Climate change is happening. But Jon Moulton is doubtful that the UK’s net-zero ambitions will make much of a global impact

Most readers of this column will be in favour of action against climate change. And I’m not a climate-change denier. I must also disclose that I do have personal investments in alternative energy. But much of corporate finance is quantitative and practical, so please do read on.

The UK is legally committed to achieve net-zero emissions of greenhouse gases by 2050. Despite this, it’s still not clear if this is affordable or even possible. Have we really thought through the implications?

When taking out insurance – which is what climate policy is – we’d normally ask a few key questions. Does the policy offer real cover against the hazard? Is the premium proportionate to the risk insofar as we understand it? Is the premium so large that it would require such sacrifices that we’d be better advised to live with the risk uninsured?

No detectable effect

Climate policies pass none of these tests. There’s no cover. Even if the UK was to reduce its emissions to nothing by 2050, it would have no detectable effect on climate change unless the rest of the world did the same thing. But there’s no sign at all that this will happen. China (28% of global emissions), India (7%) and Russia (5%) have not made adequate commitments. Even if they did, who would believe them? Unilateral action in Britain will not protect us. Is united action achievable?

The premium is also wholly disproportionate to the risk insofar as we understand it. As Professor Steve Koonin – one of the world’s pre-eminent, if controversial, writers on the subject of climate change – says: “The impact of human influences on the climate is too uncertain (and very likely too small) compared with the daunting amount of change required to actually achieve the goal of eliminating net-global emissions by, say, 2075.

“I would wait until the science becomes more settled – that is, until the climate’s response to human influences is better determined or, failing that, until a values consensus emerges or zero-emissions technologies become more feasible – before embarking on a programme to tax or regulate greenhouse gas emissions out of existence.”

At what cost?

This brings us to affordability. We have been told repeatedly, most recently by Prime Minister Boris Johnson in his address to the UN, that going green is not only easy but economically attractive. His optimism is admirable in its way, but if he were right, why is it that Asia – the emerging economies generally and China in particular – still relies on fossil fuels and plans to do so for the foreseeable future?

We’ve made a big effort in Britain, with renewables generators now awash with subsidies amounting to £10bn a year (and rising). This largesse was supposed to bring about competition and a reduction in energy costs, but the accounts of wind farms reveal little to suggest this. We remain, like Germany, just under 80% dependent on natural gas, oil and coal. It seems going green is actually very hard indeed.

Even the ever-enthusiastic Climate Change Committee (CCC) admits that the annual cost of net zero will be £50bn a year through to 2050, adding up to more than a trillion pounds or so over the period. Well-informed critics suggest that the CCC has greatly underestimated the cost, and that it could be several times that. Indeed, if the UK adopted expensive net-zero activities and China did not, the trade advantage of China would obviously increase at the expense of UK growth.

Optimists say that the bill for net zero is manageable in a growing economy. But costs on this scale could easily prevent economic growth altogether. The energy sector might expand, but there would be nothing left for other activities. Declining living standards would ensue.

You can easily conclude that the UK’s net-zero target is a very bad deal for the British people. It won’t protect them against climate change; the costs are disproportionate to the threat; and those costs are ruinous in themselves. This legally binding target doesn’t make sense. Readers should rely more on numbers and less on emotion.

About the author

Jon Moulton is a CF and a Fellow of the Institute for Turnaround Professionals. Jon has long experience of turnarounds, having invested in them for 30 years and with considerable success. Jon is currently Chairman of FinnCap, the major AIM broker, The International Stock Exchange and Anti-Microbial Research Limited. He also chairs the Better Capital funds and Greensphere, an alternative energy infrastructure fund.

He regularly writes, broadcasts and speaks on corporate finance and financial matters. Jon is also a Director of the think tank The Centre for Policy Studies and an Honorary Fellow of University College London.