The Benefits of a Net Zero Approach in The Pursuit of Economic Growth

Categories: Blog

As a nation, we have endured a historical change throughout the year. The transition to a new government under Prime Minister Rishi Sunak has heralded speculation on our future as we move in a new economic direction and priorities shift. The question often asked by groups such as the Net Zero scrutiny Group is that with the cost of living rising, are Britain’s plans to cut greenhouse gas emissions too expensive? The SEA positions itself to ensure one thing is made clear, considering the current crisis, energy and Net-Zero must play a leading role. The purpose of this blog post is to explore the way in which the transition towards Net Zero benefits the UK economically and address misconceptions regarding the cost of Net Zero.

Gross Domestic Product (GDP)

In recent years, the UK has been at the forefront of global action to mitigate the impending climate crisis. In 2019, the country adopted the legally binding target to reduce Green House Gas (GHG) emissions to Net-Zero by 2050. Naturally, the progress to Net Zero involves investment, however inaction is far more costly. The estimated cost of global warming is between 5% to 20% of global GDP per year (HMT Net-Zero Review).

The Climate Change Committee (CCC) and Cambridge Econometrics found that the transition to a Net-Zero economy will lead to a 2% to 3% increase in the UK’s GDP between 2022 and 2050 (Economic Impact of the Sixth Carbon Budget).

The CCC’s Sixth Carbon Budget models five different scenarios aimed at achieving the Net-Zero target. Amongst all scenarios, the annualised resource cost of reducing GHG emissions to net zero are around 1% or less of the UK’s GDP through to 2050. Similarly, the HMT Net-Zero Review found that the net cost of the transition will be equivalent to 1% to 2% of GDP in 2050, excluding air quality and emission savings benefits.

The CCC discussed two kinds of expenditures that the transition to Net Zero necessitates:

  • Upfront Investment. This encompasses the additional cost of purchase or installation of new low-carbon technologies and infrastructure.
  • Operating Costs and Savings. This encompasses the running costs (or savings) occurring through the year, by using low-carbon technologies and infrastructure.

According to the CCC, upfront and operating costs collectively measure up to £60bn. Collective savings, mostly from operating costs, entirely offset the expenditure.

Energy Security and Green Investment

The UK’s journey towards a smarter, lower-carbon energy system and use of innovative technologies has already started; we need to maintain the momentum and accelerate the rate of change. The UK must reduce its reliance on energy imports to protect the economy and its citizens against the risks of energy supply insecurity and unreliability, as well as from volatile price fluctuations. The Sustainable Energy Association (SEA) believes that the current Energy Security Strategy does not place enough emphasis on energy efficiency, which is the most effective way to provide long-term security against future energy bill rises. Energy efficiency also provides additional benefits like supporting the UK’s transition to Net Zero, stimulating investment in industry and improving comfort and wellbeing.

The Energy and Climate Intelligence Unit (ECIU) finds that, on average, poorly insulated homes (EPC Band F) cost £1000 more to heat this year, as compared to those on band C (ECIU). It is apparent energy affordability and cost savings have become policy priorities now more than ever.

The UK economy relies heavily on imports for the supply of oil and gas. As technologies shift away from using these fuels on the path to Net Zero, spending on importing oil and gas will reduce. As stated by Cambridge Econometrics in their impact analysis of CCC’s Sixth Carbon Budget, reduced leakage from the economy potentially benefits local investment and growth.

The International Monetary Fund (IMF) found that the multiplier for green renewable energy investments is 1.19, while for non-eco-friendly energy, the multiplier is 0.65. This suggests that a £100 investment in green renewable energy contributes £119 to global GDP, while a £100 investment in non-eco-friendly energy contributes only £65. (IMF – Building Back Better: How Big Are Green Spending Multipliers?) In this paper, the IMF demonstrated that investments in renewable energy continue to have higher positive impacts on GDP for at least five years, while the impact of investments in non-renewable energy diminishes entirely within five years.

Business supports Net Zero and the creation of new jobs

The UK has significant manufacturing capacity in heating appliances (such as gas boilers). A study for BEIS from 2020 suggested that manufacturers would be able to respond and supply under high-ambition heat pump deployment scenarios. Following recent government announcements on clean heat, leading manufacturers including Vaillant and Kensa have already made investments in new facilities. Vaillant and Kensa are joined by energy companies including Octopus, OVO, and EDF, who are making major investments in the electrification of heat in projects across the nation.

The installation of these technologies represents an opportunity to promote high quality and skilled jobs in the heating sector. At the end of March 2022, there were 1,294 MCS certified heat pump businesses, who collectively delivered 7,783 heat pump installations in the same month. An extrapolation of this would equate to a capacity for circa 90,000 installations a year delivered by the current MCS certified base of contractors, MCS estimates the sector will need a further 7,000 contractor businesses to deliver on the Government’s target of 600,000 heat pumps per year by 2028. Analysis by the Heat Pump Association suggests that we will need at least 50,200 installers by 2030, based on deployment of one million heat pumps.

As per the CCC’s sixth Carbon Budget Scenarios, Net Zero would result in a 1% net increase in employment with 300,000 people being employed every year compared to the baseline.

Levelling Up and Innovation

Opportunities in Net Zero strategies have paved the way for local authorities to differentiate themselves in their pursuit of Net Zero. This enables opportunities to invest in clean growth in parts of the country which have need for it; an initiative which is completely in line with the Government’s levelling up agenda. Examples, as stated in the Government’s own Net-Zero Strategy include The West Midlands Public Sector Decarbonisation Scheme, where £2 million was granted by the UK Government to Windsor Academy Trust for heat decarbonisation and energy efficiency measures across seven schools. Another example of successful levelling up includes the Northwest Ellesmere Port plant, which received £100 million from Stellantis to build electric vans, safeguarding 1,000 jobs.

The UK has the position to be able to aid the world with its knowledge, expertise, and capacity to develop and manufacture clean, low-carbon technologies. Net Zero provides a unique opportunity to spotlight the UK in an emerging market and position the UK as leaders in a sector which has and will grow in the face of climate change. For example, UK innovation on technologies such as heat pumps will have an exponential effect on the European Commission’s REPowerEU plan, which targets twenty million heat pump installations by 2026, and 60 million by 2030. This also represents a major export opportunity for the UK if we further grow out capacity for production and manufacturing.

Widespread voter support for action

New polling conducted by Opinium for the ECIU has found that majorities of voters would be proud of voting for a party that boosted renewables (78%) and insulation in homes (72%). Even for policies less in the public eye, such as the switch to heat pumps (55%) and supporting farmers to plant trees (55%), the public said they would be proud of voting for a party championing these measures.

This compares to just 29%, who said they would be proud of voting for a party supporting large-scale fracking. When asked how they would perceive a political party downgrading climate change policy from being a priority issue, the top responses were ‘damaging’ (38%), ‘backwards’ (36%), ‘dangerous’ (33%).

There are opportunities to channel this national desire to safeguard a net-zero future, which can and must be capitalised on. These numbers will grow as we approach 2050, and will no doubt increase as consumer awareness grows—this will prove to be a major opportunity for green industries who will be able to sell into an increasingly aware and motivated consumer base.

Health and Wellbeing

The indoor built environment contributes directly to people’s health and wellbeing. Houses and buildings that cause or exacerbate health conditions cost the economy and our society each year through the following factors: healthy life years, reliance on healthcare services, educational attainment, work productivity and absenteeism. The cost of poor health is clearly set out in the All-Party Parliamentary Group for Healthy Homes and Buildings’ White Paper, along with key asks of the Government, of which the SEA is an official sponsor. We spend on average 90% of our time indoors therefore addressing the issue of health and wellbeing alongside carbon reduction is more important now than ever. By tackling the major health and wellbeing issues in UK homes and buildings, we have a real opportunity to create and use buildings that promote positive indoor environments, champion good health, make savings in healthcare costs, increase educational attainment, improve productivity, and allow our citizens to lead longer, healthier, and happier lives. Whilst we, as a nation, are on a journey to enhance our homes to make them net zero, the UK has also been granted an ideal opportunity to adapt our buildings to work for our health.

The Office of National Statistics (ONS) reported that approximately 63,000 excess winter deaths occurred in England and Wales in winter 2020 to 2021. Poor housing in England could be costing the NHS £1.4bn a year in treatment bills—the BRE estimated that addressing the hazards presented by excess cold could produce annual society savings of £15.3bn. These include aspects which undermine economic productivity, such as those relating to long-term care, mental health, and poorer educational achievement.

Conclusions and Final Thoughts

To conclude, a net-zero approach prioritises environmental benefits but also provides benefits for both the UK economy, trust in politicians, and addresses greater health issues for those living in poor and energy inefficient housing. Evidence suggests that the pursuit of greater economic growth and better public services will be accelerated with a net-zero approach, whilst preserving the planet and preventing temperatures reaching that all important 2.5C threshold.