Paying for Net Zero

Are Conservatives ready to face the choices and trade-offs of a costly energy transition?

Happy Friday, readers. As parliamentary recess rolls on there is just as much news and analysis for conservatives as ever. To help us make sense of it all and ensure we bring you the very best of the week, we are are pleased to announce that David Cowan (Monday co-editor) will now be helping us on Fridays, too.

This week the net zero wars rumble on. We bring you some of the more thoughtful analysis on this and many other topics below. Enjoy!

Best wishes,

Nick, Gavin and David

Towering columns

In the Financial Times, Janan Ganesh foresees the breakdown of the net zero consensus and a growing assertiveness among sceptics.

Let us dispose of the idea that net zero is popular. Yes, in Ipsos surveys, voters endorse various green policies by supermajorities. But when a financial cost is attached to them, most are rejected. (“Creating low-traffic neighbourhoods”? 61 per cent against to 22 per cent for.) And that was in November 2022, after a summer of sadistic heat. Last month, a YouGov poll found that around 70 per cent of adults support net zero. If this entailed “some additional costs for ordinary people”, however, that share falls to just over a quarter. The wonder isn’t the political faltering of net zero. The wonder is that it took until Uxbridge.

This, I think, is the argument that a future Tory leader will make, and to great electoral effect: “Human-induced climate change is real and terrible. Don’t mistake us for denialists. But this is a medium-sized, post-industrial nation that accounts for around 1 per cent of the world’s greenhouse gas emissions. The ecological future of the Earth rests on giant middle-income countries, not on us.

“We should decarbonise. It would be weird to abstain from a technological crusade that America and the EU are going to make sure happens regardless. Britain has already committed a fortune in sunk costs. But a rush to net zero? That will cost you, dear voter, in ways that we politicians have obfuscated in the past. And what will that cost achieve? Not a material dent in the climate problem, but the setting of a moral example, as though India and China set their watches by us. Liberals forever accuse us on the right of overrating Britain’s sway in the world. Well, look who is grandstanding now.”

But in the Telegraph, Ambrose-Evans Pritchard warns against abandoning the cost-saving potential of decarbonisation while allowing China to overtake Britain in clean tech.

The pace of decarbonisation is quickening for pure market reasons as new renewable power undercuts new fossil power in regions covering 90pc of the world’s population. Energy experts Ember estimate that wind and solar added 557TWh to the world’s electricity system last year, covering 80pc of the total rise in global power demand. This year they will top 100pc. Thereafter they will eat into existing coal and gas power. This switch no longer has much to do with net zero. Nothing can compete with solar below $20/MWh (£15.60/MWh).

…Sir Tony [Blair] says the extra CO2 emitted by China each year is more than the UK’s entire annual emissions. This was true in the metal-bashing heyday of the construction bubble but that era is over forever. Ageing China is ditching its exhausted catch-up model and is moving up the ladder to a mature economy. The country released 10.55 gigatonnes of CO2 last year, a fraction less than the year before. Lockdowns undoubtedly distorted the figures but emissions will go into steep descent after 2025 for mechanical reasons. The International Energy Agency estimates that China alone will account for 55 per cent for the world’s roll-out of wind and solar power in 2023 and 2024. 

…The larger point is that Britain needs green energy rearmament as a matter of national economic survival. It is not clear to me where Sir Tony discerns his huge burden, or how Lord Hammond conjures his £1 trillion bill for net zero.

A joint report by the International Monetary Fund and the IEA concluded that decarbonisation will halve energy costs worldwide from 4 per cent to 2 per cent of disposable income by mid-century. It said a rapid switch to clean tech raises global economic growth by 0.4 per cent a year this decade, and is therefore a gain, not a cost. It cuts average household energy and fuel bills from $2,800 to $2,300 a year by 2030 in advanced countries, and is even better for the world’s poor – the cheapest way to reach 800 million people with no electricity. This is an unstoppable global juggernaut. It does not require lavish state spending. 

In The Times, James Marriott urges us to remember that while Britain may feel like it’s in decline, we should appreciate astounding progress to quality of life of recent decades.

Almost every song ever recorded is available online. Instantly. The massive superabundance of music is a miracle not much more than a decade old. Surely we’re not jaded about this yet? Some days I can find that, quite by accident, I have listened to music recorded in every one of the past seven decades. I am not unusually omnivorous. The aggregate benefit to human joy and human curiosity must be incalculable.

On the same note: the internet is effectively a free university. When I spoke to Dominic Sandbrook about the decline of humanities degrees, the historian suggested that part of the issue was that there was so much free education online. Try Kenneth Clark’s Civilisation, John Berger’s Ways of Seeing, Robert Hughes’s The Shock of the New and Leonard Bernstein’s Norton lectures. Or pick from every classic novel and poem published in the 19th century. They’re all free.

Almost everybody has a camera of extraordinary quality in their pocket. We have more good pictures of the people we love than ever before in history. The average cup of coffee has probably improved as much in the past 25 years as in the previous century. Espressos are mainstream. Instant coffee loses market share every year (good riddance). And things are better everywhere. A flat white purchased in my home town of Whitley Bay is not far behind the one I can buy in Hackney, the epicentre of decadent modern coffee culture. When I left Whitley Bay ten years ago nobody (including me) knew what a flat white was.

In the Financial Times, John Thornhill says Britain cannot become a science superpower without tackling inertia and low productivity in the public and private sectors.

The trouble with Britain’s economy is that instead of cultivating beautiful flowers, the country is pushing up too many weeds. Rather than exhibiting complementary capabilities, the public and private sectors suffer from the same maladies: short-termism, managerial inertia, poor productivity and a reluctance to invest. For the past seven years, Brexit has imposed a massive additional distraction tax on both sectors. 

All that has fed the narrative of broken Britain, the impression that nothing really works anymore. The healthcare system fails to treat many patients speedily (almost 7.5mn remained on the NHS waiting list in May), the justice system does not deliver justice (consider the grotesque mistreatment of the wrongfully convicted Post Office sub-postmasters). Meanwhile, private sector water companies pump sewage into our rivers (only 14 per cent of England’s waterways have “good ecological status” according to a 2022 parliamentary report) while the City of London falls down on its core function of providing growth capital to new businesses.

The reasons for this malaise were explored last month at a refreshingly non-partisan conference run by Civic Future, a non-profit organisation founded last year to help train a new generation of leaders to improve public life. 

Ironically, one of the most optimistic takes on Britain was provided by the American economist Tyler Cowen, author of a book called The Great Stagnation that inspired the event. The UK, he suggested, was well placed to capitalise on three transformations that may be about to boost global productivity: the biomedical revolution, the diffusion of artificial intelligence and the energy transition. Only a few places in the world could take new research ideas in these areas and turn them into successful businesses, Cowen argued. With its world-class universities, rich human capital and venture capital expertise, “south-east England is one”, he said.

For UnHerd, Andrew Doyle argues that the culture war is only a “distraction” if conservatives are prepared to lose it.

When James Davison Hunter popularised the term “culture war” in his 1991 book Culture Wars: The Struggle to Define America, he was describing tensions between religious and secular trends as well as alternative visions of the role of the family in society. He was using the term in its established sense, where any given “culture war” has clearly defined and oppositional goals (such as the Kulturkampf of the late-19th century, which saw the Catholic Church resisting the secular reforms of Chancellor Otto von Bismarck). Hunter’s application of the term mapped neatly onto accepted distinctions of Right versus Left in American politics, which is perhaps why the notion of a “culture war” is still so often interpreted through this lens.

But our present culture war is not so simple. The goals are certainly oppositional, but the terms are vaguely defined and often muddied further through obfuscation. Rather than a reflection of antipathies between Right and Left, today’s culture war is a continuation of the age-old conflict between liberty and authoritarianism. John Stuart Mill opened On Liberty (1859) with an account of the “struggle between Liberty and Authority”; the only difference today is that the authoritarian impulse has been repackaged as “progressive”. This would help explain why a YouGov poll last week found that 24% of Labour voters believe that banks ought to be allowed to remove customers for their political views.

The idea that defending liberal principles is a kind of “distraction” amounts to an elaborate form of whataboutism. Contemporary critics of Mill might well have argued that in writing On Liberty, he was allowing himself to be distracted from more pressing causes. Why wasn’t he writing about social reform, for instance, or the Franco-Austrian war? Similarly, while some commentators ask why we are discussing climate change during a cost-of-living crisis, an environmentalist might well ask why we are discussing the cost-of-living crisis in the midst of climate change. The extent to which we are being “distracted” is very much dependent on our individual priorities.

On his Substack Sam Dumitriu explains why new fire safety rules could hold back plans for new development, especially where housing is scarce.

England is relatively rare in having no fixed maximum limit for buildings with a single staircase, instead relying on ‘stay put’ advice and other measures to stop the spread of fire. The Grenfell tragedy and the cladding scandal that followed understandably led to major calls for reform to this approach. As a result the Government has announced its intention to bring in a new rule. If adopted it would mean that all new residential buildings more than 18m tall (roughly six storeys – it is worth remembering that Grenfell was 67m tall, almost 4 times this limit) must have at least two staircases that can be used as exits in the event of a fire. 

What will this mean in practice? New developments more than six storeys high will become harder to build. In order to build an additional stairwell, floorspace must be sacrificed. This is unlikely to be a significant hurdle for high-rise developments, but at the margin, many 7, 8 or 9 storey buildings may no longer be viable.

Let me explain. Housing in many parts of the country is so scarce that when a new building is built it generates enormous value. In fact, the value of new floorspace in London can be around four times the cost of building it. Elsewhere in Britain, where housing is less scarce, the value of a new home is closer to the cost of building it. As so much value is created where housing is scarce, we are able to make further development conditional on meeting all sorts of requirements such as the inclusion of affordable housing units or the payment of levies to fund infrastructure (e.g. schools or transport upgrades). There is a point, however, where the additional levies and requirements threaten the viability of a project. The loss of floorspace from the requirement to add an additional staircase may be that point. In London, it may mean that projects can only go ahead if affordable housing requirements are relaxed. Elsewhere, where the price people are willing and able to pay for housing is lower, development may simply not happen.

Wonky thinking

After interviewing 27 former cabinet secretaries, permanent secretaries, ministers, senior civil servants and government advisers, Charlotte Pickles and James Sweetland examine the barriers to rewiring the government machine in Breaking down the barriers: why Whitehall is so hard to reform. Published by Reform.

Our interviews revealed a system in which initiating a new reform programme is fiendishly complicated and in which responsibility for doing so is diffuse. Above all, there is a lack of ownership for the essential work of corporate transformation. While ministers are sometimes the drivers of system change (despite questions over whether they are best placed to do so), this is a minority interest among politicians. Yet the executive core of government is not strong enough, and departmental permanent secretaries not interested enough – and do not tend to see it as their job – to drive this.

Even when an individual within the system – whether a politician personally interested in the machinery of government or a reforming civil service leader – does decide to instigate a change programme, the barriers are high. Winning the backing of (or at least avoiding resistance from) all of the players upon which success depends appears a Herculean feat. One of the most common phrases uttered by interviewees when asked how civil service leaders responded to reform efforts instigated by the centre, for example, was: “eye rolling”.

In addition, the process of developing new ideas or operating models is often hamstrung by a Whitehall system that is relatively insular. Where few system leaders have substantive external experience, identifying different ways of working is limited: “It’s always easier to see opportunities for reform if you haven’t spent your entire career in one place”, as one former permanent secretary put it. This lack of alternative experience can also create a bias towards the status quo, while change can appear as criticism of a system in which the current crop of leaders succeeded and for which they are now responsible.

The World Inequality Lab launched Spatial wage inequality in North America and Western Europe: changes between and within local labour markets 1975-2019. The report reveals the extent to which inequality in Western nations is shaped by the divide between global cities and post-industrial towns.

We show that today, the United States has the highest national wage inequality followed by Canada, Germany, the UK, and France. We reproduce a well-known fact (e.g., Piketty 2021, Guvenen et al. 2022) that national disparities grew between 1980 and the financial crisis of 2008 but have stagnated or even somewhat declined after. France experienced a relatively small increase in wage inequality, moving from being the most unequal of the three European countries in 1975 to being the most egalitarian today. Canada and the US have had strong and sustained rises in wage inequality throughout the period, whereas for the UK and Germany the substantial increases in inequality were limited to the periods 1980-1995 and 1995-2010 respectively.

Our novel set of results consider trends in spatial inequalities within countries. We find that by the end of the 2010s, spatial inequalities in LLMA mean wages are similar in Canada, France, Germany and the UK; the United States is by far the most unequal by this measure. Most countries experienced a near doubling of the variance of log mean area wages over the period. The exception is France, where spatial inequalities grew in the earlier part of the period but have since fallen back to 1970s levels. In all countries except France there is a strong trend of increased dispersion in wages paid at the top of the distribution between LLMAs, but for most countries some convergence in the lowest wages paid across areas.

How important are spatial inequalities for national inequality trends? We show that the overall importance of place in the total variance of wages is small - in the UK, the country with the biggest role of place, LLMAs explain today around 7% of the total variation in wages; in Canada, the country with the lowest importance, less than 3%. Although the US is the most spatially unequal country in our study, its higher degree of national wage inequality means that the relative contribution of spatial inequality to total national wage inequality is very similar to France. In most countries there has been little change in the contribution of place to national wage inequality; the UK is the only country which has experienced a substantial increase in the importance of place since 1975.

Book of the week

We recommend Singapore: Unlikely Power by John Curtis Perry, which explores how the island nation made the journey from its colonial past to becoming both a sovereign state and an economic powerhouse.

Britons can assuage memories of World War II’s catastrophic defeat in Singapore by recognizing the contributions of their imperial rule to independent Singapore’s accomplishments; and although most Americans scarcely know where it is, we have substantial interests in Singapore, both monetary and military. We have twice as much money invested in that tiny place than in all of China. With these heavy corporate stakes, Americans not only have a big economic interest but also, having long ago replaced Britain as guardian of the global seas, we have a strong strategic interest in ensuring open passage through the straits.

Americans can be grateful that Singapore provides a strategic asset to the United States Navy, now that we no longer hold our great base at Subic Bay in the Philippines. Our fleet has found Singapore a receptive host where the largest American aircraft carriers can be accommodated, and where the navy stations several of its new littoral combat ships. Singapore thereby provides support for a forward American naval presence in Southeast Asia no longer available elsewhere. This carries special importance because of our proclaimed “Pivot to Asia.”

As nation-states falter in efficiency, Singapore demonstrates that cities may be the salvation of humankind. That this city-state can thrive now leads some to suggest that smallness could even be the wave of the future, that cities as global actors may become more important than nations, at least in some spheres, environmentalism being one example. Cities themselves have traditionally functioned as centers for generating ideas and turning out products. In America, large cities produce the great bulk of the national economy.

Quick links

The Bank of England has raised interest rates to 5.25 per cent.

The Prime Minister launched plans for hundreds of new oil and gas licences alongside investment in carbon capture and storage.

Energy Secretary Grant Shapps said the UK is “absolutely committed’” to net zero…

…but a ConservativeHome poll showed 83 per cent of members and readers oppose banning new petrol and diesel cars by 2030…

…and 66 per cent say they are against low-traffic neighbourhoods.

A further £54 billion of investment is needed to decarbonise the Grid by 2035 according to a new Government-commissioned report.

The Government published the 2023 National Risk Register, identifying AI, drones, and Russia as major threats to UK safety.

Rules effective from next week will prevent serious criminals from gaining British citizenship.

The Health Secretary announced plans to use private sector capacity to clear the NHS backlog.

A 1 percentage point rise in the share of homes sold to foreign buyers leads to a 2.5 per cent increase in prices, according to a new study.

Former Cabinet Secretary Lord Sidwell says the Civil Service is “too metropolitan, too short-term, too siloed [and] too rivalrous”.

A suicide bombing at an Islamist political rally in north-west Pakistan has killed at least 45 people.

The share of zero-carbon power in Britain’s electricity mix grew from from less than 20 per cent to more than 50 per cent between 2010 and 2022.

A lower percentage of the earth’s land is catching fire annually than in the early 2000s.

The author of Scotland Yard’s anti-drugs strategy used to smoke marijuana every morning and took LSD and magic mushrooms.

Just 55 per cent of Millennials and Zoomers intend to have children.

Labour MPs shared a deepfake photo of the Prime Minister.