Can net zero and levelling up coexist?

Ever since it formally received parliamentary passage in June 2019, the UK’s net zero target has been the subject of vigorous debate. To its advocates – including Boris Johnson – the decarbonisation agenda presents a potential path to ‘green growth’, and a chance to supercharge Britain’s regional economies. Its critics, meanwhile, fear crippling costs as ministers rush headfirst into embracing what they see as inefficient technologies.

As the Conservatives gathered in Manchester for their 2021 annual conference, The Spectator set out to bring together some of the party’s sharpest thinkers on the topic, alongside voices from industry, to give net zero the discussion it deserved. Our focus, in particular, was on whether decarbonisation might have a role in boosting the north west and north east – thus helping deliver the Prime Minister’s now ubiquitous ‘levelling up’ pledge.

For the discussion, we were delighted to welcome Ben Houchen, the Tory mayor of Tees Valley; Bim Afolami, chair of the all-party parliamentary group on renewable and sustainable energy; Jake Berry, head of the influential Northern Research Group of Tory MPs; Shevaun Haviland, a former cabinet office advisor who heads the British Chambers of Commerce; and Will Gardiner, chief executive of power generation business Drax (which sponsored the panel discussion).

Putting the discussion in context, Mr Houchen (whose broadside against costly eco-levies had made headlines in the run-up to conference) outlined what had been happening in his region. ‘In Tees Valley, the question isn’t whether green growth can supercharge the economy – because we’re already seeing that happen,’ he said. Just as importantly, he added, the region’s renewable transition was being powered by the old industrial bases of yesteryear, ensuring that high-quality jobs were being retained.

‘The people that worked in the steel-works or oil and gas are now working in industries such as hydrogen production, carbon capture storage and offshore wind,’ he said. ‘In four weeks’ time, for example, we’re about to put the first spade in the ground to deliver a new factory producing blades for offshore wind turbines: something that will create 2,000 jobs.’ He also pointed to a carbon capture partnership with Drax in the Humber, which would see eight million tonnes of carbon taken out of the atmosphere. There was potential, he said, for this kind of project to be built in other parts of the region (or, indeed, elsewhere in the UK).

So what needed to be in place to make that happen? ‘The government needs to ask how to unleash the private sector. Which means giving certainty not just to big construction companies but also investors who can plough billions of pounds into this work,’ said Mr Houchen. It was a point that resonated with Drax’s chief executive, Will Gardiner, who called for the government to set the right ‘framework’ to incentivise green investment. As an example he pointed to the use of so-called ‘contracts for difference’ for wind farms which, over time, had made wind power cheaper and commercially feasible. ‘It’s a classic case of how government can help the cost of new technologies come down over time,’ he said. ‘I think they could do exactly the same thing with carbon capture and storage.’

While he agreed there would inevitably be a role for Whitehall, Mr Afolami urged the panel – and the audience – to think about local financing, too. ‘Doing these kinds of projects will require more money to be raised locally,’ he said. ‘We can’t just say we want more devolution and then expect central government to just give out more money to local councils.’ The BCC’s Shevaun Haviland spoke up for the need for the government to support small and medium enterprises (SMEs) in this transition – particularly given their important role in supply chains. ‘It’s hard to see how SMEs are going to move forward on this without some sort of incentive, nudge or tax break,’ she said.

For Mr Berry, though, there were risks of the government enacting policies that might skew the market and lead to worse outcomes. ‘I don’t think all of the interventions the government has made so far have been entirely helpful,’ he said. ‘Look at its determination to promote battery vehicles. My own personal view is that hydrogen is the fuel of the future – after all, you can’t have a battery-fuelled HGV – but the government’s policies have skewed the market massively towards batteries and electricity.’ It was a point echoed by Mr Houchen, who argued that the civil service’s insistence on electricity – rather than hydrogen – was leading to bad policy. ‘I think it’s a pretty bizarre move trying to put electric heat pumps into every single home in the country, for example, when they’re three times more expensive and a lot of homes can’t accommodate them,’ he said.

And what about the consumer and their role in paying for net zero? For Mr Afolami there was a simple answer. ‘It’s clear to me this agenda won’t work if the government imposes significant costs on people who cannot afford to pay them – it’s as simple as that,’ he said. As an example of what not to do, Mr Berry raised the government’s decision to embrace an energy cap – a move which, he said, had driven up consumer prices by reducing competition in the market. ‘When Ed Miliband proposed a cap, Conservative MPs said it was a terrible, Marxist idea and would distort the market,’ he said. ‘And we were right.’

‘We’ve also got to make sure that we don’t have policies that make our businesses less competitive,’ added Mr Houchen. ‘We might be leading the world in some industries, but what if a company in North America can buy the same car for a lower price from a country with looser regulations?’ It was a comment which, once again, captured the crux of the big question. The transition to net zero clearly represented an opportunity to revitalise infrastructure and boost growth (and not just in the north) – but only if it were done in a way that didn’t hamper economic competitiveness or disproportionately burden households. Getting it correct may well become the government’s defining challenge.