How to get to Net-Zero

In June 2019 the UK government declared that its goal for carbon emissions resulting from the combustion of fossil fuels would be to achieve net zero by 2050. In September 2020 the Institute for Government published a report entitled Net Zero [1] . The report says that a lack of co-ordinated policies, constant changes of direction, a failure to gain public consent for measures and too little engineering expertise and delivery capability, has left the UK well off track to meet its targets. It called on government to publish a clear plan setting out, sector by sector, how emissions reductions will be achieved and when decisions will be made where technology is uncertain.  Each year the Committee on Climate Change (CCC) produces a report assessing how the UK is doing in terms of making progress towards Net Zero and meeting our Paris (2015) commitments. The most recent progress report was published in June 2020.  It noted that there were helpful policy announcements in areas like transport, buildings and agriculture and land use, but that implementation and delivery were falling well behind what is needed. For the moment, this might simply be a consequence of the government’s perfectly understandable current preoccupation with policies to deal with the Covid-19 pandemic. However, serious and sustained efforts to catch up with our net zero commitments surely cannot be long delayed.

Nearly all production gives rise to some carbon emissions, and the same is true for our consumption, including our consumption of imported goods. Adding up all these CO2 emissions, say for a year, we arrive at a total that depends both on patterns of demand, and on the technologies used in different sectors. This total needs to be falling over time, though not necessarily right down to zero, as a country like the UK in any event absorbs some CO2 from the atmosphere each year through natural factors like trees and other vegetation; and CCS schemes can also help (carbon capture and storage, one of many areas requiring lots of innovation and investment). Our own efforts really only make sense if they form part of a comprehensive international programme to cut CO2 emissions, for we need all the major countries, notably the biggest CO2 emitters, to be playing the same game. This is vital for all of us. Achieving such international cooperation will be a leading goal and an enormously challenging task for the important COP26 meeting which the UK is co-hosting in Glasgow in November this year.

For the UK it is already well understood that there are several important aspects of our lives and of our economy, where enormous changes will be needed, some already under way. These include retiring all petrol and diesel vehicles, with all new vehicles after a certain date required to be electric. Similarly, all new buildings after a certain date will need to be carbon neutral, implying big changes to building regulations and building design, with no more of the gas (or oil) fired central heating that we have all become used to. For older buildings, to bring them up to the new standards, massive investment will be needed. Moreover, persuading people to accept such major changes will be very hard. Alongside all this, the growing electricity sector will make increasing use of renewable or non-carbon-emitting sources (e.g. solar, wind, hydro and nuclear), with carbon-based fuels being phased out as far as possible. While these changes call for much additional spending and will generate many jobs along the way, we would hope not to see much new investment in oil, gas or coal in the coming decades, (after all, we need most hydrocarbons to stay in the ground, though for a while that might still be wishful thinking). For pension funds and other large investors are still funding significant new projects in oil and gas, including planning new gas-fired power stations and in doing so, as we progress to net zero, they increasingly risk being left with stranded assets for which there should soon be no demand. Hence pension funds and the banks, naturally seeking to finance profitable activities, need to bear in mind the net zero goal in determining their long-term investment strategies.

With current technologies, a few sectors are intensive in their carbon emissions, notably cement, steel and a good deal of chemicals, including plastics. Hence such sectors will need careful management and much innovation in the transition, to get their emissions right down. Flights and shipping also present difficult challenges for the transition to net zero, as do agriculture and food production.

For all this, the key question is how to persuade people, or if need be to compel them, to emit less and less CO2 in total, with some form of a carbon tax providing one possible mechanism to steer us along that path.

In effect this implies taxing goods in proportion to the CO2 emissions associated with their production. From this idea several questions naturally arise, notably: how broad should the coverage of a carbon tax be; at what level should it be set; how should such a tax be collected; and how can we deal with the likely distributional impact of a carbon tax, with the accompanying risk of exacerbating poverty and hardship in ways that we might well find politically unacceptable.  In fact this political problem will prove extremely challenging, for many people will resist the logical implication of a carbon tax that the prices of goods embodying lots of CO2 emissions would clearly have to rise. Simply recall the furore a few years ago when the government wanted to raise vehicle fuel duties and was forced to back down by the widespread protests. Will the government be able to convince people that carbon taxes make good economic sense?  This remains to be seen.

Some economists, such as Prof. Dieter Helm [2] advocate a more or less universal carbon tax, set at a sufficiently high rate to put carbon emissions onto a nicely declining trend. Who then pays for the huge amounts of investment needed to take us down towards net zero. Do we have to rely on the government, will individuals be required to pay possibly very large sums in additional taxation, or will the private sector be mobilised? This could get quite complicated, and I envisage a range of mixed solutions coming into play. So how can we move forward to deal with these enormous challenges of getting all the way to net zero? I assume the government would be heavily involved in providing the additional infrastructure needed for net zero, with financial institutions and the private sector investing in everything else needed for net zero, involving a great deal of green finance. COP26 later this year, therefore, will be our opportunity to re-commit ourselves to the difficult but perfectly feasible challenges of taking our country to net zero.

[1] Net Zero: How government can meet its climate change target, report published by Institute for Government, London, September 2020

[2] See chapter 5 of Dieter Helm’s recent book, Net Zero: How We Stop Causing Climate Change, London: William Collins, 2020.