Leaked documents obtained by the Observer reveal deep concerns within the Treasury about the economic cost of moving towards a zero-carbon economy. The Chancellor is worried that additional costs from green initiatives would push companies to move production elsewhere.
As Johnson prepares to position the U.K. at the head of global efforts to combat climate change and curb greenhouse gas emissions as host of the Glasgow COP26 meeting, the documents show the Treasury is warning of serious economic damage to the U.K. economy and future tax rises if the U.K. overspends on, or misdirects, green investment.
Green experts said the “half-baked” and “one-sided” Treasury net-zero review presented only the costs of action on emissions, rather than the benefits, such as green jobs, lower energy bills and avoiding the disastrous impact of global heating. They said the review could be “weaponised” by climate-change deniers around the world before COP26, undermining Johnson’s attempts at climate leadership on the global stage.
The internal Treasury documents say that while there may be economic benefits to U.K. companies from swift and appropriate climate action, there is also a danger that economic activity could move abroad if firms found their costs were increasing by more than those of their overseas competitors.
The leaked papers are understood to have been produced to accompany a slide show given confidentially to key groups outside Government in the last month. The documents state: “The investment required to decarbonise the U.K. economy is uncertain but could help to improve the U.K.’s relatively low investment levels and increase productivity.
“However, more green investment is likely to attract diminishing returns, reducing the positive impact of ever more investment on GDP. Some green investments could displace other, more productive, investment opportunities. If more productive investments are made earlier in the transition, this risk may be accentuated later in the transition.”
On the risk of additional costs to companies from green initiatives, the documents say: “Climate action in the U.K. can lead to economic activity moving abroad if it directly leads to costs increasing, and it is more profitable to produce in countries with less stringent climate policies.”
On the fiscal implications, the documents say the cost of moving towards net zero could mean tax rises because of “the erosion of tax revenue from fossil fuel-related activity”. They say: “The Government may need to consider changes to existing taxes and new sources of revenue throughout the transition in order to deliver net zero sustainably, and consistently with the government’s fiscal principles.”
Worth reading in full.