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Simon Evans

22.10.2014 | 11:46am
UK policyChecking Owen Paterson’s figures on the cost of decarbonising the UK
UK POLICY | October 22. 2014. 11:46
Checking Owen Paterson’s figures on the cost of decarbonising the UK

Former environment secretary Owen Paterson continues to make headlines following his speech last week in which he called for the UK’s Climate Change Act to be scrapped.

His argument rests on the idea that decarbonising the UK economy will cost trillions of pounds: he says it will cost £1.3 trillion by 2050. This figure has attracted attention, and been reproduced in articles for The Telegraph, the Spectator, the Telegraph again, The Times, the Daily Mail and a Daily Mail editorial.

But it is potentially misleading. The figure is based on a partial reading of analysis by the European Commission and the International Energy Agency and ignores the conclusion of both studies – that far from costing trillions, decarbonising could save trillions by reducing spending on fossil fuels.

Selective quotes

In his speech, Paterson warned about the costs of the UK decarbonising: “Our current policy will cost £1,300 billion up to 2050.”

The fully referenced version of Paterson’s speech circulated to journalists reveals the source in a footnote, which explains that:

“There is no agreed figure on the total costs of the policy [to achieve decarbonisation], nor indeed any agreement as to what exactly the policy should comprise.”

But it continues:

“However, the European Commission estimates that the additional investment to achieve decarbonisation (over and above that which would be spent anyway) could run to â?¬304 billion a year, between 2011-2050, for the whole of the EU. This equates to UK expenditure of £1.3 trillion.”

This figure comes from a European Commission (EC) study analysing the costs and benefits of decarbonising the EU economy by 2050. The study finds that decarbonisation would require extra annual investment averaging â?¬271 billion, or â?¬304 billion if climate action is delayed.

This higher figure for delayed action equates to £1.25 trillion in total for the UK over the 36 years to 2050, or £1.3 trillion when rounded up. That’s based on the UK’s 14.4 per cent share of EU GDP, and current exchange rates.

But importantly, as well as projecting the costs of decarbonisation, the commission study also projects the savings – and they are not inconsiderable. Decarbonisation would cut spending on fossil fuels by an average â?¬321 billion per year to 2050, it concludes.

In other words, the conclusion of the European Commission study Paterson cites is that decarbonisation could save the EU â?¬50 billion per year on average, for the next 40 years.

Yes, there is an up-front cost, but according to the analysis there is an overall net saving of £5.7 billion on average each year for the UK, and £205 billion out to 2050.

The commission document concludes:

“Shifting towards a low carbon pathway leads to a massive shift from fuel expenses to  investment expenditure.”

But these investment costs are more than compensated by reduced fuel costs, it says. Paterson omitted to mention this in his speech.

Savings more than offset costs

The speech’s footnotes also reference a second study from the International Energy Agency, published in May this year, to support the £1.3 trillion cost figure. They point out that the IEA puts global decarbonisation costs at $44 trillion by 2050.

This is correct, and based on the UK’s 3.4 per cent share of global GDP this amounts to costs of £0.9 trillion for the UK, somewhat lower than £1.3 trillion, but perhaps in the same ballpark.

However, once again Paterson doesn’t fully report the IEA’s conclusions, omitting projected fuel cost savings that mean the IEA analysis agrees with the EC study that it’s actually cheaper to decarbonise.

The IEA says it expects the $44 trillion cost of decarbonisation to be “more than offset by over $115 trillion in fuel savings – resulting in net savings of $71 trillion”. This amounts to an even larger net saving for the UK than the European Commission projects – £1.4 trillion out to 2050, again based on the UK’s share of global GDP.

So both studies cited by Paterson to suggest that decarbonisation will cost the UK over a trillion pounds actually conclude that savings on fuel costs will outweigh the costs of decarbonising. Both reports, if you accept their conclusions, could be taken as a pretty good argument for decarbonising on cost grounds.

Of course, as we always say when discussing this topic, predicting the future of energy is notoriously difficult, including predicting future costs. Some studies say renewables will be cheaper than fossil energy in future, while others disagree. Your mileage may vary – but when citing the conclusions of research, it’s important to do so in a fair way.

What is clear is that the argument of both studies cited by Paterson is that overall the UK economy will actually save money by decarbonising.

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