For the foreseeable future, this government’s central objective will be to get public borrowing and debt back under control. Taxes will rise and departmental spending will be constrained. At the same time, real incomes will fall due to the recession and rampant inflation. The conventional wisdom says this grim economic cocktail does not bode well for action on climate change, but there are reasons to hope this will not be the case.
First of all, it is possible, and in fact desirable, to reach net zero through the private sector financing the majority of the investments. As a share of overall government spending, net zero is modest. In a report last year, the Office for Budget Responsibility assumed the Exchequer meets around a quarter of the net cost, equivalent to around 0.4% of GDP a year across three decades. By contrast, the state spends 12% of GDP on healthcare and 0.5% on overseas aid.
And contrary to what its critics claim, net zero spending delivers good value for money. It is reducing the costs of emerging clean technologies for households and businesses, giving UK companies a head-start in major new export markets, supporting job creation across the UK, and limiting the impacts of climate change. Cutting schemes abruptly would put these benefits at risk. The lesson from offshore wind is that long-term policy certainty gives investors confidence, lowers the cost of capital, and enables the private sector to scale up the industries at pace and lowest cost.
For a growing number of mature clean technologies, subsidies are being phased out. Globally over the past decade wind has fallen in cost by 60%, solar by 89%, and batteries by 89%. More and more clean technologies are beating fossil fuel-based ones. For these technologies, we don’t need big state spending or indeed a new state-owned energy company as Labour is proposing. The government is already showing how market mechanisms can unlock private investment for climate action, for instance through the Contracts for Difference scheme for new renewable power and the Zero Emission Vehicle mandate for cars.
There are also a number of net zero planning changes that would not require new public spending which the Government could adopt. These would also support economic growth, which is by far the best route to controlling public debt. In England, a single objector can stop a new wind farm going ahead. MPs are understandably concerned about new turbines going up against their constituents’ wishes – we shouldn’t go back to that kind of system. However, the Government should allow planning decisions to be made locally and discounts to energy bills offered, as Simon Clarke MP is calling for in his amendment to the Levelling Up and Regeneration Bill.
As the new campaign group, Britain Remade, has highlighted, speeding up planning decisions and streamlining the overly cumbersome environmental impact assessments would allow more offshore wind farms to start generating and bringing down bills faster. Planning rules could be eased to simplify the installation of solar on flat roofs and of energy efficiency measures inside conservation areas. Stronger building regulations could require suitable homes to have rooftop solar installed by default, along the lines proposed by John Stevenson MP in his Levelling Up and Regeneration Bill amendment.
Regulatory reform also offers ways to drive forward net zero without adding to borrowing. New renewable projects aren’t being connected to the electricity grid for years and network companies aren’t allowed to invest ahead of need. BEIS needs to direct Ofgem to enable this private investment so cheap renewables can start bringing down our bills sooner. To boost investor confidence and cut financing costs, the Government could also use the upcoming Electricity Generators Levy legislation to get rid of the excessively broad regulatory powers the Truss government took to intervene in energy markets.
Further progress could also be made on retrofitting the UK’s 19 million poorly insulated homes in a fiscally responsible way. There is scope to expand insulation grants for fuel-poor households and social housing tenants, generating savings on new targeted energy bill support schemes. And while we can’t expect the government to subsidise wealthy people’s home improvements, we could reform Stamp Duty, so those who buy energy-efficient homes or who retrofit them within two years of moving in get a tax break.
Going into the next election, the Conservative Party will need affordable, popular policies that can bind together their diverse voter coalition. There are plenty of them available on the environment, where they will need a strong alternative to Labour’s green borrowing plan. The party should make going green part of its plan to get Britain back in the black.
First published by CapX. Sam Hall is the Director of the Conservative Environment Network.