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Briefing date 07.07.2021
Funding transition to net-zero could cost UK less than pandemic, OBR says

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Funding transition to net-zero could cost UK less than pandemic, OBR says
Financial Times Read Article

There is widespread coverage across the UK newspapers of the latest annual report by the Office for Budget Responsibility (OBR), in which the UK fiscal watchdog focuses on both the economic recovery from the Covid pandemic as well as the nation’s net-zero goal. The FT says: “Funding the UK’s transition to net-zero emissions could cost the government less over 30 years than the pandemic has cost in just two, the OBR said on Tuesday. Getting to net-zero by 2050 would add 21% of gross domestic product, or £469bn in today’s terms, to the UK’s public debt, if governments around the world took early action to reduce emissions, the fiscal watchdog said. Most of this would be due to the loss of revenue from fuel duty, with the gains from higher carbon taxes sufficient to cover public spending of about 0.4% of GDP a year on net-zero investments. The OBR described this fiscal cost as ‘significant’ but ‘not exceptional’ – while warning that it could be much higher if governments delayed acting until 2030 and then had to cut emissions sharply. Unchecked climate change could take public debt to 289% of GDP by the end of the century – compared with the post-pandemic peak of 108.6% the OBR currently forecasts for 2023-24.” The FT adds: “The growing frequency of extreme weather events is one reason the OBR believes advanced economies, the UK included, are more exposed to ‘potentially catastrophic risks’ than in the past – with sporadic crises carrying lasting consequences for the public finances.” The Guardian follows a similar line to the FT, saying: “The UK’s climate targets will cost the government less over the next 30 years than the price of battling the Covid-19 pandemic if it acts quickly, according to the UK’s fiscal watchdog…The independent spending forecasts found that taking early action to decarbonise the economy would have a smaller net impact on the UK’s finances than Covid or the 2008 financial crisis. But the spending watchdog said that delaying climate action until the start of the next decade…would end up adding twice as much to the national debt as acting fast. Failing to take action could have a catastrophic impact on the public finances, the OBR warned.”

The Daily Telegraph, in a report on the frontpage of its business section, says that the chancellor Rishi Sunak “faces a triple threat of Covid, climate change and rising interest rates in his battle to balance the books”. It continues: “The watchdog admits the scale of any subsidy [to ‘decarbonising buildings and ripping out the gas boilers’] is ‘unknowable’, but assumes the government picks up the entire cost of ‘greening’ the poorest 15% of households, while the middle 70% pay half and the richest 15% foot the entire bill…Acting late on climate change or ignoring it altogether makes the fiscal news even worse, however.” The Times says “lost fuel duty will have the biggest impact on the government’s fiscal position as petrol and diesel vehicles are phased out”. It adds: “While the fiscal costs of reaching net-zero could be significant, the OBR said they were not exceptional. It warned, however, that its projections were based on an optimistic scenario in which governments take early and decisive steps to reduce emissions. The consequences for the public finances will be grave if policymakers delay action until 2030.” The Press Association report carried by the Independent report sits under the headline: “UK faces triple threat from pandemic, climate change and ballooning debt – OBR.”

However, both the Daily Mail and the Sun choose an alternative way to frame the OBR’s findings. They both say in their headlines that decarbonising the UK will “cost £1.4 trillion by 2050”. The Sun says misleadingly this is the “the equivalent of £50,000 a household”, but then goes on to say: “The OBR reckons the state will have to find £344bn towards the cost. Yet it insisted a large chunk of the bill – £1.086tn – will be ­covered by savings as cars and homes become more energy efficient and cheaper to run. That would mean a typical household playing £11,583 in three decades. But the OBR warned doing nothing on climate change would have ‘catastrophic economic consequences’.” (See Comment below for more on how the UK newspapers have reacted to the OBR report.)

Separately, the i newspaper covers a new audit by the Institute for Government which concludes that the UK “is off course in its efforts to meet its target of net-zero emissions by 2050 because the government’s plans to tackle climate change are not aligned with the economic recovery from the pandemic”. The audit adds, says the newspaper, that “the nation’s green recovery package has been ‘less ambitious’ than other major economies in policy areas such as housing, electric vehicles and research and development”.

In other UK news, the Financial Times reports that “British households face paying a surcharge on their energy bills to pay for new nuclear power stations in the UK as the government draws up legislation to underpin the new financing plan”. It adds: “Ministers aim to unveil legislation in the autumn that would enable Sizewell C, a £20bn nuclear power plant, proposed by France’s EDF for England’s east coast, to go ahead through a financing model called the regulated asset base, said several people briefed on the government’s thinking. This model would mean that energy bill payers start contributing towards the cost of the plant at Sizewell in Suffolk long before it generates any electricity.” BusinessGreen covers a new report by consultancy EY which concludes that “around 625,000 jobs could be created if UK’s existing clean energy project pipeline is realised”. Reuters covers EY’s global findings from the same report under the headline: “Boost to clean energy investment could drive 10 million new green jobs.” Finally, the Daily Telegraph covers a report by the Energy Transitions Commission (ETC), which says “using biomass to generate electricity and heat should be limited to protect biodiversity and land use”. The Daily Telegraph also carries a report claiming that “fears mount that UK offshore wind targets are built on hot air”. The article says “experts are growing worried that the slow-moving and complex bureaucracy governing the seabed is ill equipped to meet such ambitious goals”.

EU drafts plan to grow 'carbon sinks' in climate change fight
Reuters Read Article

The European Union has drafted plans to build up forests, grasslands and other natural “carbon sinks” that absorb CO2 from the atmosphere to help curb climate change, according to a draft document seen by Reuters on Tuesday. It is the latest leak from the European Commission’s “Fit for 55” climate policy package which is due to be published next Wednesday. The newswire adds: “The commission will next week propose a target to expand the EU’s sink to absorb 310m CO2e per year by 2030 by giving each member state a legally binding goal, according to the draft…[It] did not define the national targets, which would replace a current requirement to ensure that CO2 sinks do not shrink this decade…The EU also plans to establish a system of carbon removal certificates, according to the draft proposal, which farmers and foresters could sell to polluters needing to balance their emissions – creating a financial incentive to store carbon.”

Meanwhile, the Financial Times says it has seen a “legal text” which reveals how the EU’s upcoming carbon border adjustment mechanism will work: “Brussels expects to raise nearly €10bn a year from a carbon tax on imports as part of its effort to tackle global warming and will use the money to repay hundreds of billions in EU joint recovery debt. The FT adds: “The so-called carbon border tax forms the cornerstone of Brussels’ attempt to protect European industry from foreign competitors that are not subject to the bloc’s stringent climate targets. The documents show the mechanism will raise an estimated €9bn a year in revenues once it is fully up and running by 2030. The European Commission intends to introduce the tax gradually starting in 2023 to allow businesses a ‘transitional’ period to adjust and ensure ‘the least burden possible on trade flows and trade operators’, the text noted.”

A separate Reuters article reports that a new sustainable finance framework published yesterday by the EU says that “Europe plans to funnel hundreds of billions of euros into sustainable investments each year through EU banks and markets to create the first ‘climate-neutral continent’ by 2050”. The article continues: “The EU executive published proposals for voluntary standards for ‘green’ bonds that finance sustainable investments. The commission confirmed it will publish taxonomy rules later this year for agriculture, certain industries and possibly nuclear energy. It will also consider new legislation to support energy sources that could help cut emissions, including gas power plants, it said. EU countries are split over whether gas deserves a green label. Some states say it should be supported to help countries quit more polluting coal, while others say labelling a fossil fuel as ‘green’ is not credible.” Reuters has also published an “explainer” on the EU’s “new standard for green bonds”. Relatedly, the Thomson Reuters Foundation has a comment piece by Greenpeace’s Jennifer Morgan on why “greenwashing, just like climate delay, is not a victimless crime”.

Finally, Reuters also reports that “talks to reform an international energy treaty that allows investors to sue states that take climate action are grinding towards failure, according to leaked diplomatic cables seen by the Thomson Reuters Foundation”. The newswire continues: “The cables suggest that little progress has been made in the last year of negotiations aimed at updating the Energy Charter Treaty and bringing it into line with the Paris Agreement on climate change. Adding to the pressure, more than 400 environmental groups, unions, charities, and NGOs called [yesterday] for European countries to walk away from the modernisation talks. The treaty currently allows energy firms in more than 50 nations, from Britain to Uzbekistan, to sue governments that pass climate change laws for losses of anticipated earnings.”

China puts most powerful agency in charge of climate policies
Bloomberg Read Article

Bloomberg reports that China’s top economic planning body, the National Development and Reform Commission (NDRC), has been put in charge of devising a plan for the country to cut greenhouse gas emissions. China’s “top officials” told the NDRC “a few months ago” to lead the drafting of a national roadmap to reach peak emissions, the newswire writes, citing “people familiar with the matter”. The move means that “climate policies are gaining a more central role in the nation’s long-term development strategy”, the outlet adds.

Additionally, China’s President Xi has pledged that China would make “extremely arduous efforts” to fulfil its “commitments” of peaking carbon emissions and achieving “carbon neutrality” during a speech at the Communist Party of China (CPC) and World Political Parties Summit. According to a transcript released by People’s Daily, the mouthpiece of the CPC, Xi also said yesterday that China would make an “even bigger contribution” to the global efforts to tackle climate change.

Meanwhile, the construction of a massive, £13bn coal chemical project in northern China has been “halted temporarily”, reports 21st Century Business Herald in an “exclusive”. The financial publication says that the 1,300-hectare project is the largest of its kind under construction globally and is expected to consume more than 20m tonnes of coal each year to produce chemical products. It remains unclear why the suspension came into place, but “people close to the project” told the outlet that the project had not completed its energy consumption evaluation.

Reuters reports that “China plans to increase its use of steel scrap by 23% to 320m tonnes by 2025 and to increase production of recycled nonferrous metals, in an effort to ensure supplies and to meet the country’s climate commitments”. The NDRC has announced that China, the world’s top metals consumer, will boost its recycled nonferrous output to 20m tonnes in the next five years from 14.5m tonnes in 2020.

Separately, Reuters reports that China’s state economic planner has approved a natural gas pipeline connecting Shanxi and Shaanxi – two northern provinces – with a total investment of 354m yuan (£40m). The newswire adds that the pipeline will be 34.2 kilometres long and is designed to have an annual gas transmission capacity of 3.3bn cubic metres. Finally, Beijing Daily reports 2.4m “new energy” cars are expected to be sold in China this year. The market of “new energy” vehicles has entered the stage of “marketisation” under the “carbon neutrality” goal, the report says, citing an expert.


The Guardian view on meeting net-zero targets: take the people with you
Editorial, The Guardian Read Article

An editorial in the Guardian welcomes the news this week that Vauxhall’s owner, Stellantis, will manufacture electric vans at Ellesmere Port, with financial support from the UK government: “Boris Johnson and his business minister, Kwasi Kwarteng, are at last backing up rhetoric with a modicum of hard cash and the beginnings of a green industrial strategy. Much, much more is needed though, if Britain and its workforce are to meet the challenges ahead…As a study released this week by the Onward thinktank points out, these goals will only be achieved through a labour market revolution in skills and training, which shows no sign of happening any time soon…As Britain continues to deal with the divisive fallout of deindustrialisation at the end of the last century, the political prize for getting this right is enormous…But if Britain is to have the new kinds of engineers, mechanics, electricians, glaziers and wind turbine technicians it needs, it must start training them.” In contrast, Ben Marlow, the Daily Telegraph‘s chief City commentator, argues that “car makers are fleecing taxpayers in the electric revolution”. He adds: “The government is…handing over £35m to persuade [Stellantis] to stick around. It’s a dangerous precedent that sends a message that ministers can be bullied into parting with taxpayers’ money by idle threats from overseas companies. Yes, it is a relief that the Franco-Italian carmaker is standing by the Ellesmere Port facility. Vauxhall has been making cars in the North West since 1957. Turning it into a hub for all-electric vans as well as several electric car models gives it a brighter future. But with no plans to follow Nissan’s lead and build an accompanying gigafactory in the area, you have to question whether this really secures the plant’s future or if it’s just a short-term fix.”

Meanwhile, an editorial in the Sun reacts to the OBR’s costing (see above) for the net-zero transition : “The Sun also wants a cleaner, greener future. But while politicians can afford such sums, especially over time, ­millions not on £82,000 a year can’t. Officials say greater energy efficiency will save us money. Fine, except they also plan a new tax on top of the pricey electric cars and heat pumps we’ll need. Even then, our efforts will remain globally insignificant while China keeps building or funding a new coal-fired power plant each WEEK. The government must be upfront. Our Covid debt is vast. Now we face higher taxes and massive net-zero bills. How will Sun readers ever afford it?” (See this Twitter thread by Carbon Brief’s Simon Evans for a full explanation about what the OBR report actually says about net-zero.)

Finally, Conservative Home carries a comment piece by Sam Hall, the director of the Conservative Environment Network, under the headline: “How to help poorer people meet the costs of net-zero.” He says: “While it is certainly true that net-zero will require significant new investment in clean infrastructure and technologies, these investments will bring wide economic benefits, notably a net increase in employment, and will cost less as a share of GDP than the damage caused by unchecked climate change…If the Treasury does extend carbon pricing to more of the economy, as is rumoured, it should consider giving some of the money back, in the form of a carbon dividend, to low-income households, as the Centre for Policy Studies has argued…And if we replace fuel duty with dynamic, congestion-sensitive road pricing, driving will be cheaper for people living in rural areas and towns, who after all have few alternative transport options compared to city dwellers. But to realise these benefits, the government needs to help people make the necessary investments.”

Why North America's killer heat scares me
Roger Harrabin, BBC News Read Article

Roger Harrabin, BBC News’s environment analyst, has penned a personal article about the recent extreme heatwave in the Pacific north-west: “We’ve just enjoyed our first blissful sleepover weekend with our 20-month granddaughter, Hazel, so maybe that softened me up. Or perhaps it was a week’s leave away from the news that rusted my BBC armour of emotional detachment from the climate story. Either way, I confess to a gut-tightening sense of foreboding when Hazel left and I caught up with North America’s killer heat dome on TV. That’s not because new record temperatures were set in the north-western US and Canada – that happens from time to time. No, it’s because old records were smashed so dramatically…Climatologists are nervous of being accused of alarmism – but many have been frankly alarmed for some time now…Tomorrow I’ll return to coolly dissecting intriguing policy issues, but today with Hazel at the back of my mind, please excuse me this brief visit to my more emotional side. In my 30+ years of reporting on the climate I’ve always taken a risk perspective on stories, because Mrs Thatcher was right that there’s only one planet. And I want Hazel and her own future grand-children to enjoy it. I used to employ the Twitter hashtag #Rollthedice. Now I’ve changed it to #Playingwithfire.”

Separately, in other comment, Bloomberg‘s Akshat Rathi sets out “how not to freak out about a carbon tax” by speaking to Sam Fankhauser, professor of climate change economics and policy at Oxford University. Prof Fankhauser tells him: “The argument should be that a carbon tax is about making polluters pay – it’s not simply yet another way for states to extract more money from people and businesses. In Canada’s British Columbia, they’ve found some clever ways to deal with the problem by sending citizens regular checks from the carbon tax revenues raised. So be transparent about it. What is the tax that’s been raised, and what has the state done with it?” (See Prof Fankhauser’s recent guest post for Carbon Brief.) Meanwhile, the Lex column in the Financial Times explains why global carbon pricing is “too important to leave to governments”.

Climate trips up Macron again
Editorial, The Wall Street Journal Read Article

An editorial in the Wall Street Journal delights in French president Emmanuel Macron’s failed attempt this week to get a climate-change amendment to the French constitution: “Its failure is the latest example in Western democracies of the disconnect between elites obsessed with climate change and the public…Mr Macron wanted a national referendum that would amend the constitution to ‘guarantee’ environmental protection. This requires support from both houses of the French Parliament. The National Assembly, controlled by Mr Macron’s party, approved the referendum this year. The Senate announced Monday that it had voted to block the process. The upper body, with a conservative majority, worried that ‘guarantee’ meant climate change would come before other constitutional imperatives. They feared, not unreasonably, that this would stifle innovation and business. While many in France cling to its statist past, there is still a constituency for economic dynamism. This isn’t the first time Mr Macron’s obsession with climate has wasted valuable time and political capital.” The New York Times also carries a news feature about Macron’s “setback”.


Solar energy and regional coordination as a feasible alternative to large hydropower in south-east Asia
Nature Communications Read Article

Solar power and regional coordination could enable south-east Asian countries to meet power needs and CO2 emission targets with less hydropower than currently planned, a new study suggests. The researchers demonstrate that Thailand, Laos, and Cambodia have “tangible opportunities” to reduce hydropower expansion – with options ranging from “halting the construction of all dams in the Lower Mekong to building 82% of the planned ones”. Alternative plans would “slightly increase the cumulative costs (up to 2.4%), but substantially limit the fragmentation of additional river reaches”, the study says, thus “offering more sustainable pathways for the Mekong’s ecosystems and riparian people”.

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