Report: Cost of living crisis response can – and should – be net-zero aligned

Addressing the UK’s rising energy prices in a “climate-friendly” way would not only cut bills for households and businesses now, but reduce the likelihood of future price spikes and be beneficial to the economy in the short and long term.

Report: Cost of living crisis response can – and should – be net-zero aligned

Inflation is currently at nine per cent – the highest level in more than 40 years

That is according to a new report from the Corporate Leaders Group UK (CLG UK), using modelling carried out by Cambridge Econometrics. It argues that tackling the cost of living, while accelerating the UK’s low-carbon transition, would create “win-wins” in the form of lower bills now, a stronger economy later and a healthier environment.

The report looks at three policy scenarios – one in which short-term and medium-term measures lead to outcomes that would undermine the UK’s ability to deliver net-zero by 2050; one based on the short-term measures already announced by the Government to address the cost of living crisis; and a third, ‘climate-positive scenario. This last scenario includes not only the measures already announced by the UK Government, but also more targeted support for vulnerable homes in the short-term in the form of cash for bills and energy efficiency improvements. In the medium-term, the Government would accelerate plans on energy-efficient buildings, low-carbon heating and public transport.

A key finding is that similar reductions in household bills and impacts on national GDP result from all three approaches in the short term. But, in the long term, the ‘climate-positive’ scenario delivers the greatest economic benefits. This scenario would result in an increase in GDP between 2025 and 2050, while the other two would result in a decrease.

CLG UK attributes the growth in GDP under the ‘climate-positive’ scenario to a variety of factors including job creation in low-carbon sectors such as energy efficiency and renewables. Households would also see lower energy bills in this scenario, opening up their ability to spend in other ways.

The report acknowledges that the ‘climate-positive’ scenario would involve more welfare spending in the near term, to lift low-income homes out of fuel poverty and to prevent them from falling back, and to safeguard those homes at risk of entering fuel poverty. But it emphasises that all three packages detailed would require the same among of government spending, with the climate-positive one offering “the greatest return on investment”.

Emissions figures

Looking solely at the climate impact of each of the three policy scenarios, the ‘climate-positive’ scenario would lead to a 26% reduction in emissions from homes between 2025 and 2050. Reductions largely result from improvements to energy efficiency and the transition from gas boilers to electric heating. The UK Government has long been criticised for failing to address leaky homes at scale and, more recently, for the gaps remaining in its plans to decarbonise home heating, which do not seem to add up to its medium-term targets for heat pump installation. This policy scenario offers a chance to buck that trend.

In the neutral scenario, emissions from homes come down by just 5% between 2025 and 2050. In the ‘climate-negative’ scenario, there is no decrease.

Looking at emissions from all sources, all three scenarios result in a decrease by 2050 after a peak in or before 2035. In the ‘climate-negative’ scenario, the UK’s emissions in 2050 are around 76,000 tonnes, down from 97,000 tonnes in 2020. In the neutral scenario, the long-term drop is around the same, resulting in 2050 emissions of 75,000 tonnes. In both of these scenarios, the ‘net’ in net-zero will be made to work hard, with much offsetting or carbon capture needed for the UK to meet its target.

In the ‘climate-positive’ scenario, the UK’s emissions in 2050 are less than 72,000 tonnes. The report calls the difference between this and the other scenarios “significant”.

Policy changes

To help shift towards a situation more in keeping with the ‘climate-positive’ scenario, CLG UK is calling on the UK Government to ensure that all cost-of-living support measures and energy security plans focus more heavily on reducing energy demand and safeguarding against future vulnerability.

The recent Energy Security Strategy has been called an ‘Energy Generation Strategy’ by some green and civil society groups for its lack of focus on energy efficiency – either through improvements to building fabric or through changes to behaviours.

Specifically, CLG UK wants the Government to make it easier and more attractive for able-to-pay homes to improve energy efficiency, and provide more funding for homes unable to pay. The Group also notes that the Government’s current approach does not extend the same support package to businesses – particularly SMEs or businesses using a lot of energy to make key products – and urges a rethink.

In the medium-term to long-term, CLG UK is arguing the case for more clarity on the long-term incentives that homes and businesses will be able to access to switch to low-carbon heating. It welcomes the moves made to date to encourage investment in secure, stable and zero-carbon electricity supply, which will be needed to ensure that the electrification of heat and transport are truly low-carbon, but notes that more action will be needed. That same sentiment was last week expressed by RenewableUK, which argued that the goal of a fully ‘clean’ electricity mix by 2035 will not be delivered without further interventions.

Velux GB & Ireland – one of CLG UK’s members – said the report’s proposals “set out a sound foundation” for government interventions with benefits for homes, the economy and emissions in the near-term and long-term.

The firm’s public affairs manager Neil Freshwater said: The cost of living crisis, while very challenging, presents an opportunity to make our buildings greener and healthier in the long run, which will keep running costs down and move us towards meeting science-based climate change targets. Government interventions must be focused on the long term as this is what gives business the necessary confidence to commit to supporting delivery, rather than the stop-start approach of the past.”

The GDP debate

In related news, the UK’s Office for National Statistics (ONS) has confirmed that it will begin publishing the UK’s GDP figures alongside national emissions figures, after this approach was recommended by MPs on the Environmental Audit Committee (EAC) earlier this year.

Made in March, the EAC’s recommendation is based on the argument that the UK will need to decouple economic growth from growth in emissions if it is to meet its 2050 net-zero target while delivering the economic outcomes the Conservative Party is targeting. It will also need to be better at emphasising how the climate crisis will harm the UK economy without better interventions to cut emissions and boost adaptation. The EAC also argued that GDP alone fails to provide enough information on other indicators of social prosperity and public wellbeing, which, if low, could cause a drop in GDP in the future.

The ONS’s response to the EAC has been published this week. It confirms that emissions data will now be incorporated in quarterly GDP figures, following an internal trial of this approach.

Grant Fitzner, the ONS’s chief economist, said: “For some years we have offered statistics complimentary to our economic indicators that reflect changes in our environment.

“Last month, we went further, publishing climate change insights alongside our first quarterly estimate of GDP for the first time, outlining options for measuring quarterly emissions, and committing to plans to develop ‘Beyond GDP’ measures of inclusive income.

“These measures, with further development, will ultimately enable us to provide an assessment of the environmental impact of changes in economic activity, which we would look to include in our quarterly publications as they become available.”

However, another response document, from Exchequer Secretary to the Treasury Helen Wheatley, reads: “The government recognises that as a metric GDP has limitations and should not be seen as an all-encompassing measure of welfare… Nonetheless, GDP remains one of our most important economic indicators as it tends to be closely correlated with employment, incomes and tax receipts, making it useful for the government and Bank of England when setting economic policy and managing public finances.”

EAC chair Philip Dunne MP has written back to the ONS, requesting any further information about the trial of publishing GDP and emissions together and welcoming the decision to make this a permanent change.

“A step change is needed from the economy of the past to the economy fit for our net-zero future, and how we report GDP is part of this journey,” Dunne said. “Net-zero Britain will require policy in all areas to align with our environmental goals. But achieving net-zero cannot come at the cost of economic prosperity, and vice versa. In accepting our Committee’s recommendation to publish emissions statistics alongside GDP, the ONS will offer policymakers and commentators the tools to keep net-zero on track while keeping a clear focus on economic progress. These aims can be achieved together.”

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