Latest / Merryn Talks Money / Best of: Is There a Tradeoff Between Net Zero and UK Growth?

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Best of: Is There a Tradeoff Between Net Zero and UK Growth? · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
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  Speaker 2: Hello, Maren Talks Money listeners. It is August, which means
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  Speaker 2: that we are taking a short break from recording new
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  Speaker 2: episodes of the podcast, but we have done something else
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  Speaker 2: for you instead. We are bringing you one of my
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  Speaker 2: favorite conversations from earlier in the year. Back in March,
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  Speaker 2: John and I sat down with Callum Pickering, chief economist
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  Speaker 2: appeal Hunt to discuss the research he did looking at
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  Speaker 2: whether there is a trade off between net zero and
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  Speaker 2: UK growth. Spoiler alert, Yes there is. It's a very
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  Speaker 2: interesting conversation. Everyone's talking about exactly this now on our
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  Speaker 2: going to for some time. Is net zero worth it?
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  Speaker 2: So even if you listen to when it was first published,
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  Speaker 2: listen again. You might find there are a few things
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  Speaker 2: you missed the first time around. And if you haven't
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  Speaker 2: listened to it yet, really definitely listen.
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  Speaker 3: Welcome to the Merin Talks Money weekly round up, our
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  Speaker 3: debrief on the biggest stories in markets and economics. I'm Merin, Sunset,
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  Speaker 3: Web editor at Large for Bloomberg UK Wealth.
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  Speaker 4: I'm Jointed Stapic What are the Money Distilled newsletter and
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  Speaker 4: senior reporter for Bloomberg.
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  Speaker 3: Okay, John, there is far too much for us to
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  Speaker 3: talk about this week. There's so much going on when
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  Speaker 3: it comes to stories as volatile markets. There's war, there's
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  Speaker 3: defense stocks, there's crypt all over the place, all this.
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  Speaker 3: So what we're going to do is not talk about
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  Speaker 3: any of those things. We're going to do that thing
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  Speaker 3: where we just choose one major story, unpack it in
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  Speaker 3: the conversation, And this week it's all about energy. The
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  Speaker 3: story is about a bit of research that's come out
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  Speaker 3: from PEELHNT Economics which asked the question, this is the
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  Speaker 3: title of the research, anyway, does the UK lack the
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  Speaker 3: energy for productivity growth? So it's a new look at
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  Speaker 3: the productivity puzzle which you and I talk about endlessly.
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  Speaker 3: What's the problem with UK productivity? Is it about having
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  Speaker 3: too much cheap labor? Is it the way our system
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  Speaker 3: is set up? Is it the decline in manufacturing as
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  Speaker 3: a result of Chinese growth? What is it? We talk
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  Speaker 3: about this all the time. This report uses data from
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  Speaker 3: nearly two hundred countries to make the other two hundred countries.
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  Speaker 4: Oh, I think two hundred and eleven or something, but yeah.
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  Speaker 3: Let's be precise, one hundred and eighty nine countries yes
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  Speaker 3: day from one hundred and eighty nine countries to make
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  Speaker 3: the argument that a miserable record of productivity over the
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  Speaker 3: last twenty years or so is inextricably linked to the
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  Speaker 3: country's drive to net zero. So that's two of our
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  Speaker 3: favorite subjects in a one of net zero and productivity.
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  Speaker 3: So with us to dig into all this is the
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  Speaker 3: author of this report, Calum Pickering, who is the chief
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  Speaker 3: economist at Peel Hunt. Callum, welcome, thank you for joining
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  Speaker 3: us today.
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  Speaker 1: My great pleasure, thank you for having me.
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  Speaker 3: Okay, Now, what I want to do is start by
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  Speaker 3: asking you why you sat down to do this bit
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  Speaker 3: of research. Because while it may be data driven come
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  Speaker 3: as no surprise to many, it also goes against the
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  Speaker 3: popular narrative and might not make you very popular. So
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  Speaker 3: what made you sit down and say I'm going to
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  Speaker 3: do this.
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  Speaker 1: Let's start with extraordinary claims require extraordinary evidence. And what
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  Speaker 1: we hear from Chancellor Rachel Reeves at Ed Muliban, the
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  Speaker 1: Energy Secretary, both of course Labor government but also the
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  Speaker 1: previous Conservative government for many years that there's no trade
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  Speaker 1: off between economic growth and net zero. Now, as an economist,
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  Speaker 1: that sort of gets my senses tingling a little. There's
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  Speaker 1: this general rule, which is there are no policy solutions,
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  Speaker 1: there are only policy trade offs. Now, of course there
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  Speaker 1: are exceptions, but it is a general rule. It's a
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  Speaker 1: good rule of thumb. So I thought, this is quite
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  Speaker 1: a big claim to make. Let me see if it's true.
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  Speaker 1: And after going around the dozens of government websites where
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  Speaker 1: all of this data is located, I've put something together,
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  Speaker 1: taken a look, and actually I don't see and evidence
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  Speaker 1: that this is true. In fact, I actually see the opposite.
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  Speaker 1: I see, I think clear evidence that when we start
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  Speaker 1: to aggressively pursue our net zero policy, we see almost
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  Speaker 1: immediately the economic problems which were all familiar of slow growth,
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  Speaker 1: weak productivity, weak growth and living standards. They all begin.
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  Speaker 3: Interesting. And you are timing this from around two thousand
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  Speaker 3: and five, right. A lot of people will look at
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  Speaker 3: the UK's productivity problem, look at your chance and go, yeah,
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  Speaker 3: obviously this is all about the great financial crisis it
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  Speaker 3: started around then. But you're taking it back a few
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  Speaker 3: years and saying, actually it started a bit earlier.
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  Speaker 1: That's right, and we mustn't discount any of these are
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  Speaker 1: the factors low interest rates? What that might mean for
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  Speaker 1: things like risk appetite malinvestment. Also, we had to just
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  Speaker 1: pay a price in growth terms for a while just
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  Speaker 1: to fix some of the problems with the financial system
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  Speaker 1: that were exposed, and of course the reason for the
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  Speaker 1: global financial crisis. But what I look at is stually
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  Speaker 1: one hundred years of data on the UK and what
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  Speaker 1: we see is a very clear picture the available electricity
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  Speaker 1: to the UK economy. That's the stuff that firms and
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  Speaker 1: households can tap into to consume and produce stuff. It
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  Speaker 1: rises precipitously through the twentieth century until it peaks in
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  Speaker 1: two thousand and five. Since then it's fallen by about
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  Speaker 1: twenty percent. If I then compare productivity measure it how
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  Speaker 1: you like output per work at output per hour or
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  Speaker 1: multi factor productivity, which is the best productivity measure which
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  Speaker 1: blends all the factors of production. What we see is
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  Speaker 1: alongside that rising trend of available electricity, productivity is rising nicely.
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  Speaker 1: And then after two thousand and five, around two thousand
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  Speaker 1: and five two thousand and six, all of these numbers
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  Speaker 1: start to weaken, and as our electricity availability declines, our
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  Speaker 1: productivity measures and our GDP measures start to move sideways.
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  Speaker 3: Okay, now, let's just go back a little bit and
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  Speaker 3: talk about how extraordinary it is to see a decline
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  Speaker 3: in available electricity or energy of any kind, in that
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  Speaker 3: this is not the first energy transition in the history
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  Speaker 3: of mankind, right. There have been several others in the past,
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  Speaker 3: but every other time the new energy source has been
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  Speaker 3: additive rather than transformative. We don't use less wood than
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  Speaker 3: we used to as a globe, we don't use less
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  Speaker 3: coal than we used to as a globe, we don't
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  Speaker 3: use less oil, etc. So this is the first time
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  Speaker 3: a transition has been attempted that is not additive. In
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  Speaker 3: our UK electricity supply, you see the closing down of
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  Speaker 3: various parts of the energy infrastructure that are then not replaced.
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  Speaker 1: That's exactly right, and again it's a policy choice to
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  Speaker 1: reduce the available electricity to the UK economy. What we
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  Speaker 1: have done is we've decommissioned what one might consider to
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  Speaker 1: be dirty forms of energy coal, oil, some gas, oddly nuclear,
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  Speaker 1: which is which is clean and it has huge potential.
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  Speaker 1: But as we've decommissioned these parts of the energy output infrastructure,
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  Speaker 1: we have not replaced them quickly enough with renewable energy.
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  Speaker 1: Whether that's solar wind, and the net result has been
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  Speaker 1: this decrease in energy availability. Now, one obvious pushback would
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  Speaker 1: be white bulbs give out less heat, soda machines, computers.
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  Speaker 1: As the world to become more efficient, do we just
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  Speaker 1: not need less energy. There's a quick check there, which is,
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  Speaker 1: let's look at prices, how a price is behaving. That
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  Speaker 1: if I know roughly what I think supply is doing,
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  Speaker 1: and I can see how prices are behaving, I can
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  Speaker 1: make some judgments about the demand side of this equation.
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  Speaker 1: And what you see is, up until two thousand and five,
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  Speaker 1: not just for electricity, but consumer energy prices across all types.
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  Speaker 1: Producer electricity energy prices across all types are actually fairly stable,
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  Speaker 1: not just stable, but falling relative to general prices. And
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  Speaker 1: then in two thousand and five we start to see
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  Speaker 1: this steady rise which accelerates over time in prices of
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  Speaker 1: all types of energy. Something, of course else happened in
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  Speaker 1: the early two thousands, which is we became a net
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  Speaker 1: importer of hydrocarbons, oil and gas, which has meant that
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  Speaker 1: when prices rise now we suffer negative terms of trade
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  Speaker 1: shocks instead of positive terms of trade shocks. It's bad
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  Speaker 1: for our producers and bad for our consumers. And so
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  Speaker 1: when you put all of this together, the staggering rise
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  Speaker 1: in prices, this fall in supply, even if you make
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  Speaker 1: the case that yes, demand has probably come down a
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  Speaker 1: little bit for any given activity demand for energy, because
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  Speaker 1: we see prices rise as supply falls, we can say
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  Speaker 1: with quite a bit of confidence I think that the
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  Speaker 1: supply effect is larger than the demand effect.
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  Speaker 3: Okay, so one of the things that has happened is
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  Speaker 3: that we have not seen our living standards rise as
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  Speaker 3: a result of that. One of the things that you
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  Speaker 3: much of your report compares the UK to the US,
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  Speaker 3: and we'll talk about that in a minute about whether
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  Speaker 3: we should more realistically be looking at Europe. But one
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  Speaker 3: of the statistics that you put in back in two
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  Speaker 3: thousand and five, which is when our UK electricity suppliers
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  Speaker 3: you peaked, UK energy per capita was fifty percent of
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  Speaker 3: the US level and our living standards were around seventy
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  Speaker 3: nine percent of the US level. By twenty twenty two,
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  Speaker 3: and these numbers will have definitely changed since, and not
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  Speaker 3: in our favor, I'm afraid. By twenty twenty two, UK
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  Speaker 3: per capita energy consumption had declined to around thirty eight
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  Speaker 3: percent of the US level, and per capita GDP had
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  Speaker 3: fallen to seventy four percent. I think it is a
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  Speaker 3: little below that then, So you see that very clearly
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  Speaker 3: in the numbers, a very different approach. They have been
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  Speaker 3: growing their living standards, keeping per capita energy consumption around
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  Speaker 3: the same. So using efficiency like that, we've been holding
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  Speaker 3: our living standards that roughly the same level, possibly now
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  Speaker 3: falling given the rise in population, while actually cutting our
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  Speaker 3: per capita use. That's the difference, right.
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  Speaker 1: That's exactly right. Implicitly we have made a different policy choice.
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  Speaker 1: The reason where now moving on to GDP per capita
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  Speaker 1: is because productivity is the thing that drives GDP per
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  Speaker 1: capita over time. It's just how efficiently can you use
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  Speaker 1: your factors of production. And what we should keep in
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  Speaker 1: mind here is energy is a very critical factor of
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  Speaker 1: production in a very fundamental sense. Productivity is capital over labor,
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  Speaker 1: and because capital requires energy, the more energy you have,
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  Speaker 1: the more productivity you can generate. I want it to
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  Speaker 1: broaden this study because you get oddities if you just
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  Speaker 1: look at an individual country sample. So when I look
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  Speaker 1: at one hundred and eighty nine countries, the data we
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  Speaker 1: go from nineteen ninety to twenty twenty two, you see
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  Speaker 1: this very strong positive correlation between per capita GDP SO
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  Speaker 1: living standards and per capital energy consumption. Rich countries consume
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  Speaker 1: more energy on a per person basis. And actually, the
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  Speaker 1: one thing you can say about the UK is that
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  Speaker 1: almost no actually no country for its size, has a
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  Speaker 1: higher standard of living for such a little amount of
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  Speaker 1: energy consumption per person. When you look at the UK
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  Speaker 1: versus the US, where you see a very big difference.
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  Speaker 1: And of course I like comparing the UK to the US.
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  Speaker 1: Although the UK is smaller, the makeup of its economy
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  Speaker 1: is actually very similar, services and consumer oriented, has a
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  Speaker 1: big financial system, it's credit driven, So you can't just
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  Speaker 1: say US is just oriented towards heavy industry or something
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  Speaker 1: like that. It's a very similar economy, just a different scale.
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  Speaker 1: And the point you make is exactly right. Implicitly, we
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  Speaker 1: have made a very different policy choice. We have used
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  Speaker 1: energy efficiency progress towards using less energy for any given
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  Speaker 1: thing that we do to stabilize our living standards but
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  Speaker 1: reduce our energy consumption. What America has done is stabilize
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  Speaker 1: its energy consumption but become richer over time. This is
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  Speaker 1: implicitly a very different policy choice. And essentially this artificial
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  Speaker 1: scarcity that we've imposed upon our economy, which means actually
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  Speaker 1: we now have the highest energy price in the advanced world,
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  Speaker 1: we are excluding so many types of economic activity that
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  Speaker 1: would just be profitable if we had lower cost of
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  Speaker 1: energy and the energy available to produce them.
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  Speaker 3: Now, a lot of people who listen to this will
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  Speaker 3: be confused because one of the things that they hear
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  Speaker 3: constantly is that UK energy prices are only high because
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  Speaker 3: of the gas price, and we share that problem with
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  Speaker 3: the rest of Europe.
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  Speaker 1: Price is important, but what matters more here is just supply.
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  Speaker 1: Let me just step back from this study and just
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  Speaker 1: think about a question that we often ask ourselves in markets.
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  Speaker 1: We will say, the old price has gone up, or
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  Speaker 1: the gas price has gone up. What does this mean
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  Speaker 1: for economic activity? Actually, I can't tell you anything about
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  Speaker 1: what that means for economic activity if you just tell
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  Speaker 1: me the price. What I care about is have we
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  Speaker 1: had an upside surprise in global economic activity? In other words,
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  Speaker 1: has demand for this stuff gone up and therefore the
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  Speaker 1: price has gone up? In which case, just be happy
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  Speaker 1: that the economy is stronger. We don't need to worry
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  Speaker 1: about negative effects. But if you tell me that actually
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  Speaker 1: we've less supply in the world because something has happened somewhere,
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  Speaker 1: We've had a geopolitical accident or the like, Actually we
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  Speaker 1: need to think about price, yes, But actually I'm asking
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  Speaker 1: what can't we now do because we don't have the
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  Speaker 1: gas that we did yesterday, And that's where the economic
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  Speaker 1: losses actually come from. And so actually this is a
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  Speaker 1: really practical question, which is, if you're a company in
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  Speaker 1: the UK, you probably just cannot access the electricity that
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  Speaker 1: you need. And because demand exceeds our supply potential when
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  Speaker 1: it comes to electricity, we're rationing through prices. That's essentially
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  Speaker 1: why prices are so high. So even if you strip
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  Speaker 1: out all of the levees and all of these other things,
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  Speaker 1: we would still have abnormally high energy prices. And the
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  Speaker 1: thing that stands out is we have taken a very
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  Speaker 1: different implicit choice when it comes to our energy supply.
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  Speaker 1: We've reduced hours more than other countries, certainly on a
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  Speaker 1: per person basis.
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  Speaker 4: That is stigerant. It blows my mind. The actual availables
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  Speaker 4: ply of energy has fallen by twenty percent over twenty years.
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  Speaker 4: I'd no real idea about that it's so negative for growth.
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  Speaker 4: The point is that ultimately we need energy abundance to
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  Speaker 4: do all the things we want to do, and the
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  Speaker 4: fact is we've been rowing against that for twenty years
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  Speaker 4: and that is shocking. And it's actually one question now
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  Speaker 4: we'd have in the movie. Should get back to is later,
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  Speaker 4: But it's like, it's more, okay, there's policy choices, but
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  Speaker 4: there's also a lot of this just seems to be
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  Speaker 4: people not making hard decisions at the time. It's not
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  Speaker 4: an explicit policy choice. It's more or let's put this
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  Speaker 4: off until someone else's problem.
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  Speaker 1: That's right, it's an implicit policy choice, which I think
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  Speaker 1: gets more cover than is justified because we have somewhat
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  Speaker 1: of a mantra that there's no trade off between zero
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  Speaker 1: and economic growth. It's fine, seems to become in more
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  Speaker 1: efficient energy wise, and so actually if we just reduce
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  Speaker 1: our energy capacity, it's probably not a big effect. Actually,
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  Speaker 1: what you find is, in a very simple sense, you
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  Speaker 1: have some critical factors of production that you need. You
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  Speaker 1: need land, you need labor, you need capital, and you
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  Speaker 1: need energy. We know where a land constrained economy that's
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  Speaker 1: we consider that when we think about growth. We're all
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  Speaker 1: considering what the demographic effects of an aging and drinking
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  Speaker 1: population might be for the world. Okay, capital availability is
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  Speaker 1: fairly good. There's still plenty of stuff in the ground
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  Speaker 1: we can dig out, so we're not worried about that.
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  Speaker 1: But energy is just as important as these these other
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  Speaker 1: three these are the three things. A couple of other
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  Speaker 1: things that should just be taken out of this. I
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  Speaker 1: think one is that if you look at the government's
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  Speaker 1: own projections, previous governments, current governments, UK electricity availability will
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  Speaker 1: rise over time towards the middle of the century and
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  Speaker 1: will exceed by a significant amount our all time peak,
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  Speaker 1: which was in two thousand and five. And perhaps I
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  Speaker 1: just give just give some rough numbers. In two thousand
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  Speaker 1: and five we had a round about three hundred and
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  Speaker 1: eighty terra watts available to the whole economy. About now
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  Speaker 1: it's two hundred and eighty. If the government builds out
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  Speaker 1: renewables and some gas, because of course you need some
• 16:11
  Speaker 1: firm power to account for the intermittency when the sun
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  Speaker 1: isn't shining, the wind doesn't blow, we'll get to four
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  Speaker 1: hundred and fifty terra what hours. And the central problem
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  Speaker 1: is we can decommission on time, that's we're fairly good
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  Speaker 1: at that, but can we actually build out on time?
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  Speaker 1: So things like planning, permission and regulations and all this
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  Speaker 1: other stuff really really matters. And I think the reason
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  Speaker 1: why we just need to take a cold, hard look
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  Speaker 1: at this kind of evidence is because we face two
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  Speaker 1: really difficult choices at the moment. How do we get
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  Speaker 1: ahead with AI? It has huge potential for productivity gains,
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  Speaker 1: but it's very energy intensive in a sense, it's an
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  Speaker 1: industrial revolution as much as a tech revolution. But then second,
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  Speaker 1: we will need to raise our military spend as a
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  Speaker 1: percent of GDP. And again, to be frank, if you
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  Speaker 1: want to be a serious military power and defend yourself,
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  Speaker 1: you have to be able to keep your own lights
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  Speaker 1: on over winter. And therefore we need to have energy
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  Speaker 1: security and we need to be able to meet our
• 17:15
  Speaker 1: own needs under any given circumstances. And so I think
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  Speaker 1: the worm is probably turning on a lot of this stuff.
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  Speaker 1: But the key point for me is just look at
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  Speaker 1: the very basic economics. The more supply you have, the
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  Speaker 1: BIGGI your economy is. If you reduce that supply somewhere,
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  Speaker 1: you will see some negative consequences and we have here
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  Speaker 1: a very clear relationship between our economic problems, which start
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  Speaker 1: before the financial crisis, probably amplified by the financial crisis,
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  Speaker 1: and this precipitous for in our electricity availability, which has
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  Speaker 1: been an explicit policy choice. When we look around the world,
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  Speaker 1: we see evidence that when economies haven't made this policy choice,
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  Speaker 1: like America or South Korea or even Poland, very different
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  Speaker 1: things happen.
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  Speaker 3: Callums, go back to what you were saying about the
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  Speaker 3: rise in electricty capacity by the middle of this century.
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  Speaker 3: Back in two thousand and five, we're at three eighty
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  Speaker 3: and you say that under the current government plans we
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  Speaker 3: get four fifty. Given the rise in our population and
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  Speaker 3: the demand there's going to be, that seems not very
• 18:23
  Speaker 3: much in terms of a rise from three eighty to
• 18:25
  Speaker 3: four fifty. That seems like a very small amount of
• 18:27
  Speaker 3: electricity For a country that is attempting to use more
• 18:32
  Speaker 3: and more electricity in switch vehicles and all this kind
• 18:34
  Speaker 3: of thing, and lots of factories over to using electricity
• 18:36
  Speaker 3: rather than using diesel oil petrol, and an economy that
• 18:40
  Speaker 3: we want to really participate in the Ai revolution. That
• 18:45
  Speaker 3: doesn't seem like anywhere near enough to me.
• 18:47
  Speaker 1: It's hard to say at this stage. It's probably better
• 18:50
  Speaker 1: to be on the safe side and say let's have
• 18:53
  Speaker 1: more energy than we'll need mm hmm, and see if
• 18:56
  Speaker 1: you can sult to someone. We'll benefit through our trade
• 18:58
  Speaker 1: balance on exports, So that's quite right. What I would
• 19:02
  Speaker 1: say is, if you take the official population protections, what
• 19:05
  Speaker 1: you do see is if the government can meet its
• 19:09
  Speaker 1: plans for raising electricity availability, you will start to see
• 19:13
  Speaker 1: an improvement in per person energy availability, which which just came.
• 19:17
  Speaker 1: And so the way to think about this is we
• 19:18
  Speaker 1: should be gradually removing a headwind to economic growth. And
• 19:24
  Speaker 1: one of the things you should say is if you
• 19:26
  Speaker 1: make a claim like I make in what would be
• 19:29
  Speaker 1: true if I'm right, which is if the government actually
• 19:34
  Speaker 1: builds out and we start to see in the numbers
• 19:36
  Speaker 1: more and more electricity made available to the UK economy,
• 19:39
  Speaker 1: we probably should start to see some upside surprises to
• 19:42
  Speaker 1: things like per capita GDP and productivity. And it's really
• 19:46
  Speaker 1: as simple as that. But of course I can't look
• 19:48
  Speaker 1: at a quarterly data series for the next year and
• 19:50
  Speaker 1: say whether this is right. This will be a five
• 19:52
  Speaker 1: or a ten year think. But what I've done is
• 19:55
  Speaker 1: I've started by asking the opposite, which is, if what
• 19:58
  Speaker 1: the government says is true, which is there's no trade
• 20:01
  Speaker 1: off between net zero and economic growth, what would I
• 20:03
  Speaker 1: expect to see. Well, it would be no difference between
• 20:06
  Speaker 1: the economic performance of the UK, which has introduced this
• 20:10
  Speaker 1: artificial scarty on the energy side, and other economies that haven't.
• 20:15
  Speaker 1: And actually what we do is we see very big differences.
• 20:18
  Speaker 3: It seems that there's a case that you're making very
• 20:21
  Speaker 3: well for a slightly more pragmatic approach from the UK
• 20:24
  Speaker 3: towards net zero and approach say something along the lines
• 20:27
  Speaker 3: of Norway's, which is continued to develop oil and gas
• 20:31
  Speaker 3: and continue to use hydrocarbons in the same way and
• 20:34
  Speaker 3: not necessarily expected a fall in the use of hydrocarbons,
• 20:37
  Speaker 3: but it is nonetheless working towards towards the transition at
• 20:40
  Speaker 3: the same time. So maybe there's a case for us
• 20:42
  Speaker 3: to be a little more pragmatic.
• 20:44
  Speaker 1: Yes, I think you can probably see if you have
• 20:48
  Speaker 1: plans for decommissioning of hydrocarbons and nuclear whether you can
• 20:51
  Speaker 1: keep that aline. I'm encouraged by the government's intention to
• 20:57
  Speaker 1: allow the build out of modern the nuclear reactors, hopefully
• 21:01
  Speaker 1: anywhere in the country.
• 21:03
  Speaker 3: Although's some rather depressing press on that earlier in the week,
• 21:06
  Speaker 3: suggesting that was one of the things that Rachel wads
• 21:08
  Speaker 3: we was planning to grow back from.
• 21:09
  Speaker 1: Let's see one thing I would just say here, which
• 21:12
  Speaker 1: is really the unfortunate point in all of this. The
• 21:16
  Speaker 1: UK is on its own a big economy. We're not
• 21:19
  Speaker 1: a small economy by any stretch, but our carbon emissions
• 21:24
  Speaker 1: are less than one percent of global emissions, and global
• 21:27
  Speaker 1: emissions have been rising dramatically over the past twenty years.
• 21:31
  Speaker 1: We've almost half hours territorial emissions. There's a slight nuance there.
• 21:35
  Speaker 1: We judge our success in reducing emissions with territorial emissions,
• 21:40
  Speaker 1: which is what comes out of the UK economy. But
• 21:43
  Speaker 1: of course, if what you do is you de industrialize
• 21:45
  Speaker 1: in you'll our production to move elsewhere. If that production
• 21:49
  Speaker 1: involves lots of hydro carbon use and pollution and then
• 21:52
  Speaker 1: you import that, that doesn't count in this territorial emission.
• 21:56
  Speaker 1: So you have this very unfortunate situation where the UK
• 21:58
  Speaker 1: seems to have paid a very heavy price in terms
• 22:00
  Speaker 1: of economic growth, in terms of productivity, but critically living standards,
• 22:04
  Speaker 1: and you think about all of the political challenges that
• 22:07
  Speaker 1: we've faced over the last few years that are linked
• 22:09
  Speaker 1: to the real indignities that come from stagnant living standards,
• 22:13
  Speaker 1: without question, and the result is, because we contribute such
• 22:18
  Speaker 1: a small amount to global emissions, we have not changed
• 22:21
  Speaker 1: the dial. We have not changed the global overall emissions story.
• 22:24
  Speaker 1: We've just generated low economic growth, weak productivity, de industrialization,
• 22:30
  Speaker 1: and all of this doesn't actually change the fundamental story
• 22:35
  Speaker 1: when it comes to the global carbon picture. And so
• 22:38
  Speaker 1: we need to ask a very serious question whether or
• 22:41
  Speaker 1: not this has been remains and would be a sensible
• 22:45
  Speaker 1: policy choice for us to make.
• 22:47
  Speaker 4: Yeah, And the point of it is that that's not
• 22:49
  Speaker 4: saying abandon It was just saying that during the transition
• 22:54
  Speaker 4: period where we don't have nuclear fusion and we don't
• 22:56
  Speaker 4: have batteries and we still haven't built enough nuclear power stations,
• 23:00
  Speaker 4: we should maybe be keeping things like natural gas more
• 23:04
  Speaker 4: aggressively online because we still need to grow and we
• 23:08
  Speaker 4: still need to find solutions. And I suppose the other
• 23:11
  Speaker 4: problem is if we've get economic stagnation, then we're also
• 23:14
  Speaker 4: not generating any innovation, and innovation is one of the
• 23:17
  Speaker 4: things we need to make this actual speitch to net
• 23:20
  Speaker 4: zero actually work.
• 23:22
  Speaker 1: That's exactly right. The richest economies in the world, which
• 23:25
  Speaker 1: are essentially the most productive economies in the world, use
• 23:28
  Speaker 1: energy most efficiently, and so becoming richer is a good
• 23:34
  Speaker 1: and obvious way to become more energy efficient. There are
• 23:38
  Speaker 1: another couple of things just to throw in here, which
• 23:41
  Speaker 1: is that the state of the world has changed. We're
• 23:43
  Speaker 1: much more vulnerable than we once were to external geopolitical shocks,
• 23:47
  Speaker 1: and at present we're a net hydrocarbon import oil and gas.
• 23:52
  Speaker 1: We have not huge, but significant reserves of this. We
• 23:57
  Speaker 1: could make a choice to say, since we're still using
• 23:59
  Speaker 1: this stuff, why not protect ourselves against some of these
• 24:02
  Speaker 1: choices by exploring some of our own supply potential. That's
• 24:06
  Speaker 1: one think, But also keep in mind that, of course
• 24:09
  Speaker 1: renewables have fantastic potential. The marginal cost is extremely low.
• 24:14
  Speaker 1: The wind always blows the sun. We have this giant
• 24:17
  Speaker 1: nuclear reactor in the sky that's just giving off energy,
• 24:19
  Speaker 1: and this is very sensible to try and tap this stuff.
• 24:24
  Speaker 1: But a lot of this technology requires critical minerals which
• 24:27
  Speaker 1: we don't have in the UK. We're going to have
• 24:30
  Speaker 1: to import these minerals, and of course they're expensive. Because
• 24:33
  Speaker 1: everyone's trying to do this all at the same time,
• 24:36
  Speaker 1: which means what we should keep in mind is even
• 24:39
  Speaker 1: as we transition towards majority renewables with a baseline of
• 24:44
  Speaker 1: something like gas, to resolve these intimiscienity issues, we should
• 24:49
  Speaker 1: consider the fact that in this world where geo political
• 24:52
  Speaker 1: shocks are common, that we may still suffer these external
• 24:57
  Speaker 1: supply shocks, not necessarily directly through the energy that comes
• 25:01
  Speaker 1: through trade, but actually through some of the critical minerals
• 25:04
  Speaker 1: and some of the capital goods that are required to
• 25:06
  Speaker 1: maintain and build out this stock. So we just need
• 25:09
  Speaker 1: to take a cold, hard look at some of these choices.
• 25:11
  Speaker 3: Yeah, this is another one of the Another one of
• 25:14
  Speaker 3: the conflicts that is little discussed is that we talk
• 25:17
  Speaker 3: about how important it is to have a shift towards
• 25:19
  Speaker 3: renewables for our energy security, but of course it's not
• 25:24
  Speaker 3: actually a secure form of energy if we cannot continue
• 25:26
  Speaker 3: to have access to the wear earth metals that we
• 25:29
  Speaker 3: might need. So China, for example, at the moment, is
• 25:31
  Speaker 3: sixty percent of global rare earth mining, ninety percent of
• 25:35
  Speaker 3: the processing, but then in context, the US is only
• 25:38
  Speaker 3: nine percent of the mining, and in the UK, I
• 25:40
  Speaker 3: think is an egibile number. I'm not even sure we
• 25:42
  Speaker 3: mind anywhere else at all?
• 25:43
  Speaker 1: Do we do?
• 25:44
  Speaker 4: Think so?
• 25:45
  Speaker 3: So with that in mind, there is no energy security
• 25:50
  Speaker 3: in using only renewables or making a major shift to renewables.
• 25:54
  Speaker 1: One might make it an even broader point just to
• 25:56
  Speaker 1: say that if you want Britain to be more secure
• 26:00
  Speaker 1: in future, pick the economic path that has the maximum
• 26:05
  Speaker 1: probability of making you as rich as possible, and that
• 26:10
  Speaker 1: may involve just completely throwing open the doors on some
• 26:14
  Speaker 1: of our energy because if America, China some of the
• 26:20
  Speaker 1: other big consumers of hydrocarbons say actually, no, we are
• 26:25
  Speaker 1: going to continue to use this stuff, We're going to
• 26:27
  Speaker 1: continue to pollute. Really, what is the use of the
• 26:31
  Speaker 1: UK going in the opposite direction, given that we actually
• 26:35
  Speaker 1: can't change the circumstances in the world all that much.
• 26:38
  Speaker 1: That's an unfortunate policy choice to have to make. It
• 26:41
  Speaker 1: wouldn't please me if we had to make that policy choice.
• 26:43
  Speaker 1: But one of the key things when it comes to
• 26:45
  Speaker 1: economic policy is you have to just take the world
• 26:48
  Speaker 1: as it is, not how you would like it to be.
• 26:52
  Speaker 1: And of course it would be nice just looping back
• 26:54
  Speaker 1: to the start if there was no trade off between
• 26:57
  Speaker 1: economic growth and zero but suppose that there is Suppose
• 27:01
  Speaker 1: there is actually a trade off between say net zero
• 27:03
  Speaker 1: and military security. Suppose there's a trade off between net
• 27:06
  Speaker 1: zero and funding our growing pensions liabilities, military spend, pensions liabilities.
• 27:13
  Speaker 1: All of this requires economic growth. And if the choice
• 27:16
  Speaker 1: by pursuing net zero is we don't achieve any economic
• 27:19
  Speaker 1: growth or at least growth, that's not satisfactory. We need
• 27:24
  Speaker 1: to decide which cost we're willing to take. And actually,
• 27:27
  Speaker 1: the thing to point out is, because our net zero
• 27:30
  Speaker 1: policy doesn't really influence the world picture when it comes
• 27:34
  Speaker 1: to carbon the choice may actually be fairly straightforward for us.
• 27:39
  Speaker 1: If we said, actually we should pursue at zero, we
• 27:41
  Speaker 1: should accept the lower economic growth, and we might want
• 27:43
  Speaker 1: to pay a choice in living standards. People choose to
• 27:45
  Speaker 1: do that. That's absolutely fine. I'm an economist. It's not
• 27:48
  Speaker 1: for me to say which I think is the right
• 27:49
  Speaker 1: way to go. It's just to say, if you do,
• 27:51
  Speaker 1: this will happen. That's the best I can do. But
• 27:53
  Speaker 1: people should be made aware that if you make that choice,
• 27:56
  Speaker 1: you might not actually get what you want, which is
• 27:58
  Speaker 1: the clean air and the limited rise in the global temperature.
• 28:02
  Speaker 3: There is a view that none of this mattered, and
• 28:06
  Speaker 3: that the UK should be a global leader in the
• 28:11
  Speaker 3: energy transition and in the race to net zero racist
• 28:14
  Speaker 3: because no one else seems you're running, that we should
• 28:17
  Speaker 3: be a global leader regardless of what anyone else is doing. Now,
• 28:21
  Speaker 3: I suppose the obvious answer to that is, if no
• 28:23
  Speaker 3: one's following you, are you leading? Well.
• 28:27
  Speaker 1: I don't think I could put it much better than that.
• 28:29
  Speaker 1: The one thing that I think we should keep in
• 28:31
  Speaker 1: mind is that in most parts of the world, living
• 28:34
  Speaker 1: standards are much lower than they are in the UK,
• 28:37
  Speaker 1: and security is much lower. And if you want to
• 28:41
  Speaker 1: set the right example, a really straightforward way to do
• 28:44
  Speaker 1: that is to have a fast growing, dynamic economy. And
• 28:47
  Speaker 1: so when you think about global influence, typically the economies
• 28:51
  Speaker 1: that influence the world are the ones that have the
• 28:54
  Speaker 1: most dynamic economies. Because the thing that people really need
• 28:57
  Speaker 1: and really want and should want is to become richer
• 29:00
  Speaker 1: and safer and better fed. And therefore, I think it
• 29:04
  Speaker 1: will be difficult to convince people that we're leading you
• 29:08
  Speaker 1: down a path that won't improve your living standards and
• 29:11
  Speaker 1: won't make you safer, and won't improve your food security
• 29:14
  Speaker 1: and all these other things. But in the end, it's
• 29:17
  Speaker 1: the right way to go. For all these other reasons,
• 29:19
  Speaker 1: I don't find that very compelling. And now, of course
• 29:21
  Speaker 1: this is a political point, but the UK is gradually
• 29:24
  Speaker 1: becoming less important on the international stage. Twenty to twenty
• 29:27
  Speaker 1: five years ago, the UK mattered much more. We also
• 29:30
  Speaker 1: had a much stronger economy, We were a bigger share
• 29:32
  Speaker 1: of global GDP, we had genuinely dynamic industries. And as
• 29:37
  Speaker 1: our economic dynamism has weakened and other fast growing economies
• 29:42
  Speaker 1: have moved ahead, they have naturally taken our place, and
• 29:47
  Speaker 1: they shape global trends and they influence other economies more
• 29:50
  Speaker 1: than we do.
• 29:51
  Speaker 4: Coming back to the other problem is if your economy
• 29:54
  Speaker 4: doesn't grow, then you don't enervate and you don't come
• 29:58
  Speaker 4: to a solution for that. I think that's because I
• 30:01
  Speaker 4: don't want to be able to come away from this
• 30:02
  Speaker 4: thinking that all right, So it's a choice between a
• 30:05
  Speaker 4: dirty world that's growing and a clean world that isn't.
• 30:09
  Speaker 4: It's the things that if you don't have economic growth, then,
• 30:13
  Speaker 4: for example, we would never have come up with AI,
• 30:15
  Speaker 4: and EI might require energy, but AI might also who knows,
• 30:18
  Speaker 4: solve nuclear fusion in the next ten years, Maybe who
• 30:22
  Speaker 4: knows it's always next ten years. But the point is
• 30:24
  Speaker 4: that if you don't have the innovation driven by inexpensive
• 30:28
  Speaker 4: energy and the ability to use more and more of it,
• 30:31
  Speaker 4: then we're right to be looking at collapse.
• 30:33
  Speaker 1: Really eventually, let me just make clear what I am
• 30:37
  Speaker 1: signing in the report and what I'm not saying in
• 30:38
  Speaker 1: the report. I'm not suggesting that we should abandon zero.
• 30:41
  Speaker 1: That's in fact, I'm not really making any policy recommendations
• 30:45
  Speaker 1: at all. What I'm doing is taking at face value
• 30:48
  Speaker 1: what our net zero policy has produced so far, which
• 30:52
  Speaker 1: is a reduction in energy availableity through decommissioning of dirty
• 30:58
  Speaker 1: forms of energy, which is not being offset sufficiently by
• 31:02
  Speaker 1: renewable capacity. I have again, this is not a policy prescription.
• 31:07
  Speaker 1: If the quickest way to rapidly increase the available energy
• 31:11
  Speaker 1: to the UK economy is through rollout of wind and solar,
• 31:17
  Speaker 1: that's probably the policy choice to make. If it's nuclear,
• 31:19
  Speaker 1: that's the policy choice to make. If it's gas, maybe
• 31:22
  Speaker 1: that's the policy choice to make. It's really not to
• 31:26
  Speaker 1: have a preference in all of this, but I fully
• 31:29
  Speaker 1: agree to your point. Look to the US as the
• 31:33
  Speaker 1: example of a country where energy costs a low availability
• 31:37
  Speaker 1: is extremely high. It's the most innovative, dynamic, major economy
• 31:43
  Speaker 1: in the world and UK tech companies startups, we're great
• 31:49
  Speaker 1: at that, but then they have to make a choice
• 31:51
  Speaker 1: where can we scale? And what you need for a
• 31:55
  Speaker 1: company that wants to scale is cheap, reliable energy that's
• 31:59
  Speaker 1: not vulnerable to global gyrations. And we can't provide that,
• 32:05
  Speaker 1: but America can, which is why companies migrate to America.
• 32:08
  Speaker 1: During twenty twenty two, when Europe was throttled by gas
• 32:13
  Speaker 1: supply shortages following the Russian invasion of Ukraine, America continued
• 32:18
  Speaker 1: to grow. If you're a company deciding in this unfortunately
• 32:24
  Speaker 1: more risky world where you might want to spend the
• 32:26
  Speaker 1: next ten years trying to grow your economy, and if
• 32:29
  Speaker 1: you're a highly productive company that requires lots of cheap energy,
• 32:33
  Speaker 1: the choices to go to the US.
• 32:36
  Speaker 3: I think that you've given everyone a lot to think
• 32:37
  Speaker 3: about here, and I hope that Ed Milivan will listen
• 32:40
  Speaker 3: to this and have a little thing. Maybe not, we'll see,
• 32:43
  Speaker 3: because you'd like to come on and discuss anyway. Callum,
• 32:46
  Speaker 3: thank you so much for joining us today. We really
• 32:48
  Speaker 3: appreciate it.
• 32:49
  Speaker 1: That was my great pleasure. Thank you so much.
• 32:53
  Speaker 3: Thanks for listening to this week's Marin Talks Money Debrief.
• 32:55
  Speaker 3: If you like us, show, rate, review, and subscribe wherever
• 32:58
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• 32:59
  Speaker 3: me John on Exord, Twitter at marinas w and John
• 33:03
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• 33:07
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