Is climate policy broken? Blair says so
Making sense of the latest trends in property and economics from around the globe
5 minutes to read
Tony Blair and Net Zero are both topics that get pulses racing - in a high blood pressure sort of way.
Tony Blair talking about Net Zero is catnip for the newspapers, so it follows that a report by the Tony Blair Institute for Global Change (TBI) calling global climate policy 'irrational' generated a barrage of headlines and triggered a heated debate in Parliament.
The TBI's core argument is that our focus on emissions reduction is failing. The process is being undermined by asking voters in the developed world "to make financial sacrifices and changes in lifestyle when they know that their impact on global emissions is minimal." The authors then list "inconvenient facts" that, admittedly, won't fill readers with an insatiable desire to spend £10,000 on a heat pump.
Despite the explosion in renewable energy and rapid take up of electric vehicles, for example, global demand for fossil fuels will continue to rise until 2030 at least. In 2024, China initiated construction on 95 gigawatts of new coal-fired energy, which is almost as much as the total current energy output from coal of all of Europe. India recently announced they had reached the milestone of 1 billion tonnes of coal production in a single year. Airline travel is set to double over the next 20 years. By 2050, urbanisation is expected to drive a 40% increase in demand for steel and a 50% increase in demand for cement. By 2030 almost two-thirds of global emissions will come from China, India and South-East Asia. On it goes.
Technological leaps
Policymakers, the authors argue, are locked into supporting an ineffective process by fears of being called climate deniers, and we should "alter where we put our focus and resources." So while getting emissions down remains important, funding the kind of technological leaps we need to make renewable energy affordable should take centre stage. Carbon capture should be at the centre of the battle, the authors suggest - a process that is commercially unviable despite being technologically feasible. Nature-based solutions, nuclear energy, planning policy and AI's role in making grids more efficient should all get far more time, energy and money.
But again, the crux of the TBI's argument lies in rebalancing policy in favour of economic structures that we already know unlock progress, rather than fighting them or labouring over the creation of new ones:
"We need to recognise that without turning some of the emerging technologies into financially viable options, the world will choose the cheapest option," the report states. "This applies to everything from nuclear fusion to sustainable aviation fuel, to green steel and low-emissions cement."
This taps into a broader truth about ESG. Less than ten years ago, it looked like the world was ready to get behind a new sort of capitalism - one in which companies were no longer just cold engines of shareholder value, but forces for good, pursuing their own moral agendas that often included going above and beyond when it comes to emissions. But the tide has gone out on that - crushed by a combination of shifting political sands and ruthless activist investors. Climate change is back in the hands of politicians and regulators, and without aligning policy with the way the world actually works, the process appears doomed to fail.
Swim upstream
Real estate has been a focus for policymakers from the outset, given its outsized contribution to global emissions - here we already know a lot about what works and what doesn't. We know, for example, that asking homeowners to shell out for heat pumps doesn't work - the National Infrastructure Commission estimates that each household will need a subsidy of about £7,000 if installations are to meet targets.
We also know from other industries that placing regulations well upstream of consumers works, because the private sector does a lot of the leg work. By agreeing to phase out the sale of petrol vehicles by 2030, for example, the government triggered a wave of innovation among car manufacturers. Automakers brought more models to market, especially smaller, entry-level EVs. By 2027, more than a dozen EV models priced at £23,000 or below are expected in the UK.
The government intends to take a similar approach with solar. Rather than continuing to cross its fingers, hoping consumers are inspired to make purchases, housebuilders could be mandated by law to install solar roof panels on new properties by 2027 under new rules seen by The Times. The change is estimated to add about £3,300 to the cost of building a semi-detached or terraced house and just under £4,000 for a detached property. New homeowners could recoup the cost within four years.
This is small stuff in the grand scheme of things - new homes are already pretty energy efficient and the real problem lies with existing homes, but it's a good example of the policymaking that we know works. Carrots and sticks, not just asking nicely.
Robust activity
Mortgage borrowing surged in March as borrowers squeezed deals in ahead of changes to the Stamp Duty Land Tax Thresholds (SDLT). Net borrowing hit £13 billion, up from £9.7 billion a month earlier, the Bank of England reported this week.
Mortgage approvals for house purchase, which fell marginally, offer a better measure of the health of the housing market. Approvals have eased in recent months, but 64,300 still represents robust levels of activity and is broadly in-line with the 66,000 or so approvals that we were seeing in the lead up to the pandemic.
Lenders are engaged in a price war, which has swiftly boosted sentiment among purchasers. Both HSBC and Barclays cut rates this week, following a large repricing by Santander last week. The larger lenders are also rethinking how they approach mortgage affordability testing, which will unlock the prospect of purchasing for many more potential buyers.
In other news...
Interest rates ‘to fall at fastest rate since UK’s financial crisis’ (Times).