The impact of Covid on government spending on zero carbon


Covid 19 and Zero Carbon both stretch government borrowing

“Why house prices may dip but will not crash” – Merryn Somerset Webb (FT January 15, 2021), contains the following sentence:

“In 2008, the UK spent 1.5% of gross domestic product to alleviate the global financial crisis; this time we have spent 26% of GDP.”

Just take a moment, 26% of GDP! This is breathtaking and the important point is that most of this money has been borrowed. The UK’s 2020 GDP is estimated by the World Bank at roughly $3 trillion (World Bank figures are US$ for comparative purposes). So, we have spent roughly $750 bn (£550bn) on Covid.

When it comes for additional government expenditure on achieving zero carbon this will inevitably have to be funded by additional borrowing in addition to this existing debt.

These numbers are enormous, my book came up with a figure of £1tn for the expenditure to achieve zero carbon in the UK and that is probably conservative. Financing this for government would have been a challenge, given the fiscal impact of Covid that challenge just got significantly greater.

© Chris Lenon and http://www.zerocarbonourchoice.com  2020-2021. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chris Lenon and www.zerocarbonourchoice.com with appropriate and specific direction to the original content.

New green deal and job losses (1)

Advocates of the new green deal claim large numbers of new jobs created by the new green economy, this is correct, there will be new jobs but most of them (outside of construction) will be more highly skilled due to the technology involved. What is not quantified, is the number of jobs which will be lost as carbon is removed from the economy and that a high proportion of those jobs are lower skilled jobs. A search on papers produced emphasis the new green jobs but do not quantify the distributive effects skilled vs lesser skilled.

What follows is the start of a discussion of the list of sectors and occupations that will be affected. A serious study of the numbers is needed.

Moving Carbon

Carbon goods (oil, coal and lpg) comprise 40% of total sea freight by volume. There are 7,400 carbon tanker ships compared to 5,150 container ships. The consequences of not shipping carbon on shipbuilding, port services and maritime employment will be significant on a global basis.

In addition, in country transport of carbon is a significant employer. Tanker lorries for oil, petrol and lpg and lorry and train transport of coal. Port facilities to handle carbon imports and exports. In a zero-carbon economy, all this investment will be redundant and its difficult to see alternative use. All these jobs will disappear.

13% of rail freight in the UK is oil or coal. 1500 road tankers in the UK distribute petrol and diesel. There are 8,385 petrol stations in the UK. All these jobs will disappear.

Flying

Much is being written about the need to tax airlines given the tax subsidy currently provided by zero fuel duty and zero vat. If airline fuel includes a carbon price as well, if the real carbon cost of flying is taxed, the cost of flying will increase and the numbers flying decrease.

To give some numbers, Heathrow is claimed to generate 76,000 to 190,000 jobs.

“Heathrow is already one of the UK’s largest single-site employers with more than 76,000 people directly employed on the site. In the surrounding area, Heathrow supports a total of 114,000 jobs and accounts for one in five (22%) of local jobs.” Source “The Promise of Heathrow”.

“Heathrow expansion will create more than 120,000 new jobs and has the potential to end youth unemployment in the five local Heathrow boroughs.”

“Based on figures from 2011, in Scotland, Glasgow and Edinburgh airports directly employ a combined total of around 7,500 people, whilst Birmingham employs 7,500 and Bristol 2,700. Manchester airport directly employs around 20,000 people across the north west. House of Commons answer.

The Air Transport Action Group claims “There are over 10 million women and men working within the industry to make sure 120,000 flights and 12 million passengers a day are guided safely through their journeys. The wider supply chain, flow-on impacts and jobs in tourism made possible by air transport show that at least 65.5 million jobs and 3.6% of global economic activity are supported by our industry.”

1,200,000 work in airports in the US.

 Let us assume that flying reduces by 25% (which is conservative) as ticket prices rise to reflect the carbon cost of flying. The impact on Heathrow could be roughly 50,000 jobs. Manchester 5,000, Scotland 1,875, Birmingham 1,875 and Bristol 675.  If we extrapolate globally and use the ATAG figures, then globally this is a loss of 2,500,000 jobs. In the US, it is 300,000 jobs.

Transparency

We need to transition to zero carbon given the environmental consequences of the alternative. But advocates need to be transparent about the costs of this transition, and in particular about the employment impacts. If the population is going to accept the transition, they need to understand the consequences.

I will write shortly about other sectors.

© Chris Lenon and http://www.zerocarbonourchoice.com  2020-2021. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chris Lenon and www.zerocarbonourchoice.com with appropriate and specific direction to the original content.

Can the poor afford zero carbon?

A number of reports have come out claiming that zero carbon can be achieved at little cost, recently for the EU. Many of the advocates of the Green New Deal are on the left. I’m not sure that these advocates have resolved the dilemma of how the poor afford zero carbon technology. There is no magic money tree for new zero carbon technology, either the government funds it through taxation or borrowing, consumers pay or investors in the new technology receive lower returns to reduce the cost to the consumer.

A number of stories about the cost of green technology for the poor, question this. The Independent has reported that 1/3rd of UK adults have no savings, other reports show over 40% of UK adults have less than £1000 savings. So how are these people going to make the investment in an electric car or an air source heat pump? And if not they, who?

Although the price of green technology is falling, it is still a large capital outlay. So, financing this investment for the poorer half of the population is a big issue. A report by the RAC in November 2020, claimed that 30% of the UK population could not afford even the cheapest electric cars. This is regardless of the fact the running costs are lower, the barrier is buying the electric car.

When I posted on the zero carbon Britain Facebook group about air source heat pumps, more than half the comments were about them being too expensive, from a group which supports zero carbon! All this suggests that financing zero carbon technology is a major issue. This may be why the Finance Industry is such a strong advocate – they will make significant returns on the investment cost of zero carbon technology.

For domestic heating and hot water, this problem is aggravated for poorer 50% of the population, by their probable lack of control over their housing. They are more likely to be renting from social housing or private landlords. So, it is those landlords who will need to make the investment in zero carbon domestic heating. But will they without regulation?

The question is who will fund the investment in zero carbon technology for the poorer 50%? How will the landlords. letting to this group be persuaded to invest in zero carbon heating? What will be the effect on their returns? How will the acquisition of electric cars be affordable for the poorer 50%?

© Chris Lenon and http://www.zerocarbonourchoice.com  2020-2021. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chris Lenon and www.zerocarbonourchoice.com with appropriate and specific direction to the original content.

London Electric cabs – Investment Cost

London Electric cab charging – Source The Guardian

I talked to a London cab driver about his electric cab recently. It costs £60,000 compared to £40,000 for a diesel cab. He gets 70 mile range between charges and charges the cab at home and then in London as he drives around, but hopes the range will extend. He was very happy with it, and saw the environmental benefits of electric. He was considering solar panels to help the charging with green electricity.

The driver told me he was from Somalia originally. I thought that he could see issues that many of us do, but we don’t spend their own money on. I’ve recently written about air source heat pumps and receive a plethora of comments about the capital cost compared to a gas boiler. About how difficult it is to do this, to invest in an air source heat pump, from a forum which promotes Zero Carbon Britain. There is something wrong here, people advocate the change to zero carbon but they don’t think about how it is to be paid for, or they think that someone else will pay. Someone else won’t pay, there isn’t a money tree for these investments, we will pay even if the government provides financial support. Instead of assuming magic economics, we need a serious debate about how the investments to achieve zero carbon will be paid for and we all need to be transparent about the scale of the total investment.

How many of us will personally invest £60,000 in green infrastructure or have done? And yet a London cab driver, originally from Somalia, is prepared to – actions speak louder than words and the choices we make are key to a transition to zero carbon.

© Chris Lenon and http://www.zerocarbonourchoice.com  2020. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chris Lenon and www.zerocarbonourchoice.com with appropriate and specific direction to the original content.

Air Source Heat Pumps – viable carbon free domestic heating?

One of the larger contributors to UK emissions is domestic power use for heating, hot water, etc taking 15% of UK emissions. The main fuel source for heating in the UK is gas with 63% of the total. The primary option for zero carbon emission heating (based on used zero carbon electricity) is an air source heat pump. Hydrogen may be an option in due course, but it will require a significant investment in renewable power as currently over 90% of hydrogen is produced using carbon sources.

Source Ovo Energy

So, Air Source heat pumps or Ground Source heat pumps are the main option for carbon free residential heating and hot water (if they use non carbon electricity). This is simple technology, outdoor ambient heat is transferred to a coolant using a heat exchanger coil, this coolant is compressed and the temperature increased, this heated coolant transfers heat to the hot water store through a heat exchanger coil. A “standard” domestic air source heat pump can extract useful heat down to about −15 °C (5 °F).

I had an air source heat pump installed earlier this year. The main difference from conventional central heating is that it operates at a lower background temperature throughout 24 hours a day. Its sophistication is that based on sensors outdoors that will adjust the temperature of the water in the system.

The controls of the Unit .

My calculations are that it is competitive with gas and four times as efficient as an electric boiler. The investment cost is higher than a gas boiler, but the maintenance costs lower. The costs are further reduced if electricity generated from residential solar is used.

The issue for the UK is that a conventional plumber’s training is not sufficient for installing and maintaining air source heat pumps. As a result, there may be logistical issues in installing the over 20 million systems that would be needed in the UK. Only 207,000 systems had been installed in the UK by 2018 so the rate of installation would have to increase dramatically. There are UK producers of air source heat pumps, but most pumps fitted in the UK are imported.

My experience of the air source heat pump is favourable. It is known technology capable of mass rollout. The take up to date is disappointing despite the Renewable Heat Incentive support. While new homes will have to fit non carbon heating from from 2025, the question is will consumers switch to this heating? Zero carbon is our choice as consumers – will we make that choice?

© Chris Lenon and http://www.zerocarbonourchoice.com  2020. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chris Lenon and www.zerocarbonourchoice.com with appropriate and specific direction to the original content.

China pledges to achieve net zero emissions by 2060 – Why?

There has been a strong reaction to the announcement that China (the world’s largest CO2 emitter 28% of global emissions) will achieve net zero emissions by 2060 and the pressure this may place on the equivocal position which the US maintains on emission reduction.

The announcement by Xi Jinping was light on details about what net zero means in the mind of the Chinese government, but some of this will become clear when the next five year plan emerges. Some have been sceptical about the timing, to quote the New York Times:

“Pledging to do more on the climate could at least counterbalance the rising anger China faces in Europe and beyond over its record of oppression in Xinjiang and Tibet, its territorial conflicts in the Himalayas and the South China Sea, military threats toward Taiwan and a sweeping crackdown on Hong Kong’s autonomy.”

Undoubtedly their may be some short-term benefits from the announcement, but this is a major policy change, not a short term tactical ploy, so what are the reasons for it?

In my book Zero Carbon Our Choice, I set out the difficult decisions and the scale of change in moving from our current carbon economy to a net zero economy and how it affects all sectors of the economy, private as well as public and business. Democracies may struggle to achieve agreement to these changes in the timescale needed to achieve the target.

China has the advantage that it can make policy happen relatively quickly. A brief digression. A western visitor asked the manager of a Chinese steel mill how they could expand to justify the increased iron ore purchases they were discussing. The manager said there would be a new steel plant over there pointing at the neighbouring town. When asked what would happen to the town, he answered, we will move it. China has an advantage in achieving dramatic change quickly.

China suffers, like some other countries from poor air quality. Net zero is a way to tell the population that this will be sorted out.

Net zero by 2060 is a long time away, it is a major policy change, but its achievement won’t be clear for a long time. It does however provide a policy framework which only the Communist Party can achieve, and it will be undoubtedly branded in the same way as the economic leap which started in the eighties.

China holds a dominant position in the production of equipment for a net zero global economy. In solar panels and wind turbines and as the largest manufacturer of electric cars and buses and with a strong position in battery production. It is able to implement infrastructure projects like the Three Gorges dam. China can exploit this technological lead. It also has a dominant position in rare earth mining and has mining joint ventures around the world which ensure security of supply for its manufacturers.

As a form of soft diplomacy, this policy change plus its dominant position in supply will be very powerful.

The key signs about how serious China is on net zero will be in its policy on coal powered electricity generation. Given the life of a power station, it will need to start a moratorium on building coal plants in the 2020s and definitely by 2030. As this is a net zero pledge, it will be interesting to see how aggressive China is in using offsetting. Will it be just domestic or will China invest in offsetting elsewhere as well? What will the target for new trees in China be (it will have to be very big).

For all the reasons above the announcement makes sense and gives China a big policy to come out of the Covid era. China has the levers of power domestically to achieve it and the manufacturing sector which will benefit from an acceleration of investment in renewables. The devil will be in the detail. The interesting question will be how does the US respond and how does this affect the balance of power between China and the US?

© Chris Lenon and http://www.zerocarbonourchoice.com  2020. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chris Lenon and www.zerocarbonourchoice.com with appropriate and specific direction to the original content.

Schroders work at home and Metropolitan life – Consequences

“Fund manager Schroders will allow thousands of its employees to continue working from home even after the pandemic, marking a huge shift in the way the City works.

In a recent interview, Schroders’ chief executive Peter Harrison said the pandemic had “changed society irrevocably”.

“The contract between society and business has changed forever,” he said. “The office will become a convening place where you get teams together, but the work will be done in people’s homes.”

This is likely to raise fresh fears among government figures that the shift in working patterns triggered by coronavirus will be permanent.” City am.

This illustrates the change being considered currently and the scale of that change. We are possibly seeing peak metropolitan life. While the Schroders decision is covid provoked, there are other carbon emission issues which will erode metropolitan life.

As my book, Zero Carbon Our Choice describes, Metropolitan areas contribute to emissions but are poor at emission mitigation, ie in terms of renewable power investment in particular, and conversion to non carbon heating is more challenging in higher rise buildings. The changes will be enormous, if Schroders and other firms adopt this business model then city CBds will be hollowed out (walk round the City of London to check this out). The ancillary service jobs will migrate or disappear. Demand for public transport will decline (many systems are radial from the CBD or focussed on it).

No solar panels. London terrace houses.

Cities are considering how to replan for a low or zero emission future. Paris is considering a “15 minute city” where you can walk to all your daily needs. There is no reason why employment patterns will not follow this. This means that cities will need to create a planning strategy to make these changes over the next decades.

Smaller cities will find it easier to adapt to this future and it is not surprising that the press is full of stories about the attractions of non metropolitan life. If Covid is making people consider the scale of change we see, thinking about zero emissions will require even more dramatic change.

© Chris Lenon and http://www.zerocarbonourchoice.com  2020. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chris Lenon and www.zerocarbonourchoice.com with appropriate and specific direction to the original content.

Investment priorities and Emission reduction – words or action?

The attached piece from the Financial Times https://on.ft.com/2WUcRYI is fascinating. Under the headline “Climate Change: asset managers join forces with eco warriors”, the piece argues that 2020 has been a turning point in investors attitude to climate change and more particularly emission reduction.

However, the detail in a survey by ShareAction provides questionable data to support this.

Respondents had to pick five key priorities. While Disclosure in line with the Task Force on Climate-related Financial Disclosures, Better Disclosure of Climate related risks, Emission Reduction and Setting Climate Related targets all scored over 50%, these priorities are about disclosure and targets, not about actions.

The following priorities scored less than 50% in descending order. Corporate strategy alignment with a scenario of a rise of less than 2C, Linking remuneration to climate related KPIs, Scenario stress testing, Supply Chain emission reduction, Measuring and reducing Scope 3 emissions and Withdrawal from Trade Associations (the last three scored less than 20%).

So less than half of investors prioritised aligning corporate strategy with a scenario of a rise of less than 2C. This is a key action for corporates if they are really supporting reducing climate change, if it is not then corporate strategy is about business as usual without regard to this key objective.

Just over 30% were in favour of linking remuneration to climate related Key Performance Indicators (in other words what bonus and pay rise you get). Well if most corporates have other objectives than climate change in KPIs then it is reasonable to think that staff will prioritise those objectives rather than climate change as that is the signal, that management is giving as to its priorities.

Just under 30% would include scenario stress testing. Again, this means the vast majority of investors do not prioritise climate mitigation or see it as a priority.

If climate targets are a real priority, then supply chain emission reduction would be a key priority and action requirement for a corporate, with a score in the high teens from investors, it clearly is not in those surveyed.

Measuring scope three emissions scores just over 10%. Scope three emissions are both upstream and downstream in the business (so procurement and customers) including Purchased goods and services, Business travel, Employee commuting, Waste disposal, Use of sold products, Transportation and distribution (up- and downstream), Investments and Leased assets and franchises. As a result 90 % of investors don’t think this is a priority, the interesting question is how do they think a business will achieve net zero if it doesn’t measure and reduce these emissions (who else is responsible for them?)

The graphic from Siemens does demonstrate a methodology to reduce emissions.

Siemens – progress to date

What is striking about this survey, is that investors prioritise complying with regulations and setting targets.

When it comes to actions, the incentives of remuneration, the emissions in their supply chains and managing scope three emissions (which are all key actions in achieving emission reduction) the priority they ascribe is very low. Actions speak larger than words, and in this case, investors seem more concerned about words.

This survey is depressing, for those countries with 2050 net zero targets, we have approaching 29 years. If the concern of investors is reporting and targets rather than actions and putting emission reduction at the heart of their business strategy, then a 2050 net zero target will not be achieved.

© Chris Lenon and http://www.zerocarbonourchoice.com  2020. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chris Lenon and www.zerocarbonourchoice.com with appropriate and specific direction to the original content.

The limitations on Solar electricity generation in the UK

Enso Solar Energy panels

I have followed Enso Energy Solar whose business model is to construct solar farms around grid substations in the UK. Unlike other connections to the grid this allows them to agree a contract with the grid and then assemble the land package for the solar farm around the substation. It is an astute business model.

In looking at their project pipeline two things struck me, first and no surprise is the length of the time for the planning process to gain permission for the solar farm.

The second issue was the power output per acre of the farms. These are state of the art solar farms with panels which move with the sun during the day to maximise solar collection. They also incorporate battery storage at the substations to maximise the usable electricity from solar generation to store electricity and match with demand.

As an example of the capacity, a 300 acre solar farm in South Oxfordshire is rated at 50 MW and 72000 MWH, powering 19,000 homes.  It is interesting from this to extrapolate the acreage required for solar farms to make a significant contribution to UK power generation. On a per acre basis this means 240 MWh and 63 homes. So, if we just consider homes, with 25 million homes in the UK Solar would need nearly 400,000 acres which is roughly the area of Surrey.

What I think this shows (and what I described in my book Zero Carbon Our Choice) is that the competition for land to meet zero carbon targets will pose some real challenges. Renewables, by definition, need an interest in land, a site. The land required for tree planting, solar, onshore wind, hydro and biomass is significant. The UK, like other countries, needs a policy framework to decide on these changes in land use if these technologies are to make a significant contribution to emission reduction.

© Chris Lenon and http://www.zerocarbonourchoice.com  2020. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chris Lenon and www.zerocarbonourchoice.com with appropriate and specific direction to the original content.

“Planet of the Humans”

Judge for yourself

I watched the film “Planet of the Humans” on you tube where it is still available. Its made by Jeff Gibbs.

As the photo shows it has been savaged by green advocates as being inaccurate and indeed some of the passages in the film could benefit from more up to date data. Mr Gibbs has been attacked despite his long involvement in environmental causes which have resulted in him being honoured by the United Nations Global 500 Roll of Honour.

The review by Pete Bradshaw in the Guardian (22 April 2020) makes interesting reading.

Big Oil and its corporate and banking representatives have, according to this film, found a way to rebrand themselves as green or greenish, to use the green movement for their own ends, and to get their mitts on the huge subsidies that taxpayers around the world are handing over to anyone claiming to be developing renewable energy resources, which turn out to be the same old fossil-fuel entities in different packaging.

Solar panels and wind turbines? These provide no energy when there is no sun or wind and degrade after only a few decades, says Gibbs. And in any case they need a lot of fossil fuels in their manufacture: silicon, cobalt, silver, graphite, rare earths – and of course coal. The same goes for manufacturing storage batteries. Factories claiming to have gone “beyond coal” again and again turn out to be relying on natural gas. Corporate behemoths such as Apple make spurious claims for their energy usage. But how about the ultra-fashionable new “renewable” energy source: biomass or wood-chips? This is basically a colossal logging industry that requires a lot of fossil fuel energy to harvest and transport the material. As Gibbs’ interviewees point out, you might just as well as burn the fossil fuels in the first place. And it is laying waste rainforests and areas of natural beauty.

This says Gibbs, is the queasy merger of environmentalism and capitalism.”

The focus on biomass in the USA is interesting, and I have questioned the benefits of using woodchip from the US (from felled trees) to fuel Drax power station in the UK. Equally the call by financiers for government funding of the investments that they want to invest in, is worrying. Better to allow a market system to apply complemented by forms of carbon pricing to price the externalities of carbon.

I worry that there is a resistance to engage in a debate about how economies reduce their emissions and the real cost of the mechanisms to achieve this. Simply vilifying anyone who questions the credentials of green investments will not lead to a roadmap which reduces emissions in a realistic and cost effective way.

I suggest you watch the film and make up your own mind. I’m not endorsing the film, but the questions posed should be addressed not merely denied.

© Chris Lenon and http://www.zerocarbonourchoice.com  2020. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chris Lenon and www.zerocarbonourchoice.com with appropriate and specific direction to the original content.