Economics - New report shows the cost of achieving Net Zero
06 July 2021The new Fiscal Risks Report from the Office for Budget Responsibility (OBR) outlines three major risks to the sustainability of UK government finances: COVID-19...
The new Fiscal Risks Report from the Office for Budget Responsibility (OBR) outlines three major risks to the sustainability of UK government finances: COVID-19, climate change and debt servicing cost (sundry minor risks are also noted):
COVID-19 impact:
Economic impact
Fiscal impact
Unfunded legacy impacts (eg: effects on education, healthcare, transport)
Climate change impact:
Physical effects of climate change (eg: drought, famine)
Transition risks related to moving to a low-carbon economy
Cost of moving to a low carbon economy (eg: updating infrastructure)
Debt servicing cost:
Higher interest rates globally
Higher inflation, necessitating higher interest rates nationally
Loss of investor confidence
Changing structure of debt (eg: shorter debt maturities, more index-linked debt instruments)
Moving to a “net zero” economic system to manage climate change is a huge project and will inevitably be costly, but the goal has been secured via legislation and so doing nothing is not a (lawful) option.
OBR estimates that that cost of pursuing the government’s “net zero” objective will add around 21% to government debt by 2050-51, equivalent to around £469bn in today’s terms.
This is slightly less than the anticipated cost of the COVID-19 pandemic, but note that this is the cost in the “early action” scenario, under ideal conditions.
In the event of “late action” cost to government could exceed 40% of GDP. Also, the costs to households and businesses are not covered.
Climate change is a consideration for businesses as well as for government and many UK food and consumer goods businesses are moving in this direction.
IGD has spoken with decision-makers from businesses of all sizes, across our industry’s supply chain. We know there is a huge appetite to innovate and lead our industry’s.
We also know that for many businesses it’s not always clear where to start the journey. We have therefore partnered with leading climate solutions provider South Pole to create a new guide.
Building your Net Zero roadmap: a guide for industry leaders and decision makers is designed to help companies start their Net Zero journey.
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