Pressing ahead to reach Net Zero by 2050 will most likely cost Britain less than remaining dependent on gas for power generation and energy uses, the government’s independent economic advisors counsel today.
Leaving Britain exposed to repeats of the last two years of rocketing wholesale gas prices will imperil the economy, says the Office for Budget Responsibility, and put the country in breach of legal obligations.
Abandoning the Net Zero targets adopted by the Johnson administration could result, in a likely scenario where gas prices remain at current levels in the 2020s, in Britain losing between 2 and 3 per cent of GDP this decade, the body advises.
Such a recession would happen if short-term protections to industrial and domestic bill payers such as the energy price guarantee were maintained.
The tough predictions come in the OBR’s annual report on UK fiscal risk and its relation to sustainability. The advisors’ insistence on Net Zero’s enduring worth will meet opposition from vocal criticism from Tory right-wingers, including Jacob Rees-Moog, briefly industry secretary of state under Liz Truss.
The thirteen-fold rise in the price of gas traded on global markets since Putin’s February 2022 invasion of Ukraine has contributed to wind and solar for the first time being cheaper in most big economies than gas as a power generation, the OBR document notes.
Though dropping back steeply throughout last year as the invasion faltered, the price of gas available to British wholesale buyers stood at around £1.10 per therm this spring, over double the 50 pence it had stood at for most the decade before February 2022. The OBR foresees no further fall this decade.
In the two years to 2022 alone, the UK’s wind generation capacity advanced 11 per cent, and installed solar by 4 percent, the economists note, against 8 per cent and 22 per cent respectively for the EU.
Despite the lifetime cost of renewable electricity being now lower than gas generation, those figures lead the OBR to bemoan “little sign of a step-change in renewable energy investment in the UK following the recent gas price spike”.
Away from power generation, Britain’s switchover to electricity as a source of heat is advancing slowly, says the report, due to a skills gap and a lack of viable alternatives.
Two years ago the OBR estimated that total public investment in the transition to net zero by 2050 might be around £327 billion over the next 30 years (in 2019 prices). £25.4 billion of that would come over the four years to 2025, it believed.
The Government has so far committed less, the equivalent of £22.5 billion, the OBR notes.
Planned investment by the Treasury of £3.8 billion in the power sector is higher than the £2.4 billion assumed in our central scenario. And in its energy security strategy the Government has set out plans to develop up to eight more nuclear reactors.
By contrast, the Government’s planned investment of £8.6 billion in decarbonising buildings is below the £10.9 billion assumed in the OBR’s scenario.
Heat pumps as a replacement for home and industrial gas boilers for example, are being installed at less than ten per cent of the rate needed to meet the government’s target of 600,000 home pumps operating by 2028.
Read the OBR report here.