The Regulatory Policy Institute Research Group

The End of Net Zero

Net zero means achieving a balance between the greenhouse gases (GHGs) put into the atmosphere and those taken out, to neutralise human influence on the climate. The concept has been enthusiastically embraced by governments following the United Nations 2015 Paris Agreement. Some five hundred cities, over one thousand large businesses, and more than fifty major global investment institutions have developed versions of the principle. Overall, net zero ambitions now cover some eighty percent of the world’s population and between eighty and ninety percent of global GDP.

The Target Amendment Order (2019) to the UK’s Climate Change Act (2008) has created the formal framework for the UK’s own net zero target, which at the time was the first major economy to translate the concept into law.  What could be better than showing global leadership? Well, in a recent blog: Climate policy – ‘Tain’t what you do, it’s the way that you do it’, we made the point that the effects of carbon reduction in any one country depend on how it is achieved. This is true whatever the aspirational goal, net zero or otherwise. We refer readers to that article for details.

Beyond this message on the essence of good strategy, what can we say about the net zero ambition itself? A broad perspective suggests hidden fault lines lurk in net zero for policymakers, creating economic risks from short-sightedness as a result.

The starting point is to appreciate that the relevant ‘environmental network’ is much greater than the atmosphere alone. The full perimeter of the system embraces the whole biosphere, including the position of homo sapiens within it. The United Nations Agenda (2015) recognises seventeen Sustainable Development Goals, of which one is climate action. The latest United Nations Biodiversity Conference, chaired by China and hosted in Montreal in late 2022, concluded that a stable climate was unimaginable without attention to the full workings of nature.

Net zero policies are not only potentially afflicted by network myopia, but they sometimes appear to ‘pin down’ the future in arbitrary and potentially over-constrained ways. Article 4 of the Paris Accord itself is quite broad and refers to GHG neutrality “in the second half of this century” as part of the primary goal to keep the increase in global average temperature to well below 2ºC above pre-Industrial levels.

However, the UK’s own net zero law has a compliance date of 2050; some countries have set net zero legislation for earlier, such as Sweden and Germany (2045). Many large emitters retain more distant commitment dates, for example the USA (2050), China (2060) and India (2070), but they are not legally binding. The dates chosen defy easy rationalisation, except that they are far enough away so that current politicians will be unlikely to have to worry about them. Unsurprisingly, annual global emissions keep rising, albeit at a decelerating rate. The IEA in its recent STEPS scenario estimates that current global policies will lead to global warming of around 2.5 ºC.

At root, the fundamental problem is not a climate science one (the evidence of a human trace on the climate signal is uncontroversial thanks to the detailed work of the Intergovernmental Panel on Climate Change), but an economic one. The term net zero was introduced by scientists into climate semantics early in the new millennium. It is more useful in atmospheric physics than for economic policy.

The relevant economic issue concerning climate change, in its broader sustainability context, relates to the potential costs and benefits of differing policy interventions, together with their domestic and international externalities (positive and negative), over various time horizons and across the full biosphere network. There can be no a priori assurance that net zero at any individual country level by a specified date and at the expense of all else will guide the right economic policy choices.

In an attempt to restore some sort of economic perspective, we might do worse than to reconsider Keynes’ lecture: Economic Possibilities for our Grandchildren, first delivered in Madrid in 1930. He did not frame his long-term outlook in terms of narrow, specific targets. Instead, he looked to possibilities. He foresaw that the need to work could eventually disappear, with our (absolute) economic needs satisfied. It would be “the end of the economic problem, the struggle for subsistence…not only of the human race, but of the whole of the biological kingdom”.

To allow this end to unfold, he emphasized that economic policy must encourage two things: the power of innovation and technical progress, together with the compounding impact of capital growth.

With respect to today’s narrow attention on net zero, might it not be time “to take wings into the future” and ensure policy fosters what has not only driven the enormous human progress we have made since the Industrial Revolution, but which has the power to solve our ultimate economic challenge. In simple terms, build strong research centres, develop robust capital markets and encourage the evolution of other relevant institutions to meet our more broadly defined challenges as a species. Nature will be happy to be a part of this network.

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