Philip Hammond has warned Theresa May that her plan to reduce greenhouse gas emissions to net zero by 2050 will cost the UK over £1tn.
In a letter to the prime minister seen by the Financial Times, the chancellor said the cost meant that less money would be available for schools, police, hospitals and other areas of public spending. He also warned that the target would render some industries “economically uncompetitive” without huge government subsidies.
Mrs May, whose tenure as prime minister will end next month, is hoping the carbon emissions legislation will be one of her most important legacies after she leaves office.
The 2050 net zero target — one of the most ambitious in the world — was recommended by the Committee on Climate Change, the UK’s independent climate advisory body. “Net zero” means that any emissions would be balanced by schemes to offset an equivalent amount of carbon from the atmosphere, such as planting trees or using technology.
Mr Hammond warned in his letter — sent last week — about the implications of going ahead with the new target, which is much tighter than the UK’s current policy of cutting emissions by 80 per cent over the same period.
The CCC has estimated that reaching net zero will cost £50bn a year, but the department for Business, Energy and Industrial strategy puts the figure at £70bn, according to the chancellor’s letter. “On the basis of these estimates, the total cost of transitioning to a zero-carbon economy is likely to be well in excess of a trillion pounds,” he wrote.
He added that reaching the net zero target would require heating to be almost entirely decarbonised, leaving households having to replace gas boilers with alternatives such as heat pumps, which cost “three times more”. Homeowners would also need to spend thousands or tens of thousands of pounds on insulation.
Although the 2050 target is backed by some business leaders, Mr Hammond argued that industry would face “significant costs” from shifting to low-carbon processes. He pointed out that unless competitor countries adopted the same policy, the shift could render “key industries” — such as the steel industry — economically uncompetitive or dependent on permanent government support.
The letter said there would also need to be significant changes to farming practice and a total ban on petrol and diesel cars by 2050, along with a tenfold increase in electric charging points.
The government has been accused of trying to “fiddle” the country’s climate change targets after cabinet ministers agreed to carry forward past “overperformance” in emissions reductions to allow a potential breach of pollution limits in coming years.
Mr Hammond wrote that the government was already off-track to meet its existing carbon targets and said there would need to be an “ambitious policy response” in the current Parliament for the new target to have any credibility.
“This would almost certainly include increased government spending, meaning less money available for other areas of public spending,” he said.
The chancellor urged Downing Street to support a review by the Treasury that would look at how to minimise the cost of the policy for taxpayers and consumers to prevent “potentially damaging impacts”. He also suggested that the government give itself an “explicit review point”, or a get-out clause to reconsider the target if other countries did not follow suit.
Mr Hammond said it was right for the UK to show leadership on climate change, but warned Mrs May that the implications of the policy needed to be “better understood”.
Liz Truss, chief secretary to the Treasury, recently urged Number 10 to hold off on the decision until a new prime minister is in place.
However, it is understood that Mrs May is set to introduce the legislation by June 11, according to Whitehall officials. This would require her to introduce a “statutory instrument”, a form of secondary legislation, to tweak the existing 2008 Climate Change Act.
Boris Johnson, the frontrunner to become the next Tory leader, tweeted on Wednesday that if he became prime minister, he would enforce the net-zero target and “embrace” the opportunity of green growth.