Former World Bank economist warns of energy transition’s fiscal risks
By Paul Homewood
London, 5 March – In the run-up to Budget Day (6 March), a new paper by a former World Bank economist and published by the Global Warming Policy Foundation warns that the UK’s current decarbonisation timeframe is unrealistic and threatens to be economically and socially unsustainable.
Professor Gordon Hughes’s paper comes two weeks after the “European Climate Investment Deficit report” warned that EU member states would have to fill an annual investment gap of €406 billion if its 2030 climate goals are to be met.
In his paper, Hughes reveals that a realistic estimate of Britain’s planned energy transition also has an astronomical price tag. Large investments in capital-intensive technologies for producing and consuming non-carbon energy is estimated to be a minimum of 5% of GDP for the next two decades and might easily exceed 7.5% of GDP.
Prof Hughes said:
“There is no chance of borrowing an additional 5% or more of GDP annually for two decades to finance the energy transition. The only viable way of financing the UK’s energy transition is a drastic reduction in consumption to free up resources for the huge level of new capital investment required. Realistically the reduction in private consumption would have to be 8% to 10% for 20 years. Such a shock has never occurred in the last century outside war periods and even then never for more than a decade.”
He added:
“Ignoring the macroeconomic and fiscal constraints will almost certainly lead to yet another long-running policy fiasco like HS2 with results that achieve little in concrete terms. Rather than pretence and muddle, it would be better to extend the period and pace of the energy transition to match the resources that can realistically be afforded.”
Lord Frost welcomed Prof Hughes’s economic realism and said:
“The message in this briefing note could hardly be more urgent. Either we must be honest with the public and be clear that they are going to have to pay at a currently unanticipated level. Or we must extend the time period for the transition – that is, delay the net zero 2050 target, perhaps out till 2070 or 2075.
Failure to do either – sadly, perhaps the most likely outcome – will mean that we simply muddle on, pretending we are making progress, spending at high levels, but achieving little. Meanwhile the rest of the world outside the West will look on, incredulous at this unprecedented act of economic self harm.”
Gordon Hughes: Financing the energy transition: Do the numbers add up? (pdf)
Contact
Professor Gordon Hughes
gordon.hughes@cantab.net
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NOT A LOT OF PEOPLE KNOW THAT 
The world won’t look on incredulous. They will see opportunity and rush in to fill the void.
The RoW will come on holiday to visit Europe ( inc UK) to admire the old crumbling buildings etc just like people have gone to Cuba.
I think I need to start learning the Banjo to provide tourist entertainment!
Not sure that they will as there will be nowhere to stay, nothing to eat and unless they come in their own boat no way of getting here, and importantly, away again.
when will this madness ever end? Only Reform UK party aims to get rid of Nut zero in its Policies. They are our only hope of injecting some sanity into the debate
Part of the astronomical price tag is due to how wind farms are gaming the system. I noticed on Bloomberg two topics,
Why Wind Farms Are Getting Paid Millions to Turn Off.
UK Wind Farm to Pay £5.5 Million for Breaching Market Rules
As they are behind a pay wall I googled them and found other publications had also covered the topics. I haven’t seen these covered by the BBC.
‘Strategic behaviour by wind generators: An empirical investigation’ Mario Lati, Michael Watson Deparment of Economics University of Bari, Italy and University of Warwick,UK.
“This paper shows that Scotland presents a prime example where generating firms have secured favourable deals but appear to have taken strategic advantage of infrastructure constraint and rules in their operation. The concentration of British wind generation in Scotland provides clear constraints on the grid and in all likelihood places particular wind farms at an advantageous position in exploiting these constraints|”
“Our results are consistent with Scottish wind farms gaming the system”
International Journal of Industrial Organisation 89 (2023) 102942 Elsevier
“Large investments in capital-intensive technologies …” How can anyone make an estimate of the solutions of a non-problem. Whether 5% or 25% of GDP is wasted — TheClimate™ won’t notice or care.
No “energy transition” is needed and will result only in people drinking flat beer.
The last line of his statement says the quiet part aloud, the UK is in for “an unprecedented act of economic self-harm.” That is the entire idea behind Net zero–deny personal consumption by the unwashed, and save it all for the Party of Davos.