Could net zero be the cheapest option for the UK?
Dr Simon Evans reviews a National Energy System Operator report highlighting that the scenario consistent with net-zero targets delivers the lowest overall cost over the next 25 years for Carbon Brief.
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Dr Simon Evans is Carbon Brief’s deputy editor and policy editor. He holds a PhD in biochemistry from Bristol University, UK, and previously studied chemistry at Oxford University, UK.
A scenario that meets the ‘net-zero by 2050’ goal would be the ‘cheapest’ option for the UK, according to modelling by the National Energy System Operator (NESO).
In a new report, the organisation that manages the UK’s energy infrastructure stated its ‘holistic transition’ scenario would have the lowest cost over the next 25 years, saving GBP 36 billion a year – some one per cent of GDP – compared to an alternative scenario that slows climate action.
These savings are from lower fuel costs and reduced climate damages, relative to a scenario where the UK fails to meet its climate goals, known as ‘falling behind’.
The UK will need to make significant investments to reach net-zero, NESO said, but this would cut fossil fuel imports, support jobs and boost health, as well as contribute to a safer climate. Slowing down these efforts would reduce the scale of investments needed, but overall costs would be higher unless the damages from worsening climate change are ‘ignored’, the report stated.
In an illusory world where climate damages do not exist, slowing the UK’s efforts to cut emissions would generate savings of GBP 14 billion per year on average – some 0.4 per cent of GDP. NESO said that much of this GBP 14 billion could be avoided by reaching net-zero more cheaply and that it includes costs unrelated to climate action, such as a faster rollout of data centres.
Notably, the report appeared to include efforts to avoid the widespread misreporting of a previous edition, including in the election manifesto of the hard-right, climate-sceptic Reform UK party.
Overall, NESO warned that, as well as ignoring climate damages, the GBP 14 billion figure ‘does not represent the cost of achieving net-zero’ and cannot be compared with comprehensive estimates of this, such as the 0.2 per cent of GDP total from the UK’s Climate Change Committee (CCC).
Every year, NESO publishes its ‘future energy scenarios’, a set of four pathways designed to explore how the nation’s energy system might change over the coming decades.
Published in July, the scenarios test a series of questions, such as what it would mean for the UK to meet its climate goals, whether it is possible to do so while relying heavily on hydrogen and what would happen if the nation were to slow down its efforts to cut emissions. The scenarios have a broad focus and do not only consider the UK’s climate goals. In addition, they also explore the implications of a rapid growth in electricity demand from data centres, the potential for autonomous driving and many other issues.
With so many questions to explore, the scenarios are not designed to keep costs to a minimum. In fact, NESO does not publish related cost estimates in most years. This year, however, NESO published an ‘economics annex’ to the future energy scenarios. It last published a similar exercise in 2020, with the results being widely misreported.
In the new annexe, NESO said that the UK currently spends around 10 per cent of GDP on its energy system. This includes investments in new infrastructure and equipment – such as cars, boilers or power plants – as well as fuel, running and maintenance costs. This figure is expected to decline to around five per cent of GDP by 2050 under all four scenarios, NESO said, whether they meet the UK’s net-zero target or not.
For each scenario, the annex adds up the total of all investments and ongoing costs in every year out to 2050. It then adds an estimate of the economic damages from the greenhouse gas emissions that primarily come from burning fossil fuels, using the Treasury’s ‘green book’.
When all of these costs are taken into account, NESO stated that the cheapest option is a pathway that meets the UK’s climate goals, including all of the targets on the way to net-zero by 2050. It said this pathway, known as ‘holistic transition’, would bring average savings of GBP 36 billion per year out to 2050, relative to a pathway where the UK slows its efforts on climate change.
The biggest savings would come from avoided climate damages – described by NESO as ‘carbon costs’. In addition to avoided climate damages, NESO said that reaching the UK’s net-zero target would bring wider benefits to the economy, including lower fuel imports.
Specifically, it stated that climate efforts would ‘materially reduce’ the UK’s dependency on overseas gas, with imports falling to 78 per cent below current levels by 2050. Under the ‘falling behind’ scenario, imports rise by 35 per cent, despite higher domestic production.
NESO argued that the shift to net-zero would have wider economic benefits. These include a shift from buying imported fossil fuels to investing money domestically instead, which ‘could bring local economic benefits and support future employment’.
The operator stated that there is the ‘potential for more jobs to be created than lost in the transition to net-zero’ and that there would be risks to UK trade if it fails to cut emissions, given exports to the EU – the UK’s main trading partner – would be subject to the bloc’s new carbon border tax.
Beyond the economy, NESO pointed to studies finding that the transition to net-zero would have other benefits, including for human health and the environment. It does not attempt to quantify these benefits but points to analysis from the CCC finding that health benefits alone could be worth GBP 2.4-8.2 billion per year by 2050.
The piece was originally published in Carbon Brief and can be found here.