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

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