PRI: Transitioning to net zero is cheaper than putting it off
Rose Easton, interim chief RI ecosystems officer at PRI argues that rather than focussing on the cost of net zero, investors and politicians should focus on the cost of not doing so.
Last week the UK government’s latest rollback on net zero policies unjustifiably assumed that staying the course on imperative long-term goals is incompatible with addressing immediate cost of living concerns.
Time and time again studies show that delayed action on the climate crisis will cost more in the long run, delaying or altogether stopping investments, reducing economic growth, and causing more financial disruption to workers and communities .[1] Transitioning to meet net zero goals could reduce costs for the economy, attract £10 billion per year of investment into the UK[2] and create 600,000 new green, decent jobs by 2030.[3] Recent activity in the UK has shown a tendency for costly decisions [4] in 2022 alone, delayed action on deploying renewables, insulation, rooftop solar panels, heat pumps, and electric vehicles added up to £2,150 to UK household bills.[5] The total cost of climate change damages to the UK could rise to 7.4% of GDP by 2100 if we do not course correct.[6]
Drop in investments
The transition to net zero requires investments of over £50bn per year until 2050[7] and mobilising private finance will be paramount to its success.[8] We have already seen investments in the energy transition fall by 10% in 2022 in the UK,[9] in contrast to other countries like the US, where the Inflation Reduction Act has supported the creation of more than 170,000 clean energy jobs and attracted over $110 billion in clean energy manufacturing investments.[10]
To buck the trend, the UK must provide a stable and enabling environment, where companies and investors can rely on consistent public policy. This is critical to investor confidence and the fairness and viability of the low-carbon transition.
The UK has the oldest building stock in Europe, and the least energy efficient housing in Western Europe.[11] In March, the government acknowledged the benefits that building energy efficiency measures could bring, “scrapping bills and […] pushing down inflation”[12], and a recent study showed that providing homes with better insulation to help low-income households cut energy costs could be one of the solutions to this issue.[13] Last week’s decisions – dismantling the home energy efficiency taskforce and rolling back on energy efficiency measures in houses – could instead end up costing renters £8bn in higher bills over the next decade.[14]
The decision to push back the ban on the sale of new petrol and diesel cars will also cost drivers £6 billion.[15] Greening transport is not only a priority to achieve net zero and reducing costs – but also key to addressing poor air quality, the largest environmental risk to public health in the UK (a risk that disproportionately impacts the most vulnerable[16]). The economic cost from the impacts of air pollution in the UK could reach £18.6 billion by 2035,[17] while the CCC estimates that air quality and noise impacts from the electrification of transport could result in annual benefits close to 0.1% GDP in 2030.[18]
We have now passed six of nine planetary boundaries. The latest IPCC report tells us that, as global warming continues, ‘the likelihood of abrupt and irreversible changes and their impacts increase’[19]. The IEA’s latest Net Zero 2030 report highlighted that climate risk is a macroeconomic and financial risk and should we cross the 1.5c threshold, climate risks increase significantly, with substantial implications for investment performance.
If the UK is to remain a credible actor in the transition to a net zero future, the government needs to follow through with clear, consistent policies that will effectively shift financial flows, public and private, towards achieving net zero goals that support the low-carbon economic transition.
[1] UNDESA (2017), Climate Change and Social Inequality.
[2] Derived from UK CCC estimates that £50bn per year of investment is needed to reach net zero (Sixth Carbon Budget report), UK government’s Ten Point Plan outlines £12bn in public investment to mobilise £42bn in private capital by 2030.
[3] Oxford Economics (2021) Green Growth: Opportunities for the UK.
[4] Carbon Brief (2022) Analysis: Cutting the ‘green crap’ has added £2.5bn to UK energy bills.
[5] ECIU (2023) Cost of Not Zero in 2022.
[6] LSE (2022) Policy brief: What will climate change cost the UK?
[7] UK Government (2023) Mobilising Green Investment – 2023 Green Finance Strategy.
[8] UNEP-FI, PRI (2023) Unlocking investment in Net Zero.
[9] The Guardian (2023) UK investment in clean energy transition falls 10% bucking global trend.
[10] The White House (2023) Fact sheet - One year in President Biden's Inflation Reduction Act is driving historic climate action and investing in America to create good paying jobs and reduce costs
[11] UK Parliament (2021) Achieving net zero: energy efficiency of existing homes.
[12] UK Government (2023) Government announces team of leading experts to boost energy efficiency.
[13] A.R.U. (2023) Poor UK households more vulnerable to climate shocks.
[14] ECIU (2023) PM’s net zero changes could cost households up to £8bn.
[15] Climate Change Committee (2021) Zero emission vehicles and road pricing (Inquiry).
[16] Barnes, Chatterton and Longhurst (2019) Emissions vs exposure: Increasing injustice from road traffic-related air pollution in the United Kingdom.
[17] UK Government (2018) Air pollution: a tool to estimate healthcare costs.
[18] Climate Change Committee (2020) Briefing document: The UK transition to electric vehicles.
[19] Intergovernmental Panel on Climate Change (2023) AR6 Synthesis Report: Climate Change 2023. (p.42)
