Few grand projects survive contact with reality, and the grand promise of net zero electricity by 2030 is clearly one of these. There have been the first skirmishes – the promise of £28 billion per annum, the grand ambition for Great British Energy to be the EDF of Britain, and the silly promise that you could get £300 off your bill by typing your postcode (or any postcode) into the Great British Energy website.
Then came the bigger setbacks. Expansions of Heathrow, Gatwick, and City airports on the questionable basis that Sustainable Aviation Fuel (SAF) would mean no impact on the longer-term net zero targets.
All this pales into insignificance compared to the biggest challenges: the carbon emissions associated with building 1.5 million houses and now a massive expansion of defence. The materials that will go into the new houses are mostly extremely carbon-intensive. Think steel and concrete and bricks and tiles and plaster. These are not going to be timber buildings. Defence is one of the most carbon-intensive industries. Think steel (again), shells, fighter planes, and support ships.
Building could be improved from a carbon perspective, but the image of a battery-powered tank stopping to recharge on the battlefield should be enough to realise that fossil fuels are an essential part of defence for years to come. Add in all the manufacturing and ask how intermittent wind and solar will repower our armed forces to face the Russians.
This is a government which has as its primary mission the promotion of economic growth – its number one mission to which all others are subordinate. Building houses and massively expanding wind and solar were supposed to be the route to this elusive growth. Now it is primarily building houses and defence, and it is defence that has the best productivity record and, in gross domestic product (GDP) terms, the greatest potential to deliver the sorts of growth the government has in mind.
Defence and net zero don’t mix
Let’s assume the government really is serious about defence. There is no reason to doubt the seriousness with which the Prime Minister (PM) takes this, as the realities of a Trump-led US and the Ukrainian battlefields sink in. Americans have an understandable question mark over the assumption that they will pay for the defence of Europe against Russia whilst the Europeans have shirked this obligation, despite the last four US presidents stressing the need to do so. Patience has run out, and Trump is just the messenger of this impatience.
The British defence position looks good in terms of spending as a % of GDP. But look under the bonnet at the current 2.3% number, and what emerges is rather less than some assume. Much of it goes on submarines, Trident and even pensions. Take a look at the Ukrainian battlefields and the hostile actions in the Baltic and North Sea, and the match between our spending and what would be needed to fight a Ukraine-style war is all too apparent. Drones, cyber attacks, the meat grinder of the Russian army and the cutting of the communications and energy cables are not what our armed forces are built for. We can threaten Russia with a nuclear weapon, but, as Putin has so far discovered, the threat doesn’t change much. Worse, in the British case, the British nuclear weapons are really US nuclear weapons. Trump or his successor might not be keen for us to fire one.
Britain has capabilities, especially technical ones. However, it is locked into the US defence industries, it has great supply chains exposure because most of its heavy energy-intensive industries have closed down, and very few troops. It has made itself extraordinarily dependent on the kindness of strangers to secure our energy supply through both its dependence on undersea cables and offshore wind turbines, and, by closing its North Sea oil and gas, ever more dependent on imports.
The conflicts over the money
One of the most questionable claims made by Ed Miliband, Secretary of State for Energy and Climate Change (and many others) is that the net zero target has no net costs – indeed, he claims to make us the energy cost-competitive world leader. With ever-cheaper renewables, Britian is going to be the destination of choice for energy-intensive industries, keen to get access to the very cheap wind and solar energy. Trump should be petrified by the prospect of a very energy-competitive Britain, and even with his tariffs US companies will be leaving the fossil-fuel-dependent US to relocate their factories in Britain.
This is the fantasy land that the Secretary of State lives in, as it was for Boris Johnson, who proclaimed that the leaders of China and Russia were looking to the UK’s leadership on net zero, with a view to copying our energy policies. The fantasy is not just based on the elementary confusion of the marginal cost of electricity generated from a solar panel or a wind turbine with the system costs of firm power, but also on the mistaken assumption that these politicians know the future cost of gas. The Secretary of State keeps telling us that he knows that the cost of gas is likely to be high and volatile. The reality is that there is no good reason to think this is necessarily going to be true. Indeed, he should be praying he is wrong, because it is a falling price of gas that might just save his bacon, by lowering the wholesale price. Take a look at the real price of gas in Europe, even after all that has happened with Russia, and things do not look like the scenario that the Secretary of State keeps telling us about.
Then there is the cost of capital. The 2024 Autumn Budget – a budget of growth – raised the price of labour, raised taxation on savings, and raised the cost of capital. All of these are bad news for the dash for net zero, and, of them, it is the cost of capital that is the most damaging. The Autumn Budget went for unfunded public expenditure and the gilt markets reacted. The cost of capital has gone up a lot since the crazy days of endless negative real interest rates. A wind farm, a solar farm and a nuclear power station are all lumps of capital, forming the fixed and sunk costs. The marginal cost of the electricity generated is zero. These are basically infrastructure and the most important variable is the cost of capital. The Secretary of State and Department for Energy Security and Net Zero (DESNZ) seem not to have noticed; HM Treasury has.
These are basically infrastructure and the most important variable is the cost of capital. The Secretary of State and Department for Energy Security and Net Zero (DESNZ) seem not to have noticed; HM Treasury has.
The cost of energy
If asked why the cost of energy to the energy-intensive industries in the UK is the highest in the industrial world, the Secretary of State would no doubt point to the “high and volatile gas prices”. In doing so, he should perhaps think a little more: other countries use gas too, but their prices are lower. Even Germany, lumbered with the closure of its nuclear power stations and the Energiewende, and with great gas dependency for its energy-intensive industries (which it still has, and Britain does not), has lower prices. Then there is the US – going full out on oil and gas – which has energy that is four times cheaper.
Might one of the reasons be that, with increasing dependence on intermittent, low-energy-density, geographically dispersed, small-unit-scale wind and solar, the system costs might be large? Much more capacity is needed to meet expected demand, lots more interconnections, lots of LNG (liquefied natural gas), the high costs of making gas-fired power stations intermittent, and the costs of all the networks to take this small-scale power to market are just some of the reasons for the highest industrial energy costs in the developed world.
The intermittency is no good for energy-intensive industries and especially not for defence. Nor is it good for the new energy-intensive industries like data centres and AI. Security means firm not intermittent power.
One way that Britain keeps the lights on is to heavily subsidise DRAX. For all the press releases from DESNZ about “home-grown energy”, DRAX is not an example. Its wood pellets are almost all imported. Its environmental credentials have been subject to serious challenge. But, never mind, for it has two great advantages. The first is a statistical one: its emissions don’t count against the territorial carbon total here. So having one of most polluting power stations in Europe is not a problem for net zero. It provides power without assigned emissions. This is smoke and mirrors. The second bow to its string is that DRAX is a large flexible power station, and hence can balance against intermittent renewables. As the net zero 2030 target includes 50GW of intermittent offshore wind, it is easy to see why the Secretary of State agreed to yet more subsidies, despite his personal opposition in the past to DRAX. As with his personal opposition to Heathrow expansion, as the decisions are forced through, the embarrassment must be very painful.
It could be worse. Suppose we still had serious manufacturing industries – refineries and petrochemicals, fertilisers, aluminium, steel, and cars, all keen on firm power. Imagine then what the collision would be with the dash to net zero in 58 months by 2030. Closing Port Talbot and Grangemouth relieves the pressures. Just importing the stuff instead helps out on territorial emissions, but not on costs – and Port Talbot and Grangemouth are stand-out examples of what serious defence might need.
Think through the following example. To defend Britain, we need a lot of kit that relies on primary steel (not the weaker recycled form). Imagine, then, that, as a defence policy, we close Port Talbot and the rest of the primary steel production in the UK. We still need the steel. Where will we get it from? Step forward China. Now remember that the PM wants to keep very close to the US. Now imagine China invades Taiwan, and the US calls on Britain to support it – as it did in Afghanistan and Iraq. Perhaps the PM will follow Harold Wilson’s brave rejection of participation in Vietnam. Perhaps not. If the PM does want to stand “shoulder to shoulder” with the US over Taiwan, it is hardly a safe assumption that the supply chain for defence, including the steel from China, is going to stand up.
The important point here is that a serious defence policy needs lots of security in its supply chains, and it especially needs energy- and carbon-intensive industries like steel, oil and gas, and refineries and petrochemicals.
Closing off North Sea oil and gas
It is not hard to see why those who want to “just stop oil” oppose further production in the North Sea. The trouble is that they cannot just stop oil globally and they cannot stop Britian using lots and lots of it. Though the UK is “only” about 75% reliant on fossil-fuel energy, compared to the world at 84%, the reality is that part of the difference is explained by outsourcing energy-intensive industries to the likes of China. Britain has closed its coal power stations, but it is simply wrong to claim it has thereby exited coal. It imports coal embedded in the products it once produced. It has exited coal-fired electricity generation, and that is a big plus, but it has not exited coal.
The real question is whether Britain is less reliant on oil and gas if it imports it instead. The answer is obviously no. Worse, if the imports include LNG, the carbon footprint actually goes up. If we want to just stop oil (and gas), it is easy: just stop buying the stuff made from it. Stop taking all those flights, stop travelling in vehicles powered by diesel and petrol, stop buying all those clothes made with petrochemicals, stop buying stuff delivered to you by non-electric couriers, and actually stop buying almost everything, since electric vehicles are very carbon-intensive to make and use gas-generated electricity some of the time. There is no evidence that these environmentalists get anywhere close to stopping buying oil and gas.
Defence makes this much harder; as noted, it is oil- and gas-intensive. In a war it helps a lot to have your own supplies and your own stockpiles, rather than relying on pipelines to Norway and LNG plants that are dependent on shipping. From a defence perspective, it is just plain silly to cease your own production and rely on imports.
The problem of the North Sea vulnerabilities
From a defence perspective, the North Sea is a nightmare. It presents an aggressor with a cornucopia of targets, and targets that are high value because they can lead to massive consequences if damaged and destroyed. Imagine a swarm of drones (the sort familiar in Ukraine) directed at the offshore wind farms. Each wind turbine is a small generator, so the cost of defending each relative to its value is very high. A swarm of drones only has to get some of them. Imagine an aggressor wanting to disable the British economy. Take out the Norwegian gas pipeline and there is a good chance the lights go out. Take out the electricity interconnectors in, say, January or February in line with a weather forecast for low winds, cold temperatures and dark skies; again, there is a good chance that the lights go out. Now go for the LNG terminals.
All of this is before going to the cyber infrastructure. Cutting wires and cables has been demonstrated to be very easy. Nordstream was blown up. Baltic communications cables and energy links have been cut – in the case of Sweden and Finland, in punishment for joining NATO.
Now remember that the electricity system and the cyber systems are intimately connected together. Cyber needs electricity. Electricity increasingly is dependent on communications systems and coordination.
The realities are starting to be revealed
Politicians keep telling us that there is no conflict between the sprint to net zero by 2030 and economic growth, and there is no conflict between net zero and defence. Neither is the case. The sprint to net zero is further exacerbating the highest energy costs of energy-intensive industries, and that damages economic growth. Defence is very carbon-intensive. Step by step the Secretary of State is forced to back down in the face of the Treasury’s priorities on economic growth, and now he will have to back down given the PM’s focus on defence.
All of this is serious and requires serious trade-offs to be openly discussed and addressed. It does not help that the net zero target is not a sensible one if the aim is to tackle climate change. We continue with the nonsense that, when we get to net zero (that is, net zero territorial carbon production excluding DRAX), we will no longer be causing climate change. Remember all those imports of carbon- and energy-intensive products forced offshore by the highest energy prices in the industrial world?
It is no consolation that the other country that has gone down a similar route to the UK – Germany – is in serious trouble too. Nor is it any consolation that no other major country is the world is really pursuing net zero carbon consumption, the achievement of which target means we are no longer causing climate change. And for good measure, do not be fooled that China (one of our potential adversaries at which the new defence priority is directed) is really stopping causing climate change. It burns more than half the world’s coal and is building lots and lots of new coal-fired power stations.
