LONG READ EXPLAINER: Why should the UK get to Net Zero? Won’t it cost us too much? [20 minutes]

(TLDR – skip to FREE Conversation Guides – to help you talk about Net Zero, why we need it, the costs, the risks and the benefits with your friends and family.)

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Having made the case for why we need to get to Net Zero, both globally and nationally, I’d like to look at the economics of getting there.

As Energy accounts for nearly ¾ of our greenhouse gas emissions globally, many countries have been looking at decarbonising their energy supply in order to get to Net Zero, including the UK.

But one criticism that opponents of Net Zero have is that with the UK being such a small source of greenhouse gas emissions globally (around 1%), we shouldn’t penalise ourselves financially and economically by not using our own fossil fuel sources, whilst still importing from overseas. The question they raise is: if fossil fuels are going to be burnt anyway, isn’t it better that we burn our own fossil fuel supplies? The carbon footprint of getting those fuels to our power plants will be less and the cost will be less too, and the UK will get income from using oil and gas from UK fields in the North Sea.

This is a valid question to ask.

But let’s look at why fossil fuels are not the economic answer (as well as not being the environmental one).

 

1.      Why Fossil Fuels are not the answer

Is UK gas production cleaner than imported gas?

The answer to this is on the surface yes, but in reality, no.

UK gas production emits roughly four times less CO2 per barrel of oil equivalent than Liquified Natural Gas (LNG) imports. However, most of our imported gas is not LNG, but from Norway via pipelines. Norwegian gas production emits just over one third of the CO2 emissions compared to UK gas production.

 

In addition, most of the emissions from gas are from its usage, rather than extraction. So in reality, it is ‘cleaner’ emissions-wise to use imported gas from Norway; with the cleanest option to be not burning gas at all, seeing as this is where most of the emissions come from.

 

a)      Emissions aside, why are we paying to import fossil fuels when we have our own UK reserves in the North Sea?

Again, on the surface it seems nonsensical to pay another country to import their gas when we have our own oil and gas reserves here in the UK. However, it isn’t as straight forward as that.

Most of the oil pumped from the North Sea is extracted by private or foreign state-owned companies over which the UK Government has little control[ii]. Private companies own most of the oil and gas fields in the North Sea and are under no obligation to sell to UK energy providers – they will sell it to the highest bidder[iii].

If we want to ensure that fossil fuels extracted in UK waters go to UK energy suppliers, the UK government would need to introduce measures to make it more attractive for the companies that own the oil and gas fields in the North Sea to sell to UK companies[iv]. This will require investment and legislation.

Even if the UK government put all this in place, fossil fuels extracted from the North Sea still wouldn’t make a difference to the bills of UK consumers for the following reasons:

1.        Any newly issued oil and gas licences will take around 28 years to start producing[v] so won’t make a difference to energy prices now.

2.        Most crude oil from the North Sea is not compatible with UK refineries, so needs to be exported[vi].

3.        UK-refinery-compatible crude oil from the North Sea would provide about five years of oil demands[vii].

4.        Even if no gas was exported, gas from the North Sea would provide about three weeks of gas each year from 2025 – 2050 (or just under 18 months’ worth)[viii].

So even if we didn’t care about the climate impacts of extracting and burning North Sea oil and gas (and remember the IPCC says if we want a liveable planet, we must not extract any more fossil fuels[ix]), it does not make financial sense to the UK consumer to try to extract any more oil or gas from the North Sea.

 

b)      But aren’t renewables driving high energy prices for consumers[x]?

The short answer is no they are not.

The biggest part of UK electricity bills is the wholesale cost of electricity, not Net Zero costs - this is true for both industry and consumers. Yes, a small part of our electricity bills goes towards Net Zero policy costs, but those Net Zero costs are higher in France and much higher in Germany, where overall bills are actually lower.

In the UK the electricity price is set by the final, most expensive generation source that has to be turned on to meet our electricity demand, which is gas. The cheapest is renewable, so electricity from renewables is turned on and used first, followed by nuclear, and then gas. But it is the highest price, not the lowest price, that sets the overall price for electricity, regardless of how much of each is used throughout the day.

This means that even if we generate 23 hours of electricity from renewables (and/or nuclear) in a day, because that 24th hour comes from gas, that gas price that sets the price for the whole electricity market. As a result, the global gas price determines the wholesale electricity cost 98% of the time in the UK. This is compared to 24% in Germany and 7% in France and is because they are less reliant on burning gas to generate electricity.

UK households are not able to benefit from cheaper renewables because of this reliance on gas – even if it’s only for the last hour of the day. For example, in 2021, gas set the electricity price 98% of the time, even though it only supplied 40% of electricity generation across the year.

To insulate UK households from high electricity costs, we need to avoid turning gas on as much as possible. To do this the UK Climate Change Committee recommends that the UK government must:

a)        reduce electricity demand improve energy efficiency of buildings, including insulation and

b)        increase renewable energy supply - the cheapest form of electricity, plus electrify wherever possible and improve storage[xi].

 

2.      The Economics of Net Zero: Won’t it cost too much to get there?

OK, so if we accept that we need to get to Net Zero and that UK fossil fuels are not the answer, isn’t it going to be just too expensive to do, even if we want to?

 

a)     Is it possible and what are the costs for the world to get to Net Zero?

According to the World Economic Forum, full decarbonisation will cost less than 1.5% of global GDP[xii].

Furthermore, businesses, financial institutions, municipalities, and nations across the world have been developing detailed net-zero transition plans for several years. Organisations and countries with the best transition plans will be best placed to succeed in a low-carbon future[xiii].

The Energy Transitions Commission and the International Energy Agency both agree that it’s possible. Their roadmap calls for the total transformation of the energy systems that underpin our economies. However, the IEA warns the gap between talk and action must close, and adds that if any sector lags behind, it may prove impossible to make up the difference elsewhere[xiv].

 

 

c)      What are the costs to the UK of getting to Net Zero?

The UK’s Climate Change Committee have concluded that the UK would need to make less than £700bn additional investments over the 25 years to 2050 to reach Net Zero. This is significantly lower and almost half the estimate that was given five years ago. In addition, those investments would deliver about £600bn operational savings due to more efficient electrified heat, transport and industry needing less fossil fuel imports.

Therefore, the real estimated net cost of reaching Net Zero for the UK is just over £100bn over 25 years, that’s £4bn per year or just 0.2% of GDP. The Climate Change Committee has also said that most of the investment needed (about 65-90%) would come from the private sector, rather than government budget[xvii]. So, the cost to the UK taxpayer will actually be very little.

 

 

d)          What are the current economic costs of the impacts of the climate crisis?

There are (smaller than we initially imagine) costs to transitioning to Net Zero.

But what are the impacts of the climate crisis costing us now? The answer is that climate emergency is very real, here and poses equally significant economic and social risks to us now.

Frequency and severity of extreme weather events are increasing each year – wildfires have more than doubled in last two decades. And with each extreme weather event comes real costs. Some recent examples:

• January 2025 – LA Wildfires: Initial cost estimates, $135 billion, new estimates up to $250-$275 billion.
• November 2024 – Valencia Floods: Around 90,000 vehicles, 4,500 businesses, and 90 schools were damaged or destroyed. The initial costs estimated at €31.4 billion.
• October 2024 – Hurricane Helene: North Carolina estimates of a minimum of $53 billion for the destruction caused by the hurricane.^[xliii]

Here in the UK, the 2022 heatwave caused 3,000 deaths, forced railways to close and caused fires. An LSE paper estimates that climate impacts are already costing 1.1% of UK GDP (which in 2022 was £27bn) [xliv].

 

e)      What are the future costs of not getting to Net Zero?

As well as the current costs of dealing with the impacts of the climate crisis, those costs will extend into the future, and increase as the climate crisis worsens.

Climate collapse will affect many areas of our lives, if not all: public health, market stability, financial security, socioeconomic inequalities, quality of life, food and water shortages, displacement of people and heightened geopolitical tensions[xxxvii].

The Ecological Threat Register, conducted by the Sydney-based Institute for Economics and Peace (IEP), projected that by 2040 up to 5.4 billion people globally could be under high or extreme water stress – that’s only 15 years away. (Indeed, in the past decade, water-related violence has increased by 270% worldwide.) It also projected that by 2050, as many as 1.2 billion people worldwide could be displaced due to the impacts of the climate crisis, and around 3.5 billion (out of the projected 10 billion population) will be facing food insecurity.

But what does all this mean in terms of money?

Research by Institute and Faculty of Actuaries (IFoA) and University of Exeter says that the global economy could face a 50% loss in GDP between 2070 and 2090 unless immediate action on climate is taken. It says that policymakers must lead the way because the “current market-led approach to mitigating climate and nature risks is not delivering”[xxxviii].

Comparing the economic impacts different temperature rises, analysis by reinsurance company Swiss Re states that if we keep the increase to ‘well below’ 2’C, the economic impact will only be a reduction of global GDP of 4.3% by mid-century.

At a 2’C temperature rise, we’re looking at a global GDP reduction of 11%, including 7% in North America and 8% in Europe. At 3’C we could lose 18% global GDP, with a reduction of 10.5% in North America and Europe. It’s worth noting that real world policies and actions have us on track to hit between 2.2’C and 3.4’C by 2100. In a 2012, the World Bank concluded: “there is no certainty that adaptation to a 4°C world is possible … the projected 4°C warming simply must not be allowed to occur.”[xxxix]

For the UK specifically, the Office of Budget Responsibility estimates that if the UK continues to depend on gas at the current level, gas price spikes could add around 13% of GDP to public debt by 2050[xl]. Furthermore, the OBR found that delaying action “could double the overall cost” to the UK of cutting emissions to net-zero.[xli] It also said in 2021 that the economic impact of increasingly severe extreme weather events might cost the UK nearly 8% of GDP by 2025[xlii].

 

f)       So what are the economic benefits to the UK of the Net Zero transition?

Firstly, the quicker we transition to Net Zero, the less severe the impacts of the climate crisis, and the lower costs of dealing with those impacts.

In addition, instead of burdening us with high costs and economic downturn as Net Zero opponents would have us believe, the path to Net Zero can actually lead to innovation, new jobs and long-term prosperity.[xlv]

The UK is already seeing the economic benefits: between 2023 and 2024 the Net Zero sector grew by 10.1%, three times faster than the 3.2% growth in the overall UK economy[xlvi]. In fact, in Scotland, the Net Zero economy has grown by a whopping 21.3% since 2022, contributing £9.1 billion in Gross Value Added and supporting 100,700 full-time jobs[xlvii].

Indeed, analysis from the CBI shows that ‘green growth’ could deliver £37-57 billion to GDP, equivalent to between 1.6-2.4% GDP, made up from cost savings from developing and deploying green technologies, products and services, exploiting export opportunities where the UK has natural advantages and inward investment that will boost the capacity of the economy[xlviii].

The reality is that 93% of the world economy is under a Net Zero commitment. And China is currently dominating the Net Zero economy particularly on solar panels, wind turbines, batteries EVs and rare earth minerals and metals. With the Inflation Reduction Act (IRA) that President Biden introduced, the US was catching up, but with President Trump stopping investment in climate and the green economy, the door is temporarily open for the UK to step in in areas where we are able.

With demand increasing and resources being finite (apart from wind and sun), the competitive economy of the second half of the 21^st century and into the next will be based on resource-efficient innovation. The UK could use its place as a centre of innovation and lead this race[xlix].

Furthermore, if all countries maintain their current trade networks, trade-related risks to energy security would decline on average by 19% cent in Net Zero scenarios. If countries expand their networks and trade with all resource owners, then trade risks would fall by half on average in Net Zero scenarios[l].

In addition, immigration has been a top concern for the UK public over the last ten years. By 2050, there could be up to 1.2 billion climate refugees worldwide.[li] We don’t know how many of those refugees will see asylum in the UK, but even if it is a small percentage, the UK will be dealing with increasingly greater number of people seeking asylum, whether directly from climate and extreme-weather reasons, or from increased conflict over natural resources. As well as the political and societal questions that an increase in asylum seekers and refugees will bring (as opposed to planned immigration), there will also be an increased cost in processing claims and housing people. There it could be argued that there is an economic incentive for the UK to lead the way to get to Net Zero and reduce the number of people forced to leave their homes for climate reasons.

 

g)      What are the health and social benefits of Net Zero?

Air pollution

Fossil fuels are a major contributor to air pollution, which is responsible for between 28-40k deaths a year in the UK (compared to 1,800 deaths from road collisions).[lii]  Air pollution has been linked to a significant range of negative health impacts including cardiovascular and respiratory diseases such as heart attacks, strokes and asthma, various types of cancer (particularly lung cancer), diabetes, and eye, kidney and liver disease. [liii]

In the long-term, however, traffic-related emissions can only be reduced in a meaningful way if car journeys are reduced and people switch to active forms of transport such as cycling and walking. ‘Active travel’ has multiple wins terms of benefits to public health – it helps reduce local air pollution while at the same time improving the physical and mental health and overall wellbeing of those people walking or cycling instead of driving[liv].

Diet

The World Health Organisation recommends a diet that contains less read meat, dairy products, eggs and sweet and savoury snacks; and more cereals fruit and vegetables. This diet would increase average life expectancy by eight months, and reduce the risks of cardiovascular disease, strokes, certain types of cancer, obesity and type-2 diabetes. [lv] In addition, researchers in Denmark have shown that vegetarian and vegan diets (which are more climate friendly) help reduce the risk of heart attacks by cutting bad cholesterol by 10%, cutting total cholesterol by 7% and cutting apolipoprotein B (the main protein in bad cholesterol) by 14%.[lvi] If the average dietary intake in the UK was in line with the WHO recommendation, we would achieve a 17% reduction in greenhouse gases compared to existing diets – along with all the health benefits.[lvii]

Housing

In the winter of 2016/17 around 10,000 excess winter deaths (EWD) were estimated to be attributable to living in a cold home. Children living in inadequately heated homes were found more than twice as likely to suffer from conditions such as asthma and bronchitis, exacerbated or brought on by exposure to moulds and dampness. In addition, there is evidence that suggests people whose bedrooms are below 15’C are 50% more likely to suffer from mental health problems, compared to those with bedrooms heated to 21’C. [lviii] Better insulated homes will mean warmer, drier homes in winter and cooler in summer – good for health, as well as cost.

Green Spaces

As well as absorbing CO2, green spaces such as parks and gardens, provide multiple health benefits. One study at Zagreb University found urban tree planting can help bring down temperatures by 4’C in the summer (and even raise indoor temperatures by up to 6’C in winter if the trees were strategically placed!) Green space also plays an important role in improving the mental health of individuals who get to enjoy it, including alleviating the perception of heat stress during long periods of high temperatures.[lix]

 

h)    But what are the economic risks to UK citizens of the Net Zero transition?

Any conversation around action on climate action needs to include discussion around a just transition and climate justice. Without that, we cannot move forward and create a better future.

A new report warns the government’s net zero transition policies could push struggling communities further into deprivation. It finds the poorest 40% of households are at risk of falling into ‘transition poverty’.[xxxiii]’

For the report, researchers ran workshops with a diverse group of people from low-income neighbourhoods. The participants wanted to contribute to the transition to net zero, but they faced significant obstacles, including[xxxiv]:

1. Not having the money to invest in changes to their home
2. Not owning their home, so not having the agency to change it
3. Having to travel long distances for amenities, leisure, education or work.

However, the report goes on to say the risks to vulnerable people are avoidable if policy is designed with a better understanding of how ready different places and communities are for transition and what their strengths and vulnerabilities are [xxxv].

The report’s recommendations include[xxxvi]:

1. Removing the most significant barriers for the poorest households
2. Devolving governance for net zero policy creating a specific vision and plan for each geographic area
3. Engaging the public meaningfully in decision-making
4. Building collective action and policy for net zero transition
5. Local leaders, civic actors and investors should adopt a data-driven, ‘place readiness’ approach
6. Recognising the need to engage other trusted actors, such as employers and investors
7. Updating the existing Climate Change Committee (CCC) Risk Assessment to provide a broad and true picture of community and household vulnerabilities.

If the government progresses on the UK’s Net Zero plans always keeping the most vulnerable in mind, and ensuring there is no additional cost to anyone who can’t afford it, hopefully everyone, including those most in need, will get to experience the financial benefits of the Net Zero transition, as well as the planetary ones too.

 

i)           How do we ensure the costs are fairly paid for?

Hopefully, through the discussion above, along with the previous blog, I’ve stated the case that the costs of NOT acting on climate change far outweigh the costs of transitioning to net zero.

In addition, the impacts of the climate crisis will be unfairly felt, with the poorest and most marginalised groups in society often facing higher exposure to impacts such as food and energy price shocks, the effects of air pollution, extreme heat, extreme cold and flooding due to lower quality housing stock and worse location.[lx]

So, we can see that there are real benefits to transitioning, especially to poorer and marginalised groups.

However, there are also very real costs, and it is vital that those costs are fairly distributed. Indeed, fairness and choice were core principles identified by the UK Climate Assembly that was convened in 2019-2020.[lxi]

As I see it, the crux of the problem comes when individuals and families are expected to shoulder the financial burden of the costs of transitioning to low-carbon / Net Zero, rather than the government.

For example, renewable energy subsidies:

Installation of smart metres and household retrofitting adds an additional 13% to household energy bills. The lowest income households spend 10% of their income on heating and power, which would increase to 11.3% (and increase of 1.3%); whereas the highest income households only spend 1.5% of their income, increasing to only 1.7% (an increase of only 0.2%).[lxii]

This is very unfair financially and will, completely understandably, turn lower income households away from embracing Net Zero policies because they will be shouldering more of the financial burden than higher income households. Indeed, between 2020-2023 the average poverty gap increased 66% due to rising energy prices, making the situation for those already in fuel poverty considerably harder.[lxiii]

Two alternative options could be:

1.      Taxing households on their full energy use (not just their domestic gas and electricity, which is how Net Zero policy levies are currently charged). Using this approach around half of UK household income groups would see their contribution fall, and the surplus money required would be met by the highest income households. The lowest income households would see their annual contribution fall by £28 from an average of £114 per year to £86 (0.83% of household income) and the highest income households would increase their payments by £90 from an average of £198 to £288 (0.26% of household income).

 

2.      General taxation would mean that the lowest income households reduce their annual payments to an average of £16 per year (0.15% of their annual income). The highest income households would now contribute £656 per year (0.58% of their annual income). This option would reduce costs for around 65% of UK households. Under this approach, the lowest income group would save £98 a year with the highest income group paying an additional £458 a year. A saving of £98 a year for the lowest income households could make a significant difference to their welfare, while an additional cost of £9 a week for the households with the highest income is relatively small.  

 

It is important to note that in each of these options (the current approach, household energy footprint (1.) and general taxation(2.)), the annual revenue raised to pay for Net Zero policies is the same, but the distribution of costs is different.

It is critical that undue financial burdens are not placed on the many UK households that are struggling to meet basic everyday needs. The current system is inequitable, and to ensure continued and widespread public support for strong climate action, progressive taxation policies and practices need to be put in place.

 

j)           How do we ensure the benefits are fairly felt?

According to one estimate, households that had all the applicable Net Zero technologies (including insulation, a heat pump and an electric vehicle) could have saved up to £3,750 on energy bills between 2022-2023.[lxvi]

In addition, low-carbon technologies are more efficient so are cheaper to run, so the government must provide targeted financial support, such as grants and affordable pathways to cover the up-front costs of installing these technologies in every household, not just the higher-income ones who can currently afford them, will ensure that the benefits will be more fairly felt. That way, all households would benefit from the savings, not just the high-income ones. 

As well as funding low-carbon technologies for UK families, the government must also fund the other Net Zero pathways that provide co-benefits - focussing on low-income areas for air pollution reduction programmes, education and financial support for families to have more body-friendly and climate-friendly diets, funded insulation programmes and tree-planting and green space creation in the areas that are currently the least green.

 

3.      Net Zero vs Not Zero

So, if we agree that as the world, and as the UK too, there are compelling reasons for us to get to Net Zero; that increasing our reliance on fossil fuels, even within the transition, is not the answer; and that the cost of the transition must be shouldered by those who can afford it not those who can’t, plus the UK government; then we’re left with the question of the economic impact of either a) getting to Net Zero or b) not getting to Net Zero.

The answers all seem to be pointing in the same direction: there is an economic benefit to getting to Net Zero and being first / fast in doing so, and there is cost of not – both in terms of the direct costs of the impacts of increasingly extreme weather events, and also in terms of opportunity costs lost in being a laggard rather than a leader in an inevitable transition.

 

Download your FREE Net Zero Conversation Guides:

1. Why Do We Need Net Zero?

2. Why should the UK get to Net Zero?

3. Won't Net Zero cost us too much?

 

I'd love to know what you think of this second Long Read Explainer on Net Zero. Is it interesting? Is it useful? Does it help you create a narrative that helps you to explain to others outside of the climate movement why Net Zero is so vital? Is there anything major I've totally ignored and should include in an update / re-write?

My inbox is always open, so feel free to drop me an email.

 

With love, learning and difficult conversations,

 

Elena x

 

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Endnotes & References