the costs of decarbonisation are shared fairly across society must be a top priority for ministers or they risk losing public support for net zero. Emma Pinchbeck, chief executive of the Committee on Climate Change and independent legal adviser, said it would help the government make a “strong, confident” case for decarbonisation as an engine of economic growth.
So could costs be lower?
Critics of the government’s green agenda claim the UK could save an average of £14bn a year by abandoning the legally binding target of reaching net zero by 2050. Instead, the country could take a slower approach to climate action through Neso’s “fall behind” scenario.
But this ignores the cost of worsening climate damage. The report warns that the cost of ignoring carbon costs will ultimately be higher after 2050 due to the high costs of fossil fuels.
The UK will also miss out on the “non-financial benefits of net zero”, such as improvements in public health, the natural environment and social wellbeing. – and negative business impacts may occur as economic partners target faster emissions reductions.
The report warned: “It would be wrong to interpret the delay in this cost as meaning that the cost has been completely eliminated.”
Can we trust this report?
Neso is a government-owned authority and its scenarios form the basis of forecasts produced by political and business leaders. But his report has significant limitations and cannot be taken at face value.
The path set by the government is unlikely to follow any scenario produced by Neso, and the final cost will depend on a multitude of regulatory decisions. Neso said its models were “not fully optimized to minimize cost,” meaning further savings could be achieved. The models also rely on a number of assumptions, including the future market price of fossil fuels and the cost of low-carbon technologies such as heat pumps and electric vehicles.
“This means that the efficient delivery of any road may be as important as the choice of road from a cost perspective,” the report added.
What does the government say?
While the government has highlighted the report’s limitations in estimating the cost of net zero, it has also promoted its benefits. “We fundamentally reject the idea that these illustrative scenarios accurately reflect the costs of transitioning to clean energy, which has huge benefits in lowering bills, energy security and securing good-paying, skilled jobs,” a spokesman said.
“Neso makes clear that moving towards clean energy saves money by protecting future generations and fundamentally reduces our exposure to the fossil fuel markets that have caused half of all recessions since the 1970s. As Neso points out, they do not reflect or estimate the cost of net zero, acknowledging that the possible path depends largely on future fuel prices and the pace at which the private sector rolls out net zero technologies.”
So does it still make sense to accelerate our green targets?
Absolutely, according to the world’s leading scientists and experts. Mel Evans, Greenpeace UK’s climate chief, said the report revealed “clear and positive impacts of the UK’s commitment to clean energy”.
“Not only will this help eliminate our planet-warming emissions and make the UK a global leader on climate action, inspiring others to follow in our footsteps, it will also halve our energy costs,” he added.
“But one thing this report does not take into account is the huge cost of not switching to clean energy and therefore not tackling climate change. The damage caused by the climate crisis has cost a whopping £13 million per hour globally over the last 20 years, making the economic argument for investing in net zero as strong as the environmental argument.”
