The week of December 31, 2024: Net zero Britain, regulation, Bidenomics, and much, much more.
The week of December 31, 2024: Net zero Britain, regulation, Bidenomics, and much, much more.
Toward the end of the fourteen years in which Britain’s Conservative party, either alone or in coalition, was in government, Prime Minister Rishi Sunak, unnerved by opinion polling, made a few, very tentative moves to dilute the Tories’ longstanding climate fundamentalism. Whatever. Labour swept the Conservatives out of office, winning an enormous parliamentary majority despite a rather modest plurality (34 percent) of the votes, helped by how Britain’s first-past-the-vote electoral system worked against a right divided between the Tories and Nigel Farage’s Reform.
Sunak’s backsliding was consigned to the past. Ed Miliband became Secretary of State for — oxymoron alert — Energy Security and Net Zero, a job he had last held in 2010 (he subsequently failed miserably as Labour’s leader). Miliband is speeding up the pace at which the U.K. is running the pointless, ruinous, and counterproductive “race” to net zero greenhouse gas (GHG) emissions by 2050.
The U.K. is responsible for only 1 percent (when calculated on a territorial basis) of global GHG emissions. But much of its political class, hankering after lost glory, has long believed that its climate policies will inspire the world. Britain, boasted Miliband in October, is “back in the business of global climate leadership.” And so the British delegation that flew to the COP 29 talks in Baku, Azerbaijan, a 5,000-mile roundtrip, was 470-strong.
Miliband advanced the date for decarbonizing the U.K.’s electricity grid from fantasy (the Tories’ 2035) to lunacy: 2030. Energy bills to fall by £300 a household by 2030! Six hundred and fifty thousand new jobs to be created on the back of state investment in the green economy! These wonders won’t happen, but with Labour’s majority and no need for an election until mid-2029, Miliband will charge on unless reined in by a party panicking over the cost of his policies. The longer he persists, the greater the damage, and the higher the chance of political upheaval.
The electorate will not be happy when it discovers the extent to which it has been presented with, uh, over-optimistic assumptions about climate policy by all the major parties. The new Conservative leader, Kemi Badenoch, is edging away from the Tories’ decades-long support of racing to net zero, but a clearer change of direction would split her parliamentary party, and alienate millions of Tory voters. Net zero remains popular with the voters in principle. That won’t change until they discover how painful principle will be in practice. In the meantime, right-of-center voters unhappy with net zero will drift to Reform, which is unabashedly opposed to pursuing this race to ruin. Their defections will further green what remains of Tory support, adding to Badenoch’s problems.
Dieter Helm, professor of economic policy at Oxford and one of Britain’s best known energy economists, has been questioning the race for net zero for a while now. Helm is the reverse of a “denier” (he would tackle the climate “emergency” in an entirely different way), but, among his criticisms of Labour is that it risks “fracturing” Britain’s weakening climate consensus:
When a government commits to a path to net zero in electricity at breakneck speed within just five years…and sets out a rhetoric of confrontation, there is bound to be a reaction.
Helm does not explain why Labour has adopted this approach, but it’s not difficult to guess. The Starmer government has a fondness for authoritarian methods and for Labour, instinctively a party of command-and-control, the heavyweight state needed to force net zero through is an old dream. Racing to net zero, and staying there, will rest on a system of rationing (artificially) scarce goods and services, an ideal instrument of social control. Net zero societies will be less mobile, less innovative, less free, more collectivist, more ascetic, (superficially) more egalitarian, and more docile: Just what the commissar ordered.
Net zero’s infrastructure will ravage a slice of what remains of a crowded archipelago’s once green and pleasant land. The right of locals to protest is likely to be curtailed. Such people are, grumbles Miliband, “blockers, delayers and obstructionists,” language straight out of the Stalinist phrasebook.
As Helm points out, the net zero consensus may also come under pressure from the left:
In the UK the unions are looking at the closure of primary steel production at Port Talbot and the switching of Grangemouth to being an import terminal and asking perfectly sensible questions about how these de-industrialization steps reduce the threat of climate change when the products will now be imported from high coal-based energy systems in China and elsewhere. Similar questions are being asked about switching from North Sea oil and gas production to more imports, and, in the case of gas, to the much more polluting LNG (liquefied natural gas).
Gary Brown, the head of the GMB, the U.K.’s third largest labor union, has warned that Labour’s climate policies are “hollowing out working-class communities,” from which, he did not need to add, Labour traditionally derives much of its support, some of which has been drifting to Reform. Brown is not the only union leader to sound the alarm. Large numbers of jobs linked to Britain’s embattled North Sea oil sector look doomed.
The coerced transition to electric vehicles (EVs) will lengthen the dole queues still further. British car production fell 30 percent in November, down for the ninth consecutive month, not helped by the U.K.’s punitive zero emissions mandate (automakers are heavily fined if they sell “too many” internal combustion engine vehicles in a given year). This regime has already been blamed for the newly-announced decision by Vauxhall (Stellantis) to close one factory, but the cull won’t stop there. Nissan, which operates the UK’s largest auto plant, has warned that “the mandate risks undermining the business case for manufacturing cars in the UK.” The need to make the quotas set by Britain’s central planners has forced carmakers to offer double the expected discount on EVs. According to Britain’s Society of Motor Manufacturers and Traders, discounts on EVs cost manufacturers an estimated £4 billion in 2024.The government is “confident” that no manufacturer will have to pay any fines on top of that. However, the industry will have had to pay to get the necessary credits or other workarounds to avoid them. The ratchet turns again in 2025 amid warnings of trouble to come.
Clearly alarmed, Labour is promising both to stick to its plan to return the ban on selling new internal combustion engine cars back to 2030 (the date originally set by the consistently reckless Boris Johnson) rather than Sunak’s 2035 deadline, but with a bit more flexibility in the interim. Whether that will be enough has yet to be seen. Directly or indirectly, the auto sector still employs around a million people in the U.K. For how much longer?
That’s a question that will need to be asked in sector after sector. The U.K.’s enormous bet on renewables will not be delivering lower energy costs any time soon. Along with other aspects of climate policy, it has played a large part in pushing British electricity prices to vertiginous levels. Industrial users pay 40-50 percent more than in infamously expensive Germany, and four times as much as in the U.S.
For all the billions that the U.K. has “invested” in renewables, it produces 25 percent less electricity than in 2000, despite an increase in its nominal generating capacity of about the same amount. This is because renewables are “intermittent.” The wind doesn’t always blow (Britain’s turbines generate electricity around 30 percent of the time), and the sun doesn’t always shine (solar panels in Britain generate electricity around ten percent of the time, half the American average). The U.K. has become somewhat sunnier in recent years, but these two facts are not going to change to any material degree. Indeed, if climate change is indeed to blame for falling wind speeds in the northern hemisphere (“global stilling”), Britain’s wind turbines will have even less to work with than in the past. Despite earlier optimistic predictions to the contrary, scalable storage technologies sufficient to fill the gaps left by intermittency do not exist.
And it’s one reason that Helm dismisses claims that renewables are a much cheaper (nine or ten times cheaper said some policymakers) source of electricity than hydrocarbons. To start with, such claims rest on flawed assumptions about the vast cost of all the new equipment that creating a decarbonized grid would require, and the cost of the capital to pay for it, even if (bad luck, taxpayers!) state-funded investors will be chipping in. The age of ultra-low interest rates is over. Miliband’s accelerated timetable will make matters worse: Rushed jobs don’t come cheap. But it’s not only renewables’ higher upfront costs that will make fools of their British backers (or rather of those who believed them), but also the much steeper than advertised cost of running a grid based upon them. And for this, intermittency bears much of the blame.
Helm:
Solar and wind are both intermittent technologies, and low-density and geographically widely distributed. The system costs of renewables are what matters. As more and more are added to the electricity system, they require not just a very large and costly rebuilding of the grid, but also more and more back-up generation for when the wind doesn’t blow and the sun doesn’t shine. This is not controversial: it is well-known but widely simply ignored. When renewables played a limited role in electricity generation, the existing systems could cope, but not if UK offshore wind capacity goes to 50GW, and when combined with onshore wind and solar at times providing all the electricity demanded. At these levels, the necessity of more and more gas and nuclear back-up goes up, and is made intermittent too, wreaking havoc on the economics of nuclear and gas.
A key aim of climate policy has been to make those responsible for GHG emissions to pay for their true costs, their “externalities,” an argument applied by climate policymakers in inventive ways (it underpins carbon pricing mechanisms in the EU and U.K., mechanisms that have done their bit to perpetuate high energy prices in both). But as the Real Clear Foundation’s Rupert Darwall relates in The Folly of Climate Leadership, a detailed and enjoyably brutal takedown of the U.K.’s (pre-Miliband) climate strategy, “transferring the intermittency costs of wind and solar to the rest of the grid means that their true costs remain hidden.” How convenient, and, as Darwall demonstrates, it is not the only such convenience, although that is not the word that energy consumers would use.
I will be chatting to Darwall about Britain’s climate policy in a webinar on Thursday, January 9 at 1 p.m.: details here and below.
A grid relying on renewables is intrinsically expensive and intrinsically unreliable. The greater the reliance, the greater the unreliability, and the greater the expense, and if the impossible 2030 deadline were to be met, that is what Britons will face. GHG-free nuclear energy is belatedly back in favor, but despite technological progress, it’s not a quick fix. Four out of the U.K.’s five (which supply around 15 percent of Britain’s power) aging nuclear power stations will be out of operation by the end of 2028). The fifth is trying to eke out its lifespan until 2035. A newcomer, the first since 1995, may finally come into operation in 2030, wildly over budget and roughly half a century after it was first mooted. Extra hydropower, the most reliable renewable, cannot come to the rescue: There are not enough suitable sites.
In an inadequate recognition of reality, Miliband has now conceded that natural gas will still be allowed to fuel up to 5 percent of the U.K.’s electricity after 2030, presumably to provide that (expensive) back-up when the wind and the sun are underperforming. It won’t be enough. Power stations powered by “abated” gas (meaning that they reduce their GHG emissions through carbon capture and storage) will be permitted (if the money can be found to pay for them). The Drax power station, fueled by wood pellets from, mainly, North America, expensively contributes around 5 percent of Britain’s power and will continue to do so. Thanks to what Darwall describes as “carbon accounting arbitrage” it is deemed to be zero-emission, even if many climate campaigners disagree.
Some help will come from interconnectors, cables through which electricity flows to and from the Continent, so long as Vladimir Putin doesn’t cut them. They supply around 10 percent of U.K. demand each year although, to take one example, on December 2, a day with little wind, that rose to 14 percent. Electricity imported at a time when other European countries are suffering from the same problem (such as during the recent Dunkelflaute, a regular seasonal phenomenon when wintry gloom is accompanied by low winds) can be very pricey. The same is true whenever the U.K. is required to turn to the spot gas market at the same time as other countries too are in need.
Higher power prices have hurt British consumers, who pay 80 percent more for their electricity than the average in the developed world. Unsurprisingly, they consume far less of it than their neighbors in Europe and energy poverty is increasing. Last month, the CEO of Octopus Energy, a renewable energy supplier, advised people who could no longer afford central heating to “snuggle up” under an electric blanket. That is if there is electricity. The more quickly that the U.K. dispenses with gas-fueled power stations (which currently supply about a third of Britain’s current demand), the greater the danger that, at moments of stress, the lights will go out.
Despite their relatively meager electricity consumption, Britons are already being encouraged to submit “demand-side management.” At the moment this, which requires the installation of a smart meter, rewards customers for shifting their demand towards off-peak times, but it’s a warning of, to use a euphemism, rationing to come. Some businesses are also being incentivized to shift their demand, not the sort of signal a country hoping (it says) to attract investment should send.
Helm:
For industry, the assumption is that flexile demand fits with the characteristics of industry. Why? In a digital and increasingly data-rich, AI-enabled and interconnected industrial and services economy, firm power is more, not less, important, and banks and data centres and all sorts of businesses will have to invest in back-up supplies so that they can guarantee a highly reliable 24/7 service. This extra back-up is a further system cost of renewables. No wonder the big tech companies are considering small nuclear and no wonder Ireland has a moratorium on new data centres – the renewables-backed systems cannot guarantee the required firm power.
As it is, there is a growing backlog of connection requests.
It is easy to see where the green industrial revolution will destroy jobs, but it’s very hard to see where the jobs to replace them will come from. There can only be so many chief sustainability officers.
Making matters worse, the uncertainty caused by Miliband’s policies will, if they survive, not end in 2030. His “sprint” will end up as a trudge that will drag on for years beyond a date that only a fanatic could pick. The writers of a report commissioned by the previous government found that, among other deficiencies, the U.K. lacked the ships, steel, concrete, and skilled workers needed for the (somewhat) less ambitious Tory carbonization. Decarbonizing the grid (or now, 95 percent of it) will not involve just remodeling it for existing demand but putting it into a position to cope with the massive increase to demand created by “electrifying everything.” China, which is already supplying so much of the equipment needed for the green “transition” will be happy to help. That is where the new green jobs are and that is where they will continue to be. The geopolitics of the race to net zero are as stupid as its economics.
About the only thing certain about the cost of all this — billions here, billions there — is that it will be rendered even less affordable by the damage it does to the U.K.’s already miserable growth prospects. This spending on an effort to slow climate change that will make no difference, should not be dignified with the word “investment.” It is an exercise in capital destruction to make a point.
Sooner or later, Miliband will sprint into a political storm, as anger over a crumbling economy is compounded by the flow of regulations, taxes, charges, prohibitions, and shortages imposed in the name of net zero. When? I don’t know, but blackouts can be illuminating.
Webinar on Britain’s (Assisted) Green Suicide:
As mentioned above, I will be discussing this topic with Rupert Darwall on Thursday, January 9 at 1 p.m.
Rupert is a British policy analyst with extensive experience in this area. In The Folly of Climate Leadership, a report for Real Clear Foundation published in January 2024, he gives a highly detailed account of Britain’s entry into the race to net zero. It is, he explains, the “story of a massive deception practiced by Britain’s governing class, leading to the biggest resource misallocation in British history.” And that was before Labour took over. The implications for the U.S. are obvious.
Please join us live for this conversation. More details here.
The Capital Matters week that was . . .
Regulation
U.S. businesses are bracing for a new wave of mandatory climate-disclosure policies in 2025 and beyond. The Securities and Exchange Commission, European Union, and California have each adopted disclosure mandates that will impact roughly 15,000 U.S. firms with costly, invasive, and mostly useless disclosure requirements. When these mandates are taken together, U.S. firms will be entangled in a complex regulatory web of confusing disclosures that produce little value for investors and come at great expense.
One of Trump’s most promising new initiatives is the Department of Government Efficiency, or DOGE. Elon Musk and Vivek Ramaswamy have been picked to lead the new commission, and neither has been shy about discussing some of DOGE’s goals. It is quite clear that the federal government has a spending problem and that regulations are out of control.
While the previous Trump administration made headway in slowing the growth rate of federal regulations to a level not seen in at least 50 years, it was not successful in achieving a net reduction in regulations. Perhaps with the DOGE in place, Trump will be more successful in reducing the regulatory state…
Bidenomics
When it comes to stimulus, President Joe Biden has carved out a signature spot in American history. From his role as “sheriff” overseeing Democrats’ massive 2009 stimulus law to signing an even bigger stimulus bill as president in 2021, Biden is more closely associated with partisan stimulus policy than any other politician. And the disastrous political consequences of his stimulus-law failures may prove to be Biden’s most enduring legacy…
Labor
There was a historic strike by the International Brotherhood of Teamsters workers at Amazon facilities over the Christmas holiday, yet it didn’t appear to slow Amazon’s deliveries, and actual Amazon employees on picket lines were few…
The Fed
At its December meeting, the Federal Open Market Committee (FOMC) lowered the target range for the policy interest rate by 25 basis points, to 4.25–4.50 percent, as widely expected by the market. As also expected, the FOMC signaled it expected to continue loosening monetary policy in 2025, albeit through two rate cuts rather than the four cuts it had projected in its September forecast. In his press conference after the meeting, Fed chairman Jay Powell emphasized that since September, data on both inflation and the growth of the economy have come in somewhat stronger than expected, indicating that less monetary loosening is needed for inflation to be guided down to the Fed’s 2 percent target. This shift to a less dovish policy outlook does not appear to have been a direct response to President-elect Trump’s recent threats to raise tariff rates, although Powell acknowledged that some of the officials contributing to the forecast may have taken into account future policy actions by the administration…
Fiscal
Dan notes the continued exodus of U-Haul trucks from California as more people move out of the state than move in, which he has covered before. He also notes the top five states that gained in the U-Haul report: South Carolina, Texas, North Carolina, Florida, and Tennessee. It’s hard to not notice the tax policy differences between the losers and the gainers.
Of the five leading growth states in the U-Haul report, three have no individual income tax (Texas, Florida, and Tennessee) and one has a flat tax (North Carolina at 4.25 percent) …
Energy
Matthew Zeitlin of Heatmap has written an intellectual profile of Donald Trump’s nominee for secretary of energy, Chris Wright. It confirms that he’s exactly the right person for the job.
Wright knows his stuff on energy. He studied nuclear fusion at MIT and worked in solar and geothermal engineering before leading Liberty Energy, a fracking company. So in one sense, he’s an outsider, in that he has never served in government before. But in another sense, he’s an insider who understands how energy policy works and its science better than just about anyone…
Protectionism
In April, the prime minister of Japan visited the U.S. He addressed Congress in English and said, “The people of Japan are with you, side by side, to assure the survival of liberty.” He promised 250 cherry trees to be planted on the Tidal Basin in Washington to celebrate the upcoming 250th anniversary of U.S. independence. He said, “Japan is the No. 1 foreign direct investor in the United States. Japanese companies have invested around 800 billion dollars, creating almost one million American jobs. These are good jobs with half a million jobs in the manufacturing sector alone.”
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