Leading economists have cautioned the Lords Economic Affairs Committee that achieving net zero emissions will come with a significantly higher price tag than what the public currently perceives.
Olivier Blanchard, former chief economist of the International Monetary Fund (IMF), emphasized that while transitioning to a low-carbon economy is imperative, the endeavor will be much costlier than commonly assumed. He stressed the substantial fiscal burden associated with achieving anything close to net zero, highlighting the uncertainty surrounding the exact cost of the transition.
Blanchard (pictured), now a senior fellow at the Peterson Institute for International Economics, underscored the need for clarity in communicating the costs to the public. He suggested that governments might need to rely on increased borrowing to finance the transition, as funding solely through higher taxation would not be politically viable.
Pointing to instances in France and Germany where environmental regulations have sparked protests, particularly among farmers opposing the phasing out of diesel subsidies, Blanchard highlighted the political challenges inherent in the net zero agenda.
Sir Dieter Helm, economics professor at Oxford University and former advisor to Boris Johnson, echoed Blanchard’s sentiments, dismissing the notion that the net zero transition would pay for itself. He cautioned against burdening future generations with the debt incurred to replace the existing polluting systems.
Helm emphasized the likelihood of costs exceeding current projections due to potential errors in estimating the costs of new technologies. He criticized the unrealistic nature of the government’s climate targets and reiterated the necessity of acknowledging the substantial financial commitments required for the transition.
Charles Goodhart, a founding member of the Bank of England’s Monetary Policy Committee, echoed concerns about the public’s willingness to bear the costs associated with achieving net zero. He cautioned that while net zero may enjoy broad support, enthusiasm wanes when individuals are confronted with the financial implications.
The warnings from these esteemed economists underscore the imperative for transparent communication and prudent fiscal planning as nations embark on the ambitious journey towards achieving net zero emissions. Balancing environmental imperatives with economic realities remains a formidable challenge that demands careful consideration and strategic policymaking.