How the Green Energy Transition Makes You Poorer

Crony capitalism at work

A leaked government analysis has found that Net Zero could crash the economy, reducing GDP by a massive 10% by 2030. Yet the spectacular thing about this analysis is that it expects this to happen not if Net Zero fails—but if it succeeds. In effect, it is saying that if the government really does force us to give up petrol cars, gas boilers, foreign holidays, and beef, then there would be perfectly workable things left idle, such as cars, boilers, planes, and cows. Idling—or stranding—your assets in this way is an expensive economic disaster.

Even more intriguing was the government’s economically illiterate response to the leak. A spokesman said: “Net zero is the economic opportunity of the twenty-first century, and will deliver good jobs, economic growth and energy security as part of our Plan for Change.” Do they really think that economic growth is the same thing as spending money? Because it isn’t.

Imagine the government saying that it is going to require the entire population to throw out all their socks and buy new ones by next Thursday. Under the logic it espouses for Net Zero, this would result in a tremendous burst of economic growth. Think of all the jobs created in the sock industry and the shops! They would be better off. Ah, but you, the consumer, would be poorer. You would have as many socks as before but less money. This is the broken window fallacy, explained by Frédéric Bastiat nearly 200 years ago: going around breaking windows makes work for glaziers but does not create growth.

Net Zero is a project to replace an existing set of technologies with another set of technologies: power stations with wind farms, petrol cars with electric cars, gas boilers with heat pumps, plane trips in the sun with caravan trips in the rain, cows with lentils. The output from these technologies is intended to be the same: electricity, transport, holidays, food.

Suppose, for the sake of argument, that these new technologies and activities require exactly as much money to build and run as the old ones. What have you gained? Less than nothing because you have retired existing devices early, losing the latter half of their lives. It would be like replacing all the socks in your drawers long before they needed replacing but with identical socks. Does that make you richer? No, poorer.

If the new technologies are more efficient than the old ones, fine. LED light bulbs use about 90% less electricity than incandescent bulbs did. So yes, it does make sense to throw out your old bulbs before they expire, stranding those assets, to save electricity and money. Is the same true of a wind farm or a heat pump? No, they are demonstrably more expensive and less reliable at producing the same electricity than the devices they are replacing. They are worse, not better.

That’s why they need subsidies. We have spent £100 billion so far subsidising “green” energy in the past few decades, money we could have spent on something else: tax cuts, for example. So, the green energy transition has made us poorer, not richer. It has given us the most expensive electricity in the entire developed world.

It has made some people richer, for sure. Dale Vince, an eco-tycoon, has made a fortune out of building unreliable energy. So have lots of fat cats in the City of London, lots of big landowners in the Highlands of Scotland, and lots of manufacturers in China. I have lost count of the number of times wealthy people have told me I am wrong to criticise the unreliable energy industry because “my son Torquil’s fund has done rather well.” Net Zero crony capitalism is efficient at one thing: transferring money from poor people to rich people.

This government has forgotten that its job is not to champion the interests of producers, but consumers. So did the last government, though Kemi Badenoch’s speech on Tuesday showed a welcome return to thinking about consumers. Electricity is not an end in itself; it is a means to an end, an essential input allowing us to do the one and only thing that does, really does, represent growth—achieving more output with less input. Right now, the Net Zero transition is doing the very opposite.