Winning back the Net Zero billions

The Chancellor is short of money – alarmingly so, after her botched budget and Ed Miliband’s eco-posturing managed to wreck investor confidence. Ms Reeves therefore urgently needs to save money, and let’s face it, a ‘war on waste’ is no more likely to deliver under Labour than it did under the Conservatives. Until we get a grip on the bureaucrats, it’s not going to happen.

However, it’s still interesting to consider how much we could save by cancelling Net Zero.

Most of the cost burden of this most irrational of policies takes the form of levies on bills, so that consumers would be the beneficiaries of any cancellation. However, there are some substantial direct savings too.

This post will therefore be split into two parts – the direct savings, and the indirect.

Direct savings

According to its most recent annual report, for 2023-24, DESNZ spends £8bn per year, of which £0.3bn is salaries for its own staff. The spend figure as somewhat inflated by efforts to reduce the impact of the energy price crisis, and I have been careful to leave these figures out of any potential savings, since they will presumably drop out anyway.

During the period, the department spent £7.6bn, of which £3.3bn want to outside bodies and £4.3bn to support DESNZ quangos.

We can get a flavour of the savings available by looking at the detailed spending. DESNZ publishes monthly summaries, although only the 8 months to March 2024 are available. I have downloaded this data and flagged everything to do with low carbon, decarbonisation, net zero (and related terms), but ensuring that nuclear spending is not flagged. This suggests that savings of around £2.7bn are possible over the 8 months, which might be £4.0bn when grossed up to 12 months.

This is over half of the total annual spending. There would probably be another hundred million or so from salary savings within the department, but that’s only a rounding error in the greater scheme of things. And there are hundreds of millions more if we cancel the STEP fusion project, which duplicates work already being done in the private sector.

Indirect savings

The benefits to consumers are much more significant. Closing down the renewables fleet would save annually (OBR data)

·         £2.3bn CfD subsidies

·         £7.8bn Renewables Obligation

·         £2bn balancing costs

…for a total of £12.1bn. There would be further savings on network costs, but these are harder to pin down. Adding in the direct savings, we’re at over £16bn.

In addition, if investors in gas-fired power stations took the hint and built new capacity, the efficiency gains (63% for a new unit, as compared to 48% for the current fleet) would bring further savings in wholesale costs. I haven’t attempted to quantify these, as it’s not at all clear that investors would feel confident enough to take the plunge.

Of course, closing down the renewables fleet would come at a cost. The Unite union reckons the book value of the fleet is £38bn and its market value is £66bn. If the fleet were nationalised for its market value, with investors compensated over 20 years (approximately the life of the assets), that would be an annual cost of £3bn.

So the final position is:

·         Direct savings: 4.1bn

·         Indirect savings 12.1bn

·         Indirect costs £3.0bn

So the net saving is £13.2bn. Per year. That’s nearly £500 per household, so it’s a huge economic gain. It’s just a question of whether Ms Reeves thinks this is an easier sell than attacking disability benefit.