Net-zero Emissions Target: Affordability
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Lord Sharma (Con)
My Lords, my noble friend Lord Offord noted that, under the UK’s leadership of COP 26, we went from less than 30% of the global economy covered by a net-zero target to nigh on 90%. That would not have been possible without the then Conservative Government showing domestic leadership and ambition—first, in our 2030 emissions reduction targets and then by having enshrined into legislation net zero by 2050. Why did countries sign up to net zero? Why did they sign up to the Glasgow climate pact? Why did they decide that it was time to tackle and take action against climate change?
First—and a number of noble Lords have noted this—countries acknowledged the science that human activity is unequivocally responsible for rising temperatures. Secondly, countries recognised the negative impact of a changing climate on lives, livelihoods and infrastructure in their own countries, and the growing economic and human cost of inaction. I have to say that many of those economic estimates for inaction that have been put forward recently are stark. Unless the world is prepared to act collectively, we will be heading into economic and environmental planetary insolvency. I do not think that that is putting it too strongly.
Thirdly, countries and businesses recognise that the drive to net zero offers enormous economic opportunities for jobs, growth and inward investment. Yes, we have seen some recent geopolitical headwinds, but the reality is that many countries and companies—not least in Asia, where I was a few weeks ago—are sticking with their climate commitments and continuing to invest in clean energy, electric vehicles, hydrogen, SMRs and energy efficiency. They are building their economies for tomorrow.
I agree with noble Lords who have talked about the G20, the biggest emitters, having to step up and do more, but the reality is that every country needs to play its part. Nearly a third of global emissions come from countries like ours whose individual territorial emissions are 1% or less of the global total. It is vital that we all act.
I turn to the cost of net zero in the UK. The Climate Change Committee brought out a report a few weeks ago on the seventh carbon budget and it said that the net cost of net zero will be around 0.2% of GDP per year, on average. The CCC expects that upfront investments will lead to savings during the seventh carbon budget period, and much of this investment is expected to come from the private sector. It is also worth emphasising that the CCC’s net cost estimates have been falling significantly: the estimate was between 1% and 2% of GDP in 2008, it was less than 1% in 2019 and it is 0.2% of GDP today. This is driven by cheaper and more efficient green energy and technologies. I welcome the earlier comments from the noble Lord, Lord Stern, on clean energy.
As there is for the rest of the world, for our country there is a big cost of inaction on net zero. A number of noble Lords, including the noble Baroness, Lady Curran, referenced the OBR’s fiscal risks report. She talked about the 2021 report, but the most recent one has climate change in the top three long-term pressures on the public purse. That report is clear that rising temperatures impact productivity, agricultural output, energy costs and, ultimately, people’s lives and livelihoods.
On the flip side of that coin, there is a big economic opportunity, which a number of colleagues have talked about, in pursuing net zero. The private sector absolutely gets this. Colleagues have referenced the CBI report showing the 10% increase of growth in the net zero sector last year; it is now generating more than £83 billion in gross valued added and supporting almost 1 million jobs in our country. That number is growing, and private investment has driven that growth. I agree that it is key to get more private sector money flowing.
At this point, I want to refer the House to my entry in the register of interests, particularly my chairmanship of the City of London’s Transition Finance Council. The council’s aim is to leverage the UK’s existing strengths to become the best place in the world to raise transition finance in support of the UK’s and the world’s net-zero ambitions. As part of the Transition Finance Council, we will play our part to try to get more private sector money flowing.
Then there is the issue of cross-party consensus. I think that it is cross-party consensus on net zero over the past two decades, which many of us in this House have striven to maintain, which has given the private sector confidence to invest in the UK. I personally believe that a go-slow on net zero will have seriously negative economic, environmental and reputational impacts for the United Kingdom and, frankly, could end up costing the British taxpayer a lot more than keeping on track.
I want to end, as a good Conservative, with the words that Margaret Thatcher said in 1989 at the United Nations:
“The environmental challenge that confronts the whole world demands an equivalent response from the whole world. Every country will be affected and no one can opt out”.
Those are the wisest of words, which every political party should take heed of.
The Minister of State, Department for Energy Security and Net Zero (Lord Hunt of Kings Heath) (Lab)
My Lords, I thank the noble Lord, Lord Offord, for opening the debate. Like the noble Baroness, Lady Hayman, I have been enormously impressed by the quality of the contributions that have been made by so many speakers. I congratulate my noble friend Lord Rees of Easton on his excellent and memorable maiden speech. His tribute to the Prince’s Trust was particularly noticeable, as was his family history and his extraordinary life journey. We await his further contributions eagerly; I am sure he is going to make a huge contribution to your Lordships’ House in the years ahead.
This has been an interesting debate. The noble Lord, Lord Offord, argued that he was not a climate change denier and spoke about his presence at COP 26, where he advocated for net zero with the noble Lord, Lord Sharma, to whom I pay tribute for all the work he did in his leadership there. The noble Lord then argued that we are no longer energy-independent and we are paying a high price with what he called the deindustrialisation of our country. When it comes to deindustrialisation, I remind him of the Thatcher legacy, which decimated so many industries in our country.
This Government are absolutely focused on the forthcoming industrial strategy. Indeed, my noble friend Lady Gustafsson, sitting beside me, is spearheading the investment that we are to generate in this country because of our great potential. I am convinced that it is the green economy that will fuel much of that investment and growth.
Many noble Lords, including the noble Lord, Lord Offord, suggested that we cannot really afford our net-zero ambitions. The response of the Government is not only that we can afford our net-zero ambitions but that we must—and that we have to drive this as quickly as we possibly can. In a sense, the challenge from many noble Lords to the Government is not that that we are going too fast; it is that we need to accelerate our efforts. Indeed, in our debates on the Great British Energy Bill, that was very much the thrust of many noble Lords’ contributions.
The noble Lord, Lord Teverson, the noble Baroness, Lady Hayman, and the noble Earl, Lord Russell, referred to the loss of consensus, which is indeed very unfortunate. The noble Lord, Lord Sharma, made a very pertinent contribution on that point, suggesting that our consensus laid the foundation for giving confidence to the private sector. I agree with that. I will come on to nuclear energy shortly, but the fact that we have political consensus about the importance of the nuclear sector is vital to long-term investment. Noble Lords will know that, in nuclear, you are investing for decades, so that political consensus is vital.
Another point I would make in response to the noble Lord, Lord Offord, is that I do not believe that suggesting that we should reverse our policy and rely on a declining, super-mature basin, such as the UK continental shelf, is the way forward. I do not underestimate the work that has been done in the North Sea and what the workers have done—and we will need a strategic gas reserve in future—but it is not the answer to the overall issues that we face.
On the climate science, it is absolutely clear that climate change is happening. We are seeing it already; it impacts our everyday lives. As the noble Baroness, Lady Jones, put it, its effects range from severe and damaging heatwaves to heavy rainfall and floods, and from a loss of diversity to an increased risk of wildfires. The noble Lord, Lord Sharma, spoke of the inevitability of countries experiencing economic and environmental insolvency unless we take action. My noble friend Lord Rees spoke of the wider social degradation that we are threatened with. My noble friend Lady Curran, in facing up to the hard facts, was clear that we have to tackle this issue—and very quickly indeed.
On energy security, surely the noble Lord, Lord Stern, was right to discuss the importance of ensuring our energy security and resilience. In fact, the only way to protect bill payers, in the long term, is to speed up the transition away from fossil fuels and towards homegrown clean energy. On the benefits of securing our energy security, the OBR has assessed that responding to future gas price shocks—let alone climate damage from a warming world—could be twice as expensive as the direct public investment needed to reach net zero. Energy security is key to our economic resilience. With households and businesses shielded from damaging price shocks, we will have a more stable and adaptable UK as a result.
I do not underestimate the issue of prices. Of course, it is serious for both businesses and domestic customers. I agree with the noble Baroness, Lady Hayman. I gently point out to the noble Lord, Lord Offord, that the electricity market structure we have and the reliance on the international gas market are inheritances from the last Government. The noble Lord, Lord Stern, said that the best way to protect bill payers and mitigate the energy price spikes we saw in 2022 and 2023 is to deliver clean power by 2030. Low-cost and low-carbon energy is the way forward.
On the issue of what is driving the increase in prices, I say to the noble Lord, Lord Offord, that it is gas prices that are still mostly setting the GB wholesale electricity price, which has driven the recent price cap increases. Around 80% of the increase to the price cap level between quarters 1 and 2 of 2025 is a consequence of the increase in the wholesale price of gas. The noble Lord mentioned social cost and the other costs that are levered on top of that, but I remind him that the structure we have is exactly the same as used by the last Government. As we have more low-carbon sources of generation and flexibility on the system, NESO analysis has shown the greater protection a clean power system provides against gas price spikes.
The noble Baroness, Lady Jones, and I will have to agree to disagree on the value of nuclear. We think it is an absolutely essential baseload for the future electricity structure. The noble Lord, Lord Howell, and I agree on the importance of nuclear, but I fundamentally disagree with his remarks on Sizewell C. It is not a white elephant; it is a crucial development. We are moving towards a final investment decision. I have made the point to the noble Lord that it is a replication—80% above ground—of Hinkley Point C. Following what has been learned from the issues faced over unit 1, the productivity in unit 2 at Hinkley Point C has improved by 30%. The lessons are then being translated to Sizewell C. Certainly, a 3.2-gigawatt power station that will power 6 million homes is a really important part of our future low-carbon structure.
The noble Lord, Lord Teverson, raised a very important point on warm homes. He knows that we have ambitious warm home plans. We have committed an additional £3.4 billion over the next three years, but I accept that this is an enormous challenge that we face for the future.
My noble friend Lord Berkeley raised the issue of off-grid homes. We are looking at solutions to that, and I am happy to have further discussions about it.
On the actual issue of whether we can afford the move to net zero, I say to my noble friend Lady Curran, the noble Lords, Lord Stern and Lord Freyberg, and other noble Lords that surely this has to be seen not as a cost but as an investment in the future. As the noble Lord, Lord Turner, put it, the original Committee on Climate Change estimates were overpessimistic, as the costs have dramatically come down.
We should surely turn this around and see the transition to net zero as the economic opportunity of the 21st century for this country. We have huge opportunities here. It is a chance to create hundreds of thousands of good jobs and drive new investment in all parts of the United Kingdom, benefiting people and businesses alike. The nuclear industry is a classic example where we started from scratch to build new nuclear. The jobs that are being created in areas of the country that have found it very difficult to develop new jobs have an amazingly positive impact. This is what investment in green energy and net zero can bring to us.
A number of noble Lords referred to the CBI report. It is extraordinary: there was a 10% growth in the green economy in 2023 compared with 1% growth overall. If I remember rightly, the report said that there are 950,000 people now working in what one would call the green economy or the net-zero economy and its supply chain. I am surprised that the noble Lord, Lord Offord, does not take some credit for what has been achieved, because that is a very credible achievement on which we want to build in the future. The Committee on Climate Change, in a review of external studies, found that up to 725,000 net new jobs could be created in low-carbon sectors by 2030. I suspect that is another underestimate of the likely outcome.
The other issue here is the long-term consequences of not investing in net zero. There have been so many reports now, and they are objective. The Office for Budget Responsibility—I know that noble Lords sometimes disagree with its conclusions, but it is no soft touch—has been absolutely clear that delaying the move to net zero will cost us even more in the long term.
I was very interested in the right reverend Prelate’s remarks about the contribution of the Church, which I very much acknowledge. I am sorry that some churches have had difficulty in getting planning consent to put solar on their roofs, of which I have some knowledge in the city of Birmingham, but their contribution is very much valued, as is that of many community groups.
My noble friend Lord Rees was absolutely right in exemplifying the work that has been carried out in Bristol but also the need for us to strengthen engagement between central and local government and the role of local authorities in this. We have a Local Net Zero Delivery Group, which met first on 26 February 2025, but I am very happy to talk to my noble friend about how we can build on that work and link with local authorities in the way that has been suggested.
The noble Lord, Lord Howell, spoke of the potential of private finance, as did the noble Lords, Lord Freyberg and Lord Sharma, and my noble friend is very interested in spearheading the Government’s work in encouraging that investment. The UK has many opportunities to crowd in private sector investment. We are a very stable country, we have a legal system that is admired, we have world-leading financial mechanisms, transparent market frameworks and targeted public investment. That is a very good foundation. We estimate that we will need £40 billion of investment mobilised annually over the next five years to reach clean power by 2030. My department’s analysis of Bloomberg New Energy Finance data estimates that total low-carbon investment of around £130 billion will be needed per year up to 2040, which is up from £51 billion in 2024.
We have made significant progress in attracting investment into green sectors. Around the 2024 international investment summit, £34.8 billion of private investment into low-carbon sectors has been secured, ranging from solar to offshore wind and its supply chain and battery energy storage.
Why the UK? That is a question that noble Lords opposite have asked me, particularly during the passage of the Great British Energy Bill. The noble Lord, Lord Sharma, put it so eloquently, because he linked global leadership to action by this country. The two have to go together; we have to show by example if we seek to give global leadership. Why on earth should we not seek that? I find it very puzzling when noble Lords in this House seem to suggest that we should sit back and be a backwater. Surely we have so much to offer. Our role is recognised. It is about the point that the noble Lord, Lord Sharma, made: yes, we are responsible for about 1% of global emissions, but if you put all the 1% of global emissions countries together, we pack a pretty big punch.
The fact is that, whatever geopolitical waves and uncertainties we are going through at the moment, this is an unstoppable movement going towards decarbonisation and net zero. The noble Lord, Lord Fuller, raised a number of points about the global position, and he mentioned China. It is just worth remarking that the International Energy Agency has reported that there will be an absolutely massive increase in the use of renewable energy in China over the next five years.
On the subject of global leadership, I am proud that we were the first country to set legally binding carbon budgets and the first major economy to establish a net-zero target in law. I pay tribute to the previous Government for what they did and the consensus that they achieved.
The noble Baroness, Lady Hayman, said that now is not the time to lose our nerve. I agree. That is why making Britain a clean energy superpower is one of the five missions of this Government in delivering clean power by 2030—which is the base, if you like, for accelerating to net zero by 2050. This, surely, is the answer to the challenges we face on climate change and energy security, affordability and sustainability. They all point in the same direction.
We are also committed to a fair and equitable transition. I accept what the noble Earl, Lord Russell, said about the impact on communities and people. I also accept that we have to explain more about what we are doing and why we are doing it. The real world impact is surely this: not that we are going too slowly, but that we must take action now. The challenges we face in this world are so profound that moving to net zero as quickly as possible is surely what we have to do. I am very grateful to noble Lords for the contribution that they all made to this excellent debate.