Lord Frost (Con)
My Lords, I thank my noble friend Lord Lilley for securing today’s debate and for his strong support for economic rationality in this area over the years since he voted against the Climate Change Act in 2008.
I draw noble Lords’ attention to my statement of interests in the register: I am a trustee of the Global Warming Policy Foundation. It is one of the few organisations that tries to keep the debate alive on this issue, so it is very good that we have today’s debate.
Today’s debate is a very good sign; I think the net zero consensus is beginning to crumble. In my view, we are not in a climate emergency. Climate change is a challenge we can meet; it is not one that requires us to upend our entire economy and way of life.
This debate is supposed to be about the economy and I want to focus on that. For too long, many people have claimed that net zero is good for growth and prosperity, and we have heard that today. I am sorry, but I believe this is nonsense and I am going to show why.
One reason why I am confident that our current approach is harmful is that it requires many normally sensible people, and perhaps some who are not quite so sensible, to believe in a whole series of economic fallacies for the policy to work. I shall briefly set out some of them. The first is the broken window fallacy. We are supposed to believe the Skidmore report that net zero will make us richer. Of course, spending trillions of pounds on a new energy system has some economic spin-offs and it does get you an asset, just like repairing a broken window funds the glazier and gets you a window back—but your wealth is just the same. In fact, what we are doing today is creating a reduction in wealth: the new asset is worse than the old one. The replacement of the current grid with rickety and expensive renewables is not an improvement; it is a massive reduction in productive capacity—malinvestment of the worst kind. Just think of all the genuinely productive projects that could be funded with the trillions that we are going to spend over the years and how much real wealth could have been created.
The second fallacy is that it is all going to be all right on the night. This is a belief that one day we will just solve the problems—that we will solve the storage problem with hydrogen, hydro, batteries or whatever. It is the view that interconnectors will always work well, that they will never export when they are supposed to import, and that those to whom we are connected will never think their interests come first. I learned from the vaccines saga and France’s threats to Jersey in 2021 that we cannot rely even on our closest friends when the chips are down. This policy is making us deeply insecure.
The third fallacy is that of self-deception, most obviously on prices and costs. In the real world, renewables are simply not getting cheaper and some are eye-wateringly expensive. The existing CfD-funded offshore wind farms have cost over £150 per megawatt hour in current prices this financial year so far. The new projects awarded in AR6 will cost more than £80 per megawatt hour, when, as my noble friend Lord Lilley pointed out, the market price is around £60. And those figures for renewables ignore the subsidy; they ignore the need for back-up and storage. A child can see, surely, that it is not cheaper to build a renewables grid, plus all the back-up, than just to build effective back-up and forget about the renewables.
The fourth fallacy is that jobs are a benefit, not a cost. Net zero proponents paint this glowing picture of hundreds of thousands of new, green jobs. But, if the energy system requires many more people than now, how is that making the country more productive? If you believe that, you must think that we could make ourselves wealthier by sending everyone back into the fields to work the land. We want the fewest and most highly productive jobs possible, like those we already have in the oil and gas industry—jobs which this Government are gradually extinguishing.
The fifth fallacy is that of the infinite availability of resources. In this world, in the net zero world, there is always lots of capital waiting to be used; we always have enough workers; there are no linkages or timing problems for proper sequencing; foreigners are always willing to lend to the UK; and UK consumers are always happy to save instead of consuming. Massive projects, such as insulating every home in the UK or doubling the capacity of the energy grid, can be undertaken apparently without any resource constraints or knock-on effects in the wider economy. To put it charitably, that is not a realistic depiction of the world in which we live.
Finally, there is the industrial policy fallacy. It is the view that the Government know best and that they can pick the technologies, the subsidies and the targets to get us to net zero: the ineffective boilers and heat pumps, the expensive EVs, the windmills—the technology that was last cutting edge in this country under Henry II. I think we can be confident that any project pursued in this way is going to be a drag on the economy; all economic theory tells us so.
I believe in the long-standing Conservative principles—seemingly so uncertainly held in much of my party nowadays—of economic freedom, decentralised decision-taking, incentives for entrepreneurs, and economic experimentation. Yet the net-zero approach that we have chosen is requiring us to junk all that in favour of greater control and restrictions, with Soviet-style production targets—policies that we believe are wrong in any area, except when it comes to net zero. I urge my colleagues on these Benches who support net zero to reflect that, if you are a Conservative and your policy forces you to implement socialism, just maybe it is a bad policy.
The truth is that all this can have only one consequence for the economy, which is to make it less productive and slower growing, as it increasingly is. The only way out is to unwind, invest in productive energy—gas and nuclear, and lots of it—stop picking winners and roll back the subsidies, letting the market decide. I would have more sympathy with net-zero proponents if, as some have been today, they were honest about this. If they said, “This is going to cost you, but we have to do it anyway”, at least it would focus minds and we could have a real debate about whether the ends justify the means and not the fantasy debate that we are currently in, where everything is for the best and everything will turn out right. On net zero, we need a bit more Hayek and a bit less Candide.
The Minister of State, Department for Energy Security and Net Zero (Lord Hunt of Kings Heath) (Lab)
My Lords, I am very grateful to the noble Lord, Lord Lilley, for instituting a very interesting debate and to all noble Lords who have spoken in it. I welcome the noble Lord, Lord Offord, to what I think is his first speaking outing in his new position. I thank him for his service as a Minister and readily acknowledge that on the Horizon sub-postmasters and sub-postmistresses issue he was very fair in the information and responses he gave to the House.
I congratulate the noble Baroness, Lady May, on what I can describe only as a truly excellent maiden speech, which included her insights into the threats that climate change can bring and the risk to vulnerable people. I commend her record in relation to modern slavery, which has been very much recognised in our debates on these issues over the last few years. I echo the noble Lord, Lord Young, in saying that her sensitivity to the House of Lords when it came to the question of the balance of membership and appointments was highly regarded around the House.
We have had a really interesting debate. We have heard again from the noble Lord, Lord Lilley, who extended the argument that he started in our King’s Speech debate. Essentially, as he said then, he accepts that the science of global warming is rock solid but he is sceptical that tackling climate change and accelerating the move to net zero will lower energy bills and generate economic growth. I get his argument, but I think he would recognise that he had a mixed response even from his own Benches. I certainly warmed to the noble Lords, Lord Randall, Lord Willetts and Lord Ahmad. The noble Lord, Lord Deben, a former chair of the Climate Change Committee, put the case for urgent action.
It is noticeable that the noble Lords, Lord Moynihan, Lord Frost and Lord Strathcarron, and to a certain extent the noble Earl, Lord Leicester, came in firmly behind the noble Lord, Lord Lilley. The noble Lord, Lord Offord, while praising our ambitions, posed challenges over the 2030 target. I sense, as the noble Lord, Lord Frost, suggested, that some of the political consensus on net zero may be breaking down. That would be a great pity. It would be a pity if the Conservative Party under its new leadership retreated on net zero. To pick up the point about the need to take the public with us and to paint them a picture of where we are trying to get to on net zero, a lack of political consensus would make it much harder to get that over to the public, whose support we need for what are often going to be very challenging policies. There is no point running away from that. The noble Lord, Lord Browne, is right: the last Prime Minister relaxing the electric vehicles target had a really damaging impact on the sector and public confidence. My worry is that the Conservative Party as a whole seems to be retreating from its ambitions. With due acknowledgement to St Augustine, the Conservatives seem to be saying, “Oh Lord, deliver us from climate change, but not just yet”.
As the noble Baroness, Lady Hayman—whose leadership of Peers for the Planet I readily acknowledge and applaud—put it, the 2030 target is not a notional political game. The fact is that we cannot afford to slow down; we have to speed up. Despite the comments by the noble Lord, Lord Frost, on climate change we know that human activity has already resulted in warming of around 1.3 degrees Celsius above pre-industrial levels. We are seeing the impact already. This is no longer a theoretical construct for the future; it is happening now, here and globally. As the noble Lord, Lord Oates, said, in some developing countries the impact is having a huge consequence on individual vulnerable people already.
The paper circulated before this debate by Peers for the Planet and Exeter University quotes a number of people including Professor Penny Endersby, chief exec of the Met Office, who should know a thing or two about this. She says that if we do not limit temperature rises to 1.5 degrees Celsius, we will see
“many more weather and climate extremes”,
resulting in
“loss of food, water and energy security, leading to increased global conflict”.
The other point raised by the noble Lord, Lord Oates, is that the spread of disease cannot be confined to those vulnerable developing countries. In the end, we will suffer the impact as well.
The comment by the noble Lord, Lord Ahmad, about the threat to small islands was very well taken. I also noted his comment about climate finance and the need to support developing countries. I can confirm to him that we are resolutely committed to upholding previously agreed international commitments, such as the global forest finance pledge. He will of course understand that we are approaching crucial discussions at Baku in the next COP meeting.
The noble Lord, Lord Lilley, was a mite critical of the Committee on Climate Change. I thought that his noble friend answered that pretty robustly as well, but the Government respect the work of the committee. We rely on its independence to provide us with robust advice, which I believe it has done. The robustness of its research and evidence has been first rate. The committee was critical of the previous Government because of the inconsistent messages they gave on net zero, with the cancellations, delays and exemptions to certain practices undermining confidence. The committee has said to us that we are currently off track to hit the 2030 target of a 68% reduction in emissions compared with 1990 levels and that we have to move “fast”. It said:
“Action is needed across all sectors of the economy, with low-carbon technologies … the norm”.
I suppose that is one of my responses to the noble Lord, Lord Offord. That is why we have to move so quickly.
So what we have done? The noble Lord, Lord Young, asked how effective the Government’s approach is and the noble Baroness, Lady Hayman, discussed the power of government. In a sense, the philosophical question that the noble Lord posed was about whether this should be bottom up or led by the Government. I think that, on climate change, the challenge is so tough that government really have to take a lead.
This is what we have done in the last few weeks. We have got rid of the ban on onshore wind; consented a number of large solar farms; launched GB Energy to leverage in private sector investment; and reached a partnership deal between GB Energy and the Crown Estate to encourage yet more offshore wind development. I say to the noble Lord, Lord Lucas, that we have also signalled our support for nuclear power as the essential baseload of our electricity generation. We had a very successful auction round, which delivered a record number of new clean energy projects. We have announced funding for carbon capture utilisation and storage projects, which are very important for the industrial processes of the future. We have set up an office for clean energy jobs, because of the whole discussion about the skills agenda, and published an industrial strategy to support key growth-driven sectors, including clean energy.
Unlike some members of the party opposite, we actually believe in an industrial strategy. It is not a question so much of government picking winners as of trying to support, as much as we can, from the centre, those sectors that clearly have great potential to grow and to export. The central argument is that investing in clean energy at speed and scale can help tackle the climate crisis. We can create good-quality jobs, drive investment, protect bill payers in the long term and, crucially, ensure energy security.
On the question of why the UK should be taking the lead, my answer is: why on earth not? The noble Lord, Lord Deben, and the noble Baroness, Lady Hayman, were so right. We have a strong vested interest in the world achieving net zero as soon as possible and we can have a pivotal role in persuading other countries to follow our example.
The question of costs and economic growth was focused on by the noble Lords, Lord Moynihan, Lord Lilley, and the noble Earl, Lord Leicester. The noble Lord, Lord Lilley, referred to Dieter Helm’s review for the previous Government. I have now had a look at least at the summary of the report, in light of his King’s Speech remarks. What is noticeable is that the previous Government ducked it when they had the results of the review. They then conducted what they called a “listening exercise”, and we all know why Governments do listening exercises—because they have received a report they did not like. As far as I know, the previous Government are still listening, because it was never brought to a conclusion. I suspect that means that this is not a simple area of cost comparisons.
I know that the noble Lord, Lord Lilley, is critical of the use of levelised costs to get a fair comparison—he said that, too, in the King’s Speech debate—but it does attempt to compare the costs of different generating technologies over different timescales: essentially, over the lifetime of the generator.
The noble Earl, Lord Leicester, asked: can we afford the transition to net zero? An assessment by the Office for Budget Responsibility in 2021 concluded, as the noble Lord, Lord Deben, surmised, that the
“costs of failing to get climate change under control would be much larger than those of bringing emissions down to net zero”.
My noble friend Lord Davies was critical of an Answer I gave to a Written Question yesterday on AMOC. He is concerned that the risk assessment of the actuarial profession is not fully recognised. The noble Baroness, Lady Bennett, also referred to this. I say to him that that Answer came after very considered advice, but of course I will take away his comments. I take his point about actuaries: who could doubt the importance of actuaries in forecasting the future? But even they do not always get it right.
There is the question of course of whether in our drive to net zero we are impacting our own industries and importing more from abroad. Of course, I do take that and I accept that we will never be a leading manufacturer in all renewable technologies. However, we can assemble, and we are now assembling, many of those imports, so a lot of the value comes to British companies and workers. We also have many opportunities to export our skills as well. For instance, the noble Lord, Lord Browne, referred to our world-leading R&D capability, which is capable of export in many ways too.
There are areas of technology where we have a great opportunity to export. I cannot go into the details of, for instance, the assessment by Great British Nuclear of the small modular reactor technologies at the moment, but British companies are involved in development. It is just worth noting that Rolls-Royce has a contract with Czechia to produce a fleet of nuclear reactors in that country. There are many other opportunities as well.
The noble Lord, Lord Strathcarron, spoke about the issue of green jobs. We reckon that around 640,000 people are employed in green jobs in the UK. That is a rise of 20% even from 2020 to 2022, which I would have thought those in the party opposite would wish to acknowledge; it happened under their stewardship. The noble Lord, Lord Frost, suggested that we wanted the fewest, highly productive jobs, and I agree with him. But these jobs are often very high-quality jobs in a growing sector and are very well paid. We surely need to embrace that. One of the issues we face is that, in many of those sectors, there may now be a shortage of people coming forward. We need to work very hard to make sure we have enough people who can contribute in those sectors.
I have responsibility for the nuclear industry in my department. We have a target; we need 40,000 more people in that sector by 2030. The national nuclear skills council projects that, by the 2040s, we will need well over 100,000 people. That is a huge opportunity for really high-quality skilled jobs. They can be at apprentice level, graduate level or, indeed, PhD level. It is an industry which, like many other low-carbon industries, really has a future.
The noble Lords, Lord Offord and Lord Strathcarron, were critical of our approach to oil and gas, specifically oil and gas production in the North Sea. North Sea oil and gas production will be with us for many years to come and we will need oil and gas for many years, but as the noble Lord, Lord Offord, knows, the UK continental shelf is described as a super-mature basin. Since 2000, its production has gone down by about 7% to 8% per year on average. The key challenge for us is to maintain that field, because of its strategic importance, but to allow it to transition as we change the energy structure. I totally agree with the noble Lord about the people working there and their skills. He is right that many of them have transferred to the offshore wind sector. I believe they can transition to other skilled jobs as well.
I was asked a number of questions about the externality of carbon emissions. The UK prices emissions in the UK Emissions Trading Scheme, but I will write to noble Lords with some of the details of that.
Are we confident about private sector investment? Yes—all the indicators we have show that many private sector companies want to invest in this new agenda.
Many other points were raised. I say to the noble Lord, Lord Inglewood, that I asked my officials for quick advice on using the ark, but answer came there none. I have already referred to the point made by the noble Lord, Lord Lucas, on nuclear. On his point about data centres and advanced nuclear reactors, we have recently seen some exciting developments in the US. It would be good to see similar developments here, and we clearly need a much more flexible siting policy to allow that to happen. We are working on that. I have met a number of companies that are very interested in investing in AMRs, linked to either data centres or industrial centres. They have told me that they do not need any government money, but we will see.
The right reverend Prelate the Bishop of St Albans and the noble Baroness, Lady McIntosh, made some telling interventions on rural issues. I take their point about farmers, food security and the need to embrace them in this agenda. We worked with the NFU on that when I was a Defra Minister many years ago, and we clearly need to carry on doing so.
The noble Lord, Lord Willetts, in particular, as well as the noble Baroness, Lady McIntosh, raised electric vehicles. We had a debate on this last week, and the points raised there are being taken forward by the Department for Transport. If the noble Lord and the noble Baroness read Hansard, they will see that their points on issues in rural areas and on the differential in charging were very much picked up.
I of course understand the concerns expressed by the noble Baroness, Lady McIntosh, about the grid. No one really likes grid pylons but we have to do something about the grid network—we have to invest in it. I take her point about local incentives. I recently went to Biggleswade solar farm in Bedfordshire, where the company makes a contribution to local community projects each year—churches and things like that—which goes down well. We are looking at that issue.
This has been an excellent debate. I thank the noble Lord, Lord Lilley, for his willingness to raise sometimes challenging issues. We believe we are delivering on our manifesto commitment. We need decisive action on both climate change and energy security. We will have a big positive impact on jobs and prosperity. We must press on and we will.