Net Zero – What now?
Carbon emissions are dropping fast – but for all the wrong reasons.
Emissions dropping like a stone
When the UK Parliament legislated for a ‘net zero’ carbon target last year, few could have imagined emissions would plummet by more than 4% during the first four months of 2020. This has not occurred because of some enlightened shift in climate policy, of course, but as a result of the coronavirus crisis, or more precisely the lockdown measures to contain it. Manufacturers have cut back on production, airlines are grounded, and motorists are staying at home. No wonder the demand for energy has collapsed here and across the world.
Staying alive – in every sense of the word
Recovery after lockdown – how will emissions bounce back?
Economists are divided about what will happen after lockdown ends, or perhaps more realistically as it is gradually eased over a period of time. Some recovery in energy consumption is inevitable and may occur very rapidly in some parts of the economy. Elsewhere the recovery will be much slower, and the effects of demand destruction will be evident for years to come.
It is hard to imagine growth in aviation, for example, resuming its previous trajectory, regardless of climate concerns. Increased levels of home working will also likely persist to some degree, reducing the demand for commuter travel. But how much if at all this is offset by reluctance to use public transport is impossible to know in advance.
Is Net Zero now harder or easier to achieve?
All this uncertainty adds to the risk of investing in low-carbon infrastructure intended to meet future energy demand that may or may not materialise as previously expected. On the one hand, permanent demand destruction decreases the level of investment required to decarbonise our energy supplies. On the other, a weakened economy, probably burdened by unprecedented levels of debt, may be unable to sustain the level of investment required – possibly as much as £1 trillion, if earlier Treasury estimates are to be believed.
Exceptionally low fossil fuel prices also make the transition towards electric vehicles and away from gas heating relatively more expensive, at least in the short-term. The long-term arguments in favour of these shifts remain compelling. But persuading businesses and consumers to prematurely replace serviceable vehicles and boilers with equally or more expensive alternatives was always going to be a challenge, and the current situation simply makes that harder.
International action is key
Linking bailouts to Net Zero
There is an opportunity here when it comes to bailout funding to help businesses through the current crisis. There is already an active discussion about the extent to which bailouts should be conditional, e.g. dependent on commitments to reduce the carbon footprint of the business. This is as important for large industrial carbon emitters as it is for the energy industry itself. Businesses will need help if they are to make the necessary investments to thrive in a low carbon economy whilst remaining competitive internationally in the short to medium-term. Such help is already available in the form of Contracts for Difference for low-carbon power generation. Similar funding is needed to develop the use of hydrogen, innovative energy efficiency, storage and balancing technologies, and industrial carbon capture and storage. It is not illogical to consider linking some bailout funding to investment in these technologies.
Political choices just got harder
There are always trade-offs when it comes to government policy. Net Zero may be the right way to go but the speed with which we get there, and the costs which we can afford to sustain, will inevitably be re-examined in the light of the current crisis – and rightly so. It is sensible for policy to adapt to a changing reality.
Those who care about reducing emissions should be equally concerned to ensure that measures taken to pursue Net Zero are socially and economically sustainable. The last thing climate policy needs right now is a backlash from consumers, mystified at why they should be faced with the burden of escalating UK energy prices at a time when energy costs are plummeting internationally.
Decarbonisation, not deindustrialisation
The crisis has revealed some of the risks associated with outsourcing production and dependence on global supply chains. It would be unwise as well as environmentally hypocritical for the UK to continue the trend of outsourcing whilst ignoring the associated carbon emissions. There are various ways this ‘carbon leakage’ can be addressed, including procurement standards, border tax adjustments, etc, and ensuring climate costs do not fall disproportionately on businesses exposed to international competition.
There is no fundamental reason why the UK’s long-term commitment to Net Zero should be weakened as a result of the coronavirus crisis. But in the short-term, the government must take care to avoid increasing the burdens on energy users if the danger of a political backlash is to be avoided.
Corporate Affairs Officer
Need to know more?
Listen to the latest episode of The Resonance, Alfa Energy Group’s podcast, What now for Net Zero? In this episode, we look at some of the issues in the article in more detail, discussing:
- Are we compromised to address climate change?
- Will demand destruction be part of the solution?
- What industries may bear the brunt of that?
- Will green sectors replace the industries where demand destruction occurs?
- Will funding be there for the transition?
- Will the potential for stronger political leadership, despite some obvious challenges in dealing with COVID-19, benefit a global collective resolve to deal with climate change?
- Is the postponement of COP26 is a step back or a positive move, considering climate change itself can’t be put on hold?