Decarbonization Efforts Have Left the UK Poorer: Investment Bank

Analysis showed that a steep decline in electricity supply since the early 2000s coincided with much slower growth in living standards.

Wind turbines dot the landscape at Pen y Cymoedd Wind Farm in Wales, the UK, on Aug. 1, 2024. Carl Court/Getty Images

News Analysis

The UK’s decarbonization efforts have left the country poorer, according to research from an investment bank.

On March 3, leading UK investment bank Peel Hunt published an analysis that challenges the government claim that there is no trade-off between Net Zero and economic growth.

The report said that a decline in electricity supply since the early 2000s has coincided with much slower growth in living standards.

“The UK’s decarbonisation efforts, so far, have resulted in weak economic growth, high energy prices, stagnant productivity and no significant impact on global emissions,” Kallum Pickering, Peel Hunt’s chief economist, who conducted the research, posted on social media platform X.

Reacting to the analysis, Andy Mayer, energy analyst at free market think tank the Institute of Economic Affairs, told The Epoch Times by email that it has “been self-evident to many for some time that the UK’s approach to decarbonization has delivered expensive energy rather than the promise of green growth.”

In January, the UK’s Chancellor of the Exchequer Rachel Reeves said, “There is no trade-off between economic growth and net zero.”

Peel Hunt said the opposite in its report.

“Our analysis challenges the government’s claim that there is no trade-off between Net Zero and economic growth. Two decades of experience suggests otherwise,” it wrote.

The UK is bound by law, via the Climate Change Act of 2008, to bring all greenhouse gas emissions to net zero by 2050. The act was the world’s first long-term, legally binding framework for reducing emissions.

The law’s “carbon budgets” set legally binding limits for emissions over five-year periods.

The UK is known for being a global leader in renewable energy, especially in terms of offshore wind energy. It has more capacity installed than any other country, accounting for roughly 20 percent of global offshore wind capacity, according to UK Research and Innovation, a national funding agency investing in science and research.

However, the UK also has some of the highest electricity prices in the world.

According to the British government, electricity prices in the UK have gradually become higher than those of most other EU countries. In the early 2000s, its domestic electricity prices were the second lowest in the EU, which was then the EU-15.

Productivity Slowdown

Peel Hunt suggested that Britain’s productivity slowdown, an important measure of economic performance, began before the financial crisis.

Its report said that UK living standards, gross domestic product (GDP) per capita, and estimates of productivity, the major driver of living standards, rose steadily “along a predictable trendline” from 1970 until the Global Financial Crisis in 2008 and 2009, which plunged the UK into a deep balance sheet recession.

“Most analysis links productivity weakness to the long-term effects of the global financial crisis,” the report said.

Per capita energy consumption and per capita GDP show a strong “positive correlation,” according to Peel Hunt. The bank noted that as UK electricity availability peaked and began to decline, the upward trend of productivity slowed sharply.

Further, it reported that electricity availability has declined by 21 percent since peaking in 2005. This decline has occurred largely because of the planned decommissioning of various electricity production facilities—coal, oil, and nuclear.

“As capacity has been destroyed or mothballed, it has not been replaced with like-for-like output, and overall electricity availability has declined precipitously,” it said.

“If an economy throttles its production of energy, it impairs its capacity to produce all types of goods and services. Productivity is the major driver of per capita GDP.”

In 2005, which is when the UK’s electricity supply “peaked,” its energy per capita was 50 percent of the U.S. level, while living standards were about 79 percent of the U.S. level.

However, by 2022, the UK’s per capita energy consumption had declined to about 38 percent of the U.S. level. Meanwhile, its per capita GDP had fallen to 74 percent.

Peel Hunt warned that the UK has paid a price in terms of living standards, projecting that Poland and South Korea will overtake the UK in living standards by 2030, as their per capita energy consumption continues to grow.

The UK now accounts for less than 1 percent of the global total of emissions.

However, this reduction has come partly by way of deindustrialization, the report clarified, with carbon emissions being shifted abroad.

‘Promise of Green Growth’

The Confederation of British Industry (CBI) last month released a report that said the net zero industry had grown by more than 10 percent between 2023 and 2024.

This was at a much higher rate than the Office for Budget Responsibility’s October 2024 GDP growth forecast for the entire UK economy, which was 1.1 percent in 2024 and 2 percent in 2025.

Mayer said the “contrary view” adopted by analysts such as the CBI and the British government tends to follow a “familiar pattern of isolating growth in net zero industries, ignoring the cost of subsidies and regulations, and demanding more of the same.”

“This is unserious and more akin to sales literature for renewables industries than an economic analysis,” he said.

He said the UK’s financial sector has “tended to pile into this groupthink, keen to extract rent from lucrative green finance contracts, perhaps the only climate industry in which the UK is leading the world.”

Mayer said it was good to hear “some dissent from city analysts backed up by hard analysis.”

The UK’s Department for Energy Security and Net Zero did not respond to a request for comment from The Epoch Times by publication time.