BoJo's Net Zero Strategy: New Taxes & Insufficient Investments Cast Doubt on Build Back Greener Plan

BoJo's 368-page net zero strategy envisages dramatic changes to the country's transportation, electricity consumption, and heating. It includes an expansion of electric vehicles and charging points, further development of offshore wind turbines, as well as investments in at least one nuclear power station. However, the Treasury has warned about the necessity of new tax increases to meet the programme's goals.

Tax Increases May Prompt Public Protests

Net zero is a great economic opportunity, and there is little doubt the total benefit is higher than the total cost, but there are also good reasons to take Boris Johnson's Net Zero Strategy with a grain of salt, believes Dr Renaud Foucart, senior lecturer at Lancaster University Management School.

"First, the current proposals are vague and largely seem to constitute a public relation exercise ahead of the COP26", Foucart says. "Second, there is a distributional issue with the cost and benefits of transition".

HM Treasury's review of BoJo's plan warns that the transition to a green economy has "material fiscal consequences". The biggest impact will come from the erosion of tax revenues from fossil fuel-related activity, according to the ministry, which forecasts that the government will lose tens of billions in revenues from fossil fuel taxes. Currently, tax revenues from fossil fuel duty amount to £30 billion ($41.4 billion) a year.

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The review further explains that "any temporary revenues from expanded carbon pricing" won't "be sufficient to offset the structural decline in tax revenues", though being important in supporting the transition. The government "may need to consider changes to existing taxes and new sources of revenue" throughout the transition, the paper emphasises.

However, the government has already raised the taxes "to unprecedented levels", mostly on the young and the middle class, argues Foucart. It is unclear how the British government will react to public discontent with additional taxes, according to him: "At the moment it is still fine to blame the pandemic, but in five years?" he asks. Moreover, the academic does not rule out that Britons could resort to protests akin to those held by the Yellow Vests in France.

"Finally, the idea to put a lot of emphasis on nuclear energy, while politically astute (to please Conservative voters who do not want to turn into the "green party"), goes against the idea of developing UK expertise", Foucart underscores. "A French state-owned company (EDF) manages all of the current operating power stations in the UK and so is the one under construction in Somerset (Hinkley point C). The other big players worldwide are Koreans, Japanese or Chinese".

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'Underfunding Will Lead to Much Greater Costs'

Meanwhile, the UK government's investments in the new bold strategy don't seem sufficient, according to Professor Alex de Ruyter, a regional economist at Birmingham City University and director of the Centre for Brexit Studies.

"The plan goes in the right direction but is an order of magnitude smaller than needed (both in financial terms and in terms of speed)", de Ruyter believes. "Let’s put it into perspective: the government’s total funding commitment to decarbonising buildings is equivalent to around a month of running the furlough scheme".

According to UK officials, £26 billion ($35.9 billion) of funding towards the green plans would come from the public sector from 2021 to 2025. In addition, £60 billion ($82.9 billion) are expected from the private sector, The Guardian notes. However, the media outlet deems that it's not enough: "the policy announced at the Labour party’s recent conference, of investing £28 billion [$38.7 billion] a year on green measures until 2030, would have taken the UK further, faster", argues the daily's editorial.

"It is unclear precisely how the £60 billion of private sector funding will be 'unlocked'", de Ruyter says. "Presumably a large part of this will relate to a small number of nuclear power plants".

The British government promised to create up to 440,000 jobs. However, this figure is "misleading", as it "includes jobs that transition", according to the economist. In this sense, it would be more accurate to claim that it "supports" rather than creates these jobs, argues de Ruyter. In addition, the words “up to” are doing a lot of heavy lifting in this sentence, he remarks.

"To a large extent, I would argue that politicians are deliberately underfunding this due to an aversion to raising taxes", the economist says. "There is also an excessive deference to the 'free market' even though climate change is an obvious (large) externality. There is a famous British saying that encapsulates this attitude: 'penny wise but pound foolish'. Refusing to fund these measures properly now will inevitably lead to much greater costs down the road".