When Boris Johnson addressed Joe Biden’s climate change summit on Earth Day this week, he was on characteristically playful form. Pointing out that the UK had slashed carbon emissions while increasing growth in recent years, he turned to his favourite Brexit concept of having one’s cake and eating it. “‘Cake-have-eat’ is my message to you,” the PM told 40 fellow world leaders.
As Biden unveiled a historic new pledge to cut the US’s emissions by half by 2030, Johnson announced his own fresh commitment to show some global leadership.
Ahead of the UK’s hosting of the all-important COP26 climate talks in Glasgow in November, it would write into law a plan to cut its emissions by 78% (compared to 1990 levels) by 2035, as recommended by its independent climate change committee.
Just two weeks earlier, the landmark promise had been set in train in Downing Street when Johnson chaired a meeting of the Climate Action Strategy (CAS) cabinet committee. Crucially, not a single voice dissented from the radical new target. And most importantly of all, chancellor Rishi Sunak was supportive.
For although the headline targets are essential, they can too often be missed if the minister who holds the purse strings is reluctant to come on board. In part due to opposition from George Osborne, David Cameron went from pledging “the greenest government ever” to wanting to “get rid of all that green crap” in a few short years.
The UK Treasury certainly has a central role in any carbon cutting agenda and in the next few weeks, its Net Zero Review will reveal just how radical Sunak plans to be in hitting the legally-binding pledge to get net zero carbon emissions by 2050.
The first major country in the world to commit to such legislation, Britain plans the fastest drop in emissions of any big economy and the new document drafted in the bowels of the Treasury – and covering everything from investment to taxation – is the blueprint for action.
But while Johnson has paraded his green credentials extravagantly over the years, Sunak is to many in the green movement a closed book. Will he live down to the stereotype of chancellors who see the price of everything but the environmental value of nothing? Or will he surprise everyone with a package as bold as his boss’s words? If the UK gets its policy mix to match its targets, it could have a big impact on other countries.
There’s certainly a succession of big moments on climate policy due this year in Whitehall. The Net Zero Review is central, but there will also be a ‘heat and building strategy’ from the Communities Department and the Business Department, which has to make a big call on post-gas alternatives.
Grant Shapps’ Transport Department has a decarbonisation plan this summer, DEFRA has a land-use strategy to publish. In the autumn there will be an overarching Net Zero Plan, to showcase Britain to the world ahead of COP talks. “And in each area, all roads lead through the Treasury,” as one source put it.
For good measure, there will be a Budget just before the climate talks in November, and a spending review. Sunak and his officials, who are having to deal with Covid as a priority, are having to spin plenty of plates and environmentalists are hoping they don’t all come crashing down.
The chancellor’s record to date is seen as mixed by green campaigners. His last Budget was criticised for its lack of big policy on the environment, and was seen as a missed opportunity to put flesh on the bones of what the PM called “building back greener” from the Covid pandemic.
Unspent cash from the £1.5bn Green Homes Grant programme for home insulation wasn’t rolled over, and suspicions about its role were confirmed when it was axed completely a few weeks later. Fuel duty was again frozen.
Treasury sources insist that Sunak is serious about the climate challenge. They point to measures in the spring Budget, and the previous Budget, such as giving the Bank of England a new net zero mandate that will shift investment away from fossil fuels, a new green savings bond, green gilts and new UK infrastructure bank with a requirement to help tackle climate change.
He has made net zero one of his three priorities while chairing the G7 group of finance ministers. Investments in hydrogen and carbon capture are cited too.
“No one can claim that he’s shying away from it, or that he’s taking a typical, penny pinching Treasury stance,” says one ally. “His position is this isn’t going to happen overnight. We’ve got to get it right, but this is not just about what is the right policy but also where the public are with this as well.
“He wants to be ambitious but it’s his job to basically work out how we do it and a lot of these things are incremental behavioor changes. We’ve got to nudge business and the public in the right direction.”
An insider says: “It’s very easy for people to say ‘yay, net ero’ But that’s the macro level, at the next level down people ask how does that impact my bills, how does this impact my way of life, how does that impact what car I can afford to have and all the rest of the kind of the real world implications. That’s more difficult.”
Rachel Wolf, the co-author of the 2019 Tory election manifesto, believes that the PM has been successful with messaging that green issues can be popular in Red Wall seats, not least because of the many skilled jobs that the environmental revolution can provide.
But polling and focus grouping by her Public First agency shows that there is also more room for Sunak to be in step with public opinion on things like carbon taxes. “Our research shows that there really isn’t much climate scepticism anymore. People are genuinely committed to improving the environment including climate change, and they have become more so. And it actually covers classes and ages.”
Her research found that backing for carbon taxes rises once people are told that industry and airlines are also paying their fair share too. And there is one big policy area where Wolf, along with many green Tories, wants Treasury change: a shift in costs on energy bills away from electricity towards gas. The shift would overnight boost demand to replace gas boilers with electric heat pumps, for example.
“Big environmental policy plays better than lots of bits of small environmental policy. If you compare us to France or Germany or the Netherlands, they have both much greater incentives for switching to alternatives like heat pumps, and they have also sorted out the pricing.
“It’s a bit under the radar and is a bit crazy frankly, but we in the UK have piled huge numbers of cumulative ‘policy costs’, which is another word for taxes, on to electricity. Whereas when you look at other countries they’ve done less on electricity and they’ve put it on gas or are starting to.”
Sam Hall, of the Conservative Environment Network, is another supporter of the switch of costs from electricity to gas. “I’d be interested to see what they choose to do [in the Net Zero Review] on carbon taxes and carbon pricing. Lots of sectors of the economy don’t have a very strong carbon price at the moment. And I think carbon pricing is something we’re going to need as a tool in the toolbox if we are going to tackle this cost effectively.”
He adds: “The spending review is going to be a key moment, the first time we have had a multi year spending review under the Boris Johnson government. There were some tough departmental settlements for environment-focused departments in previous spending reviews, despite the significant public concern about the environment and the many social and economic benefits environment-focused spending can deliver.
“Hopefully BEIS, DEFRA and the rest of government will get the funding they need to stimulate some of these early markets in clean technologies and natural capital, which can then bring in the private sector capital off the back of it.”
Some green campaigners just think Sunak is not engaged. “He’s often nowhere to be seen,” says one. They point to the chancellor’s failure to turn up to the launch of the Dasgupta Review in February, a pioneering study on why biodiversity should be embedded into economic costings. Johnson and Sir David Attenborough were present, but Sunak was not.
Joss Garman, director of the European Climate Foundation, is more forgiving. “I would say it’s not so much that he’s being an active negative force, so much as just keeping his head down and not saying anything at all, so he’s keeping everyone guessing where he stands on these issues,” he said.
“Something like the coal mine in Cumbria, Boris didn’t really get any credit for stepping in and forcing that to a public inquiry as he eventually did do even though he had 30 Northern Research Group MPs against him. Things like that you have to hand it to him, as with the petrol and diesel phase out by 2030, that’s a big deal – as was adopting the toughest climate target of any major economy as he did at the end of last year.”
One senior Tory says: “The Treasury and Rishi have two completely overriding concerns right now. One, as we come out of Covid they need to avoid a massive wave of unemployment once they start withdrawing all the support. And two, every single department and indeed Number 10 keeps asking them to spend money that they don’t think they have. Those battles are taking up almost all of the bandwidth.”
While ministers may be busy with Covid however, the bandwidth does exist among officials, insiders say. Steve Field, the Treasury’s director for climate, environment and energy, has a team of staffers working on the detail of the Net Zero Review, along with academics from Oxford and the LSE.
It remains to be seen however if Sunak will revive Gordon Brown’s environmental tax team, which had the clout that came with being guaranteed a chapter in the Budget to write. “Once you know you will be setting say 15 measures in every Budget, that gives you a power within the system,” one former staffer says.
Some in Labour think that the problem is a hangover of the Cameron/Osborne era’s shift away from green policy in the Treasury. Theresa May then scrapped the Department for Energy and Climate Change, and her chancellor Philip Hammond was so sceptical about the issue that he even drafted costings that suggested it would cost £70bn a year to hit emissions targets, a figure ridiculed by other departments and since ditched.
The real issue is not a lack of technical expertise, but a lack of political will from Sunak and ministers, says one Labour critic. “Gordon and Tony and John Prescott were fighting over who was in charge of the environmental agenda, to drive the initiative forward.
“Now you look around and there’s Rishi, [trade secretary] Liz Truss, [business secretary] Kwasi Kwarteng, [foreign secretary] Dom Raab, who should all be fighting to be in the vanguard of this stuff. But none are. Instead, they’re saying ‘oh well, that’s [COP chair] Alok Sharma’s job’.”
New Labour introduced a raft of measures, from the climate change levy to the landfill tax, as well as the fuel duty escalator, which were all aimed at both helping the planet while raising revenue.
“Gordon’s obsession was ‘What can I say is the carbon impact of this Budget?’,” one former colleague says. “You could introduce things like the aggregates levy or the pesticide levy or other environmental taxes, but if it didn’t have a CO2 number attached to it, he would ask ‘why are we doing this?’”
Yet some Tories point to the Gordon Brown Treasury as a salutary example of how green policy can go wrong. Brown introduced tax breaks for diesel cars in 2001 because they emit less CO2 than petrol-powered cars. But it became apparent that the car industry had oversold its promises of using catalytic converters to remove harmful particulates.
Cameron and Osborne have been criticised for failing to have a proper strategy for nuclear power’s contribution to emissions cuts, for dragging their feet on big projects like the Severn barrier and carbon capture and storage. They also ditched in 2015 the zero carbon homes standard too, a move that this week prompted a withering condemnation from Lord Deben, the climate change committee chairman.
“We have built a million houses which will have to be retrofitted because the Conservative government went back on the zero carbon homes [plan],” he said. “It’s cost the country a huge amount, it’s costing the people who bought those houses a huge amount and it’s given a lot of money into the pockets of housebuilders which shouldn’t have been there. It’s a prize example of why governments have to stick to what they say and not fiddle about at the edges.”
Deben, who gave a strong welcome to Johnson’s historic emissions target this week, is one of several Conservatives with a long track record on green issues. Johnson himself has been heavily influenced by the Conservative Environment Network, whose members include Zac and Ben Goldsmith, his father Stanley and his No.10 climate adviser Sam Richards.
Sunak lacks such extensive feelers into the green world, but some hope he can surprise people on the issue in coming months. “I don’t think Rishi has been gripped by it fully yet,” says one expert. “But what we learned from him as a chancellor is he does a small number of things big.”
And with a manifesto lock preventing rises in VAT, income tax or national insurance, green levies could be useful to Sunak’s plans to strengthen the public finances. There’s also the cachet of embracing the future, a key asset for any chancellor who wants to become prime minister next.
“The Budget this year obviously wasn’t very green but to be fair its focus was a Covid recovery budget,” says one expert. “I think they do realise that with a Budget coming just before COP, they have to do something substantive in it. And the advantage of some of this is it’s revenue raising, not just revenue costing.”
Sam Hall, of the Conservative Environment Network, says that the theme of fairness could feature too, especially as many people on low incomes rely on electricity for heating. “One other thing it would be really good to see in the Treasury review is a focus on the distributional impacts of net zero, and how we can make sure people on low incomes don’t lose out and in fact benefit from the transition.”
One potential politically sensitive policy is road pricing, which could be a green measure that over time replaces fuel duty. More likely may be “border carbon adjustments”, effectively a carbon tax on imports of goods made from polluting countries. It is seen as a key way of reassuring UK firms that there is a level playing field, although developing countries are wary. The EU is considering such a tariff from 2023 and Biden has floated the idea too.
Sunak is also being urged to use the UK’s chairing of the G7 to get rich countries to effectively pay the poorest not to cut down their trees. Poor countries have lost out on tourism as well as lockdowns in the pandemic, with some facing liquidity problems. Gordon Brown is leading calls for debt cancellation ahead of the Glasgow summit.
Joss Garman says: “The Congo, Rwanda, Indonesia, the Philippines, these are all forest nations that have a huge impact on climate change. And they’re going to trash their forests, just like we did unless they get financial support not to do that. Because the UK is hosting the G7, the onus is on Rishi to come up with something, together with the Americans.
“That’s probably about putting pressure on the Chinese to do debt cancellation and restructuring, partially that’s probably about generous deployment of vaccines to developing countries, but also it’s about financial support through the World Bank and IMF.”
Lord Stern, whose ground-breaking report on climate economics was published under the Blair government, is hopeful that the coming months will once again prove that the UK is leading the way on the issue. Stern, a member of the Treasury’s steering group on the Net Zero Review, says that Sunak has overseen some substantial policies so far.
But he stresses that the human cost of not tackling fossil fuels is very real, pointing to the 40,0000 people in the UK who die every year from air pollution-related diseases. “If you think of the tragedy of Covid, we could end up with 200,000 people dead. But that’s five years of air pollution too.”
Stern says that he’s hoping that the UK’s post-Brexit version of the European emissions trading scheme (ETS), which caps the amount of greenhouse gases that can be emitted by energy-intensive industries and electricity generators, can be a powerful driver of change. “I do think that we need a stronger carbon price. The floor price, I hope that will be raised. It’s about half the European trading scheme’s price,” he says.
The peer also says some green revenue should be used to make “direct transfers”, through things like council tax rebates or cash cheques, to help the less well off with the costs of the transition to low carbon. Most of all, he believes the Treasury is now putting the benefits of zero emissions into its cost-benefit analyses and focusing on growth.
“We need to see the drive to net zero and increased emphasis on sustainability as a growth story. If we set those [emissions] targets as strongly as we have done, then we will get the discovery, innovation and investment that we need. Pace is of the essence and I still think that the sense of urgency is not strong enough in some places.”
The officials within the Treasury are currently working with academics from Oxford and the LSE on the Net Zero Review and plenty of radical options are being worked up in draft. But ultimately it will come down to Sunak, as well as the prime minister, to decide just what the pace of change will be.
“I’m very optimistic about what we can do,” says Stern. “That’s different from optimism about what we will do. But the deeper understanding of what we can do helps people see this is attractive, in terms of economic activity, in terms of health, attractive in terms of the environment.
“We need growth in order to raise revenue, and to cut unemployment. That discussion of how we blend the revenue raising and the growth story is actually taking place in the Treasury in a very thoughtful way.”
