There will be no borrowing to invest in green energy, jobs or transport systems. The costs of transitioning to an economy without carbon, says the Treasury, must all be borne by companies and households.
That is the message of the UK government’s Net Zero Review, published on 19 October. “Future generations are among the beneficiaries of net zero investment and, therefore, some might argue that they should pay a portion of these investment costs,” says the review. “This would, however, have negative implications for the public finances, intergenerational fairness and potentially the efficiency of the transition.”
The economists who wrote this, and the politicians who signed it off, should be charged by future generations with ecocide. Because by applying only the logic of the market, combined with ruthless fiscal conservatism, they have mandated a UK decarbonisation strategy that cannot and will not work. If followed, and emulated by other countries, it would doom the planet to irreversible climate chaos.
Let’s understand the most fundamental sleight of hand at work in the government’s strategy document, Build Back Greener. It matches a binding legal commitment to achieve net-zero carbon emissions by 2050 with a range of “scenarios” and “ambitions” – not commitments.
As for the scenarios, none of them represents a viable pathway to net zero. In each case, despite massive reductions in the CO2 produced by the energy sector, industry and transport, we are still left with between 75 and 81 million tonnes of carbon spewing into the atmosphere. This, it is assumed, will be offset by a carbon capture and storage industry based on technologies that barely exist today.
Even here, however, the end result relies on the private sector finding the willpower to break out of the UK’s historic culture of low investment. £60bn will need to be poured every year into wind, wave and nuclear power, home insulation and electrified city transport systems during the next two decades.
If it fails to do so, says the Treasury, tough – because of its bizarre interpretation of the so-called polluter-pays principle (PPP). The PPP has, since the 1970s, formed the centrepiece of free-market strategies to fight both environmental damage and climate change. Instead of the taxpayer footing the bill for, say, cleaning up effluent discharged into a river, the polluter must pay a fine, tax or charge – internalising the cost of an apparently external side-effect of capitalism.
The assumption is that if a polluting firm is forced to assume the true costs of its activities, it will change its behaviour. Applied to the whole of capitalism, this assumption prompted governments to introduce cap and trade schemes for carbon emissions. One glance at a chart for global carbon emissions can tell you that it has not worked.
Because the polluter has not paid. The consumer, ultimately, has borne the costs of any higher energy bills, while for decades the private sector has managed to avoid radical decarbonisation and behavioural change by moving its most carbon-intensive operations offshore, where carbon taxes don’t exist.
Nor did the previous polluters pay: the fortunes amassed over two centuries by coal barons, oil giants, railway and shipping magnates, oil and gas extractors have never been touched according to this principle. We took a four-and-a-half billion-year-old planet, disrupted the rhythms of its ecosystem with two centuries of industrial capitalism and then assumed an economic ideology invented in the 1970s would solve the problem. It has not done so.
So the PPP was always a sham: an ideological justification for avoiding radical change. But nothing in the principle says, as the Treasury claims, that a country cannot borrow to invest in clean technologies. What you “pay” for, under the PPP, is the total cost of remediating an act of pollution: that includes the regulation itself (so in the river example, a water regulator) and the cost of long-term investments to set things right.
If a water company is forced by the PPP to build new sewage plants, and needs to borrow to make that investment, it cannot claim this is “unfair to future generations of shareholders” who will need to service and repay the debts. Likewise, if a state decides to socialise the cost of remediating two centuries of carbon capitalism, and to spread that cost over time, there is nothing intrinsically unfair in that.
Not even Labour under John McDonnell envisaged the state assuming all the costs of the green transition. But the state needs to invest to pump-prime private investment, and to do the big, unprofitable things the market will not do – such as decarbonising city transport, building nuclear power plants or insulating the dilapidated housing stock.
What the Treasury really means, when it opposes government borrowing to invest in green technologies, is that the public sector must have no role: it’s nothing to do with intergenerational fairness – it’s about social unfairness. The children of the future must emerge into a low-tax world where the state has few social obligations and no directing hand over market forces. That’s what this is about.
Fortunately, there is an alternative. The shadow chancellor Rachel Reeves has promised that a Labour government will spend £28bn a year until 2030 – a £224bn commitment that can only realistically be met by borrowing. It’s not going to be enough to achieve net zero by the mid-2030s, but it’s a principled stance, and opens up clear “green water” between Labour and the Conservatives.
While Rishi Sunak and his department pledges to mitigate the acute social unfairness that will arise as energy bills increase and as heat pumps are deployed, Labour has said it will place social justice at the centre of its transition plans – prioritising the living standards of working people, not treating them as an afterthought.
But it is now time to go further. Seeing the government’s pathetically inadequate plan for the first time on paper has, for me, revealed how radical we are going to have to be to achieve net zero – not by 2050 but in the middle of the next decade.
In contrast to the market-based approach, every major aspect of the project has to be owned by the state. To decarbonise the energy system we are going to have to decommission every gas-fired power station, rapidly build out offshore wind, tidal and solar capacity, and ensure a base layer of nuclear-generated electricity with one or more new power stations. If we are going to rely on carbon capture and storage, then this too will need dramatic and state-directed investment.
There is no commitment to do any of this in the government’s plan, and the reason why is simple. All private sector investments are predicated on a future wholesale electricity price that makes many of them unviable. That’s why new nuclear power stations never get built; that’s why the Swansea Bay tidal lagoon was canned. Even solar power, of which production costs have plummeted, is suddenly subject to rising raw materials costs and the unavailability of connections to the grid.
The market, it turns out, is a good mechanism for regulating the production of carbon-based energy, but an appallingly inefficient mechanism for moving away from it. To ensure security of supply, at the same time as moving away from gas heaters and petrol-powered cars, to install the energy storage facilities needed to balance supply and demand, and to ensure predictability for those building new plants, we are going to have to run the whole system of electricity generation, consumption and distribution as a single entity.
The only logical form for that entity to take is a publicly owned corporation, freed from the profit motive and financed by the state. Sure, it could have municipally owned combined heat and power systems, or mutually owned local energy distributors. But at the heart of the transition there needs to be a planned economy of energy.
This is why Keir Starmer’s abandonment of his leadership campaign pledge to nationalise the energy industry is foolish. Nationalising the National Grid and the big six distributors is a no-brainer; indeed, to ensure a public stake in the carbon capture and storage industry, investment in load-balancing batteries and new nuclear power stations, it is the only solution.
Yes, planned economies have failed, but even the privatised National Grid believes a “whole system approach” is the only way to manage the transition. And if we want to achieve carbon capture and storage at the scale envisaged by the government (and dreamed of by start-up companies), the rollout will have to be centralised and the investor will have to be the state.
Build Back Greener is such an obvious dead end and the Treasury’s Net Zero Review such an obvious piece of ideological chicanery, that it is now urgent to build a cross-party consensus outside the Tory party for rapid and decisive change.
In this spirit, the left might concede that a single state energy company, nationally controlled infrastructure and a centralised energy plan might give way – at the end of a 15-year transition – to a new private sector and a new mixed economy of green energy. But the hard part comes first – and the state must raise the money and deploy the resources to make it happen.