Explorez tous les épisodes du podcast Helm Talks - energy climate infrastructure & more

Why when solar and wind are supposed to be nine times cheaper than gas are electricity prices in the UK amongst the highest in the world? Why when the UK is supposed to be a fast track to this promised cheap net zero electricity by 2030 are large industrial users struggling? Why is Grangemouth in trouble? Why is the steel industry in such bad shape that it has be bailed out and nationalised? Why have fertiliser and petrochemical companies and now biofuels all reached for the exit? The UK’s dash for renewables is supposed to be creating a clean-energy superpower, based upon “home-grown” energy, whereas in fact almost all of the supply chain is imported. Renewables are not cheap when their system costs are properly measured. Marginal costs might be near zero, but a renewables-based system already needs almost twice the capacity as the old coal plus gas plus nuclear system, even though demand has fallen. To produce roughly the same amount of firm power, a renewables-based system already requires lots of new transmission lines, which were not needed in the past for the same demand, as well as a host of upgrades. It requires batteries and storage and lots of back-up gas standing mostly idle, as well relying heavily on imported electricity via the interconnectors to keep the lights on. Renewables are not like-for-like and the wholesale price for firm power should not be compared with the contract for differences (CfD) price for intermittent generation. The nine times cheaper claim relies on leaving almost all the relevant costs out of the comparison. It's time for some energy and climate realism and some honesty about the costs and consequences of the net zero 2030 target.

In the mid-2030s, historians may look back and note that, despite numerous COP meetings and agreements like the Paris Agreement, global carbon emissions continued to rise, with significant contributions from countries like India, China, and Indonesia. The world failed to meet the 1.5°C target, making 2°C and even 3°C more likely. In this podcast, Dieter Helm looks at why the COP process has not delivered the desired outcomes, and the immediate imperative to shift strategies to tackle climate change from territorial net zero targets in the UK to more realistic approaches to reducing global emissions. Renewable energy sources like wind and solar, despite their growth, still contribute a small fraction to global energy supplies compared to fossil fuels. The increasing demand for electricity – in particular, from new technologies and data centres – and the intermittent nature of renewables have led to higher system costs, with nuclear power emerging (once again), but this time as a more viable option for stable and continuous energy supply. Looking ahead, more radical measures, including geoengineering, might be necessary to address climate change effectively. Whatever strategy is adopted, the net zero path being pursued in the UK is unlikely to be successful, as our historians in 2035 will no doubt have discovered.

The UK’s national debt now stands at around 100% of GDP, meaning that the country has borrowed the equivalent of an entire year’s economic output. Under current fiscal rules, the government aims to stop borrowing for day-to-day spending by 2030, but borrowing for investment is exempt from these limits. This creates a loophole: by reclassifying current spending as “investment”, the Chancellor can continue borrowing without breaching her fiscal rules. Even routine maintenance of infrastructure – fixing potholes, school buildings or bridges – is being labelled as investment, when in fact it’s simply capital maintenance. This accounting sleight of hand allows for open-ended borrowing while giving the illusion of fiscal discipline. Beyond these reclassifications, a deeper fiscal fiddle is the long-standing trend of moving public spending off the government’s books through privatisation and private finance initiatives (PFIs). Infrastructure once funded and owned by the state—like power stations, water systems, and telecoms—has been shifted to private hands, masking the true scale of national indebtedness. While this may reduce the official debt-to-GDP ratio, the financial burden still falls on the public, now as utility customers rather than taxpayers. With rising interest rates and growing infrastructure needs, the cost of this hidden debt is mounting. What is needed now is honesty, through greater transparency of public finances. Without it, future generations will bear the brunt of the current delusion, and the fact that we are living beyond our means.

The economic outlook for the UK is bleaker than the government would have us believe. The government's ambition to be the fastest-growing economy in the G7 by 2030 faces significant challenges. Starmer and Reeves blame the Conservatives for the current economic mess, citing a £20–£22 billion gap. They argue that, once constraints are addressed, the government will push towards net zero and build 1.5 million new homes, with growth solving public expenditure problems through increased tax revenue. If only… The IMF predicts 1.1% GDP growth, but even this meagre number overstates the prospects, for three reasons. First, it is flattered by increasing population, with GDP per head lower. Second, borrowing is larger than expected, with a debt-to-GDP ratio already at around 100%, making the cost of debt a significant constraint. Third, the Autumn Budget increased the cost of labour and capital, and savings taxes were increased. More fundamentally, the government's balance sheet is damaged by consuming capital rather than investing in infrastructure. Core infrastructure is not fit for purpose, and building houses and achieving net zero are not the panaceas they are claimed to be. Accounting ruses such as more PFI-type schemes and treating capital maintenance as if it is investment to push stuff off the government’s books do not make the problems go away. True national debt should add all this back, painting a very different and even more unsustainable picture. A fundamental rethink is needed to put the economy on a sustainable consumption and sustainable economic growth path, and thereby reduce the burden on future generations.

How have investors managed to turn Thames Water, despite its extraordinary debt, inefficiency and poor performance, into a company that offers rich financial rewards, at least for some? The roots of this began with the privatisation of water in England and Wales in 1989. At the time, the sector was in need of significant repairs to its infrastructure, and privatisation promised renewed assets and improved efficiency. Since then, with weak regulation, practices like gearing up balance sheets and extracting dividends have led some (not all) water companies to undertake financial engineering, without proper regulatory checks on balance sheets and corporate plans. To some, Thames Water appears to have prioritised financial gains, possibly to the expense of capital maintenance and the interests of customers and the environment. It has become the unacceptable face of water privatisation. Regulatory neglect is linked to broader public dissatisfaction and the erosion of the social licence to operate. Distressed debt players have taken control, with a £3billion loan to keep Thames Water afloat and at very high interest and associated “costs”. They are planning to sell out the equity to a sole preferred bidder, KKR, for around £4 billion. This move raises serious questions about the terms and the interests of the A-class bondholders versus the public interest, about transparency and public accountability. It is likely to be profitable all round, given the value of the Thames Water regulatory asset base is around £20 billion. The irony is that it probably will not save Thames Water, and there is the possibility that it could lead eventually to the nationalisation the government has been so determined to try to head off.

The recent fire at an electricity substation shut Heathrow Airport for 24 hours, causing chaos in the skies and across international airports. In doing so, it highlighted the broader critical condition of the UK’s major infrastructure and its lack of resilience. “Just in time” and “just enough” have replaced secure, ready and prepared. The incident at Heathrow prompted calls for inquiries, in the search to find someone to blame – not the more obvious economic regulator of the airport, the CAA, but instead the National Energy System Operator (NESO). The key lesson to be learned from this is that robust systems are needed to support modern requirements, including from all the new data centres that depend on continuous electricity supply, before such failures become normalised. To ensure the future stability of the economy, proactive measures need to be taken to reinforce these essential systems, prioritising investment and innovation that can cope with the evolving demands of our modern society.

Retreats on manifesto promises (electric vehicles and gas boilers), alongside the plans for carbon-intensive housebuilding and airport expansion, as well as renewal of the DRAX subsidy, are putting the UK’s ambition to achieve net zero electricity by 2030 at serious risk. Additionally, the cost of capital for renewable energy projects has increased, making it more challenging to meet the promised targets for offshore wind, solar, and nuclear energy. All of the above mean that the UK will almost certainly miss the 2030 target. That is before the big new challenge to net zero – defence. The sector is highly carbon-intensive. Think of all those missiles, submarines, tanks and all the infrastructure that goes with the sector. Decarbonising the defence industry is impractical; it relies on firm power and high-grade materials such as steel – no good if your tank needs recharging in the middle of the battlefield. The UK's energy infrastructure, including offshore wind farms and interconnectors, is also highly vulnerable to attacks, highlighting the need for a robust energy defence strategy. Achieving a strong defence capability requires reindustrialisation, which will in turn mean more carbon emissions and reverse the UK’s progress towards net zero territorial emissions. Integrating defence costs into the energy sector will significantly increase overall costs, necessitating a reassessment of current energy policies.

The UK government and the Climate Change Committee (CCC), with its 7th Carbon Budget, are keen to portray a "cakeism" narrative, suggesting that economic growth and net zero emissions are easily achievable together, without net costs and us having to change our lifestyles. The CCC even claims that it can reduce electricity bills by £700 by 2050. How would it know the prices in 25 years' time? This misleading narrative downplays the significant costs and consumption changes necessary to really address climate change. The political framing of the net zero targets on territorial emissions rather than consumption-based emissions pretends that when net zero is attained we will no longer be causing climate change. Politicians claim progress while potentially worsening the overall climate impact by shifting polluting industries overseas. Not only is this approach ineffective but it’s also dishonest, as it avoids confronting the public with the real costs and lifestyle adjustments required. Time for an end to this spin surrounding climate change. We need to acknowledge the difficult realities of climate change and increased costs. Cakeism, “win-win” narratives and the avoidance of inconvenient truths will not lead to meaningful reductions in carbon consumption.

The UK has very expensive electricity for both the industrial sectors and consumers, despite the government’s policies that are intended to deliver the exact opposite. It’s damaging not only the dwindling remaining energy-intensive industries in the UK, but also any potential future ones, including all the AI and data centres. A quick look at the existing energy generation assets in the UK, and the high energy costs are perhaps not such a surprise. These assets are relied upon to deliver secure, firm power, but fast-tracking the renewables generation route by 2030 means that all the energy sources become intermittent. While Ed Miliband, Secretary of State for Energy and Climate Change, continues to tell us that renewables costs are nine times cheaper, this is far from the reality of what the true system costs of energy are. If they were, the UK would already be outcompeting the US. It obviously isn’t. In this podcast, Dieter Helm looks at an alternative approach to setting competitive electricity prices, going back to how energy prices were set in the days of the Central Energy Generating Board, before privatisation.

Economic growth is the government’s new mantra, but what exactly does it mean, and how exactly is it achieved? Who is going to pay for it? The government does not appear to have answers – at least, not ones that are credible and likely to create sustainable economic growth. Growth involves a more than simply announcing big projects: three new runways and nine new reservoirs and the largest theme park in Europe – the government’s aspiration is to announce 150 projects by the end of this Parliament. Despite Tony Blair’s description of politics as being “and/and”, the reality is that it’s “either/or” – there are always trade-offs to be made. This podcast explores what really lies being these announcements: the real choices and the trade-offs that need to be made, and what actually causes economic growth.

The government’s number one mission is to grow the economy, by building more houses and sprinting to net zero by 2030. On the energy side, we’re told that investment in renewables will lower our electricity bills – costs come down, investment goes up. But despite the UK’s claim to be world leader in tackling climate change, the reality is that it has amongst the highest energy costs in the developed world and global warming is still rising. This podcast examines the challenges that the government is facing that run counter to its objective to reduce energy costs. These include the massive demands on the system that come from the new data centres that need to run 24/7, the back-up supplies required when the wind doesn’t blow and the sun doesn’t shine, and the materials needed to build the new green infrastructure, much of which needs to be imported and paid for by whatever it costs as a result of the sprint to achieve net zero in just 60 months. These high costs are making the UK a much less attractive place for investors, who are not flocking to its shores for its claimed low-cost electricity.

As the many tens of thousands fly back home from Baku after this year’s COP, where have the 29 attempts among the world’s nations to tackle climate change got us? The concentration of carbon in the atmosphere continues to rise; 80% of the world’s energy still comes from fossil fuels; and the 1.5 ⁰C target is being passed. But why? What’s causing the relentless increases in emissions that are feeding through to the continual, year-on-year 2ppm+ increase in carbon the atmosphere? COPs are based on the failed objective of achieving a legally binding set of emissions targets, measured in carbon production and not carbon consumption. They encourage net zero targeting, which is at best ineffectual. Why would anyone think that another 29 COPs are going to crack the climate problem? It’s time to re-set climate policies, build bottom-up coalitions of the willing, and face up to the full scale of our carbon consumption.

The British economy is going to see more regulators, more regulatory bodies, more intervention in the private sector – all requiring businesses, on the other side of the regulatory rules, to spend more time dealing with regulators and regulation. While all governments promise to “cut red tape” – and the new government is no different – sadly, the opposite appears to be happening. There are plans not only to beef up existing regulatory bodies (Ofcom, HMRC, Ofgem, Ofwat possibly, and the EA), but also to add new regulators, including NESO, the Regulatory Innovation Office, the Fair Work Agency. No doubt there are more to come. Why does regulation grow and grow? Do we need yet more regulatory bodies, on top of the government departments, the various offices of regulation, the plethora of quasi-regulators that surround them, and the regulators that regulate them? Does it lead to better outcomes? Not only does the new government want to do more, so, too, will the regulators themselves, as they tend to seek to expand in order to increase their budgets and make their mark. Hence the growing regulation industry, despite the efficiencies that one might expect new digital technologies to bring. But as regulation in the UK mushrooms, with this additive (not substitution) approach, what does it mean for the UK economy ahead?

The government is planning radical transformation, to health, education, rail travel, and with a view to achieving net zero electricity by 2030. These bold plans raise questions about what is going to be achieved, by when, and how. The politics is key, as is the timing. Such transformation takes years (many more than Starmer is anticipating). Thinking through the politics of what happens between now and when the election takes place in 2028–29, the government needs to face the difficult reality that radical reform will, in essence, mean that things will get worse before they can start to get better. Thatcher’s reforms in the 1980s, for example, took a decade to begin to turn the economy around. So, it’s worth looking at what is going to get worse through the period until 2030 before it gets better (as a result of transitioning to net zero, and turning around the NHS, education, housing and transport). To ensure that this transformation is embedded and to bring the public with it, the government needs to be honest with us and manage our expectations while we experience the pain and disruption of the transition in the interim.

The government’s overriding objective is economic growth, and it plans to get there by building lots more houses, and a dash for net zero electricity with the implausible target of 2030. There may be some merit in both, but economic growth is not caused by houses or wind turbines. What inhibits Britain’s economic growth is altogether more profound. The four fundamental problems are: not enough production, too much consumption, too little savings, and too much debt. We import rather than produce, and have almost no supply chain domestically for the net zero target. We live beyond our means, with imports exceeding exports, and calling capital maintenance “investment” supported by debt rather than paying as we go. We have virtually no savings net of capital depreciation, and hence rely on foreign investors not domestic savings. The result is too much debt, exacerbated by failing to realise that the great financial crisis of 2007-08 and the Covid-19 pandemic left us poorer, but without the willingness to accept an adjustment to our consumption.

‘Easy money’ (quantitative easing and low nominal/negative real interest rates) has left a legacy of lots of zombie companies that should not still be in business, because they are not genuinely profitable. Cheap debt washed through the banking system keeps them afloat. For the utilities, easy money has had a devastating impact, encouraging widespread financial engineering. Thames Water is the extreme example, but there are many others among the unlisted, privately owned, UK utilities. The result is a set of companies that are highly vulnerable to economic shocks being kept on life systems. The impact is most obvious in the boardroom, where the focus is on servicing the debt, rather than on customers, future investment and R&D. As these are the elements that drive productivity growth, the long-term economic growth opportunities are seriously impaired. Facing up to the consequences of zombie companies in the utilities sector means Special Administration, pulling the plug on the zombies, restructuring them, and selling them on to new owners. The debt holders will have to take a haircut. But what’s not to like about more productivity, more investment, better customer service, boards focused on their customers and the business? This has to be done now if we’re serious about turning around not only the utilities sector but the wider British economy. Instead of endlessly kicking the Thames Water can down the road, Ofwat should call in the Special Administrator now. The costs of not doing so are serious.

The Labour government is on a mission to grow the economy to pay for all the public expenditure needed. But where will this growth come from? Previous major economic growth (e.g. in Germany, Japan and China) has had two common factors: exports and high levels of domestic savings. Labour’s plans don’t include anything about exports or export growth, and savings net of capital depreciation are less than zero in the UK. How does Labour’s strategy of building new houses and wind turbines, and fitting lots of solar panels, cause economic growth? The need for more houses comes from the sharp growth in the UK population, and with higher population, GDP growth itself doesn’t necessarily raise GPD per head. On the wind turbines and solar panels, we’re replacing one capital stock (gas and coal power stations) with another (off- and onshore wind and solar panels) that provides exactly the same services. As new technology replaces old assets, this is capital maintenance not investment. The stuff to build the houses, turbines and panels comes from overseas supply chains – the opposite of export-led growth. The economic growth calculation is based on the assumption that the costs of renewables will fall. But with the net zero card being pushed elsewhere, the costs are higher for all those competing countries wanting to go faster. The main source of finance is overseas debt markets. This dash for growth is in effect a dash for debt. The cost of capital is key to this, and it’s been rising in real terms. How will the government get to a position of no current deficit and debt falling as a percentage of GDP by the end of the Parliament? Calling anything investment, especially capital maintenance, is no real, long-term solution. If the government’s strategy goes wrong, the dash for debt will leave finances even worse than it inherited. Let’s be realistic about what we are truly facing.

The uninspiring ideas and promises from both main parties since the election was announced make for a depressing read. In trying to get our votes – promising not to put up taxes and to look after pensioners – they are seeking to deliver the cakeism we, the consumers and voters, want: more and better services, without paying for them. It is our votes they are bidding for, and the election campaigns reflect what they think we will vote for. In the face of the massive capital maintenance and investment needs across many sectors (infrastructure, the NHS, education, water, energy), someone has to pay. Not only do we not want to pay higher bills, we want to borrow to finance the investment, rather than saving to pay for it. Net of capital depreciation, saving in the UK is negative. It would take a brave political leader to spell out what would really be needed to re-industralise the UK (to manufacture all the wind turbines, nuclear reactors and solar panels), to transform our health and education services, to provide a proper defence system, and to restore our natural environment. All of this costs, but we don’t want to pay. We want a free lunch. This is not sustainable for our citizens, societies and businesses. The opinion polls suggest that people don’t buy this empty promise, yet they seem set to vote for it. Because it is not sustainable, it will not be sustained. All the promises we like hearing will turn out to be empty – we will have to pay for our lunch.

The privatisation casualties are starting to stack up – earlier failures included Railtrack, and more recently there is Thames Water. Royal Mail is struggling to deliver the post; Bulb and over half the energy supply companies failed; and BT is struggling to find a way forward. Is there a trend behind this, and what does it mean for the UK’s core infrastructures? As real interest rates rise, the financial engineering that regulators allowed to happen has started to unravel. Thames Water geared up to 80%, Heathrow even higher, and most of the energy distribution companies are carrying a lot of debt. Their priorities risk becoming the servicing of their debt over and above their capital maintenance and the performance. Some think that it’s simply a question of reversing the privatisation, but it’s hard to see how nationalisation will resolve the issues. Abolishing dividends does not abolish the cost of capital. Finding the money for investment just gets a whole lot harder. The Treasury has other competing priorities in a highly constrained public finance context. Proper regulation is what is needed now to deal with the casualties and to prevent a trickle becoming a flood. Failing companies need to be taken into special administration and restructured, with a proper balance sheet and with new owners brought in to run the company. This needs to happen to Thames Water – if it doesn’t, a terrible precedent will be set. Clear performance and environmental requirements need to be reimposed. A line needs to be drawn, with companies regulated to operate in the interests of their customers; nationalisation simply kicks the can down the road.

The Labour Party, like the Conservatives, has committed to borrow only to invest, to fund current spending only from current income, and to get debt as a percentage of GDP down. As ever when it comes to fiscal rules, the devil is in the detail, and these rules are less than they seem. Labour acknowledges that this may take some time, but its promise is that it will meet its fiscal rules by achieving the highest growth rate in the G7. As with the Conservatives, Labour knows that these fiscal rules leave plenty of wriggle room. The deadline on current spending bites only gradually and that for the debt to be coming down is by the end of its first Parliament. More importantly, current spending on desperately needed capital maintenance could be renamed as “investment” expenditure (as Gordon Brown did with education and health spending), leaving the next generation to pick up the tab for what should come out of current income. For both parties, “growth” is assumed to help fix the problems, with Labour targeting the highest growth rate amongst the G7 by the end of the Parliament. Neither party has any plans to tackle the lack of domestic savings, and hence the almost complete reliance on foreigners to lend them the money. The fiscal rules allow large scope for fudge. If either party really meant to be fiscally credible, it would need to be willing to entertain either serious tax rises or serious reductions in spending (or both). Fiscal rectitude is easier to announce than it is to deliver.

What is to be done about the UK’s failing utilities? The current back-stop is special administration, opening up the possibility of wider restructuring. In all cases it is the structure that needs to change if there is to be a stable investment framework for the next couple of decades. In the case of Thames Water, if the special administer is called in, the assets could be taken over in the short term and passed on to other owners. The trouble is that the current owners are mostly foreign, and the UK is very dependent on foreign investors as it is a net dis-saver. Such dependence creates a big problem: we are beholden to the kindness of strangers to invest in all our utilities, but these investors have many alternative options to place their money. Special administration would nevertheless provide a great opportunity to break Thames up, both geographically and by service. It need not lead to any increase in government spending other than very short-term guarantees on the debt. There could be a London Water and a Greater Thames Water, divided between sewerage and water supplies, all listed. Separating out sewerage could help to deal with the large CAPEX required through a ring-fenced ten-year improvement programme, with bespoke regulation and longer-term funding and finance arrangements. A structural approach might also work for Network Rail, with greater integration, bringing the train operators and rolling stock companies back into the frame. For Royal Mail, there is a fundamental structural issue relating to service provision – put letters back into the Post Office as a public service, separated from the parcels delivery service. Introducing stability and a longer-term approach could at least create a more solid and investable infrastructure, which may then address the challenge of how to make these utilities more attractive to outside investment. Fudging Thames, Network Rail and Royal Mail now will give us another decade of failures and crises, which in turn will turn out worse for foreign investors.

Iron fiscal rules that allow borrowing only for investment might seem like a sensible strategy, but the figures have repeatedly been fiddled to make the UK appear fiscally responsible. Both main political parties have been playing this game for forty years. From Thatcher onwards, Conservatives used privatisation and PFIs (private finance initiatives) to move debt off the public books to the private sector. Gordon Brown opted for the PPP (public–private partnership) model for the London Underground, and perfected the art by re-categorising some public spending (e.g. on health and education) as “investment” in order to meet the requirement to borrow only to invest. The current approach, however, is much more serious. Governments are now borrowing to maintain our assets, calling this “investment”, as are the utilities. Fixing the school roofs and the hospital buildings, and, for the utilities, the sewers, the potholes, the sad state of the railway infrastructures, patching up the electricity networks, and maintaining the natural environment, should be current expenditure, not treated as new investments. We are borrowing from the next generation to pay for the current maintenance. Capital maintenance should be a current expenditure not a capital one. Sustainable public finance would (with a few exceptions) require debt to only ever be for investment that genuinely enhances assets and creates new ones, such that the next generation receives better assets. When it comes to the environment, we need to pass it on in a good state, not to simply say we will continue to borrow and live beyond our means. Government needs to explain honestly and openly how it will balance the books. Pretending that our fiscal rules are held with an iron fist whilst actually including the capital maintenance is bad accounting. The numbers are huge. The next debt crisis will follow as the unsustainable is not sustained.

When it comes to addressing the trilemma of energy policy in the UK (net zero, energy security and customer affordability), there are three overall policy approaches. “Policy option 1” is about setting targets: pick a year by when net zero is to be achieved, and then do whatever is necessary to get there. “Policy option 2” is the other way around, looking at what can be afforded and then at what can be achieved with the available pot of money. There is a third set of more extreme options of stopping oil and gas now, or just assuming that science and technology will eventually solve the problem. Both are dangerous. What is now needed is a rational debate and honesty. Politicians need to engage in an open conversation with citizens and to work out how to maximise the benefits from what can be afforded, by making hard choices between the options.

Network Rail, Royal Mail, and Thames Water are all examples of serious failure, with major economic and social consequences. None has lived up to the ambitions of privatisation, nor are they world-leading examples of efficient management or in good shape to deal with the challenges in their sectors. They demonstrate what has gone wrong with the implementation of privatisation. And they are not the only ones – other companies across the utilities sector have also poorly maintained their assets. These utility failures have come at a huge cost. If productivity is to be improved, we can no longer afford to have continuing failed companies in the core utilities. The sustainable economy needs infrastructure that is well-maintained, properly financed and accessible to all. No more sticking plaster; we need a rebase now.

Our politicians may claim that the UK is on its way to net zero electricity, but the potential closure of the Grangemouth oil refinery provides an illustration of why the seemingly good numbers are not quite what they appear. Closing Grangemouth would bring down UK carbon emissions, but this just means a shift in the numbers from territorial to overseas production. To tackle the UK’s carbon emissions, Labour would also prefer to shut down oil and gas production in the North Sea and import it instead. Closing down large energy-intensive plants and oil and gas production in the UK will not make a big impact on global carbon emissions – it could even make it worse. The further big anomaly in territorial emissions measurement is the Drax power station. Its 12m tonnes of emissions per year are not counted in the UK’s numbers; yet the emissions are in our territory and wood pellet burning is a very questionable approach to tackling climate change. With a focus on carbon consumption – our carbon footprint – the story changes. A carbon tax on all the goods we buy, if applied at the border, would make a substantial difference when it comes to tackling carbon emissions. There are tentative steps at the EU level (and separately in the UK) to introduce such a tax. While this would take us a lot further forward, it would also result in UK consumers having to pay for the true carbon cost of goods and services, and hence live within our environmental means, as spelt out in my new book Legacy: How to build the sustainable economy. ( https://shorturl.at/fTW57 ) In particular, there could be a really big impact on the cost of electric vehicles, due to the emissions caused by their manufacturing, including the mining and refining of all the minerals and rare earths that go into them. Closing Grangemouth (and British Steel) is not a “get out of jail” card. Our responsibility to stop causing climate change needs us to take responsibility for our carbon consumption, not our carbon production.

The political consensus about how the UK will achieve net zero by 2035 is remarkable, centred as it on the assumption that consumer bills must not go up and that instead we will need to borrow from the private sector – from foreigners and future generations. This is built on the further premise that it will all be cheap, and that renewables are a lot cheaper than fossil fuels. But just because it is a consensus does not mean that it is right. The fundamental reality is that we are living beyond our sustainable means, and if we continue to do so, then we will reap the consequences. As set out in my new book, Legacy: How to Build the Sustainable Economy ( https://shorturl.at/fTW57 ) we need to understand what the sustainable economy actually looks like. It doesn’t mean no economic growth (information technology and genetics will play a big part in that growth), but it will not be achieved by simply thinking that it will come from building more houses and wind turbines. We need to undertake the capital maintenance and look after our existing assets. The political consensus will not deliver the fundamental transition needed to address climate change. Listen to my podcast to understand the consequences of what will happen if we continue along the current path of selfish living beyond our means…

It’s time for climate realism. The political rhetoric of low costs and ever-falling energy bills has inevitably collided with the reality of the actual costs of the transition. Renewables might be zero marginal cost, but this ignores not only the fixed and sunk costs, but also the intermittency problem and the need for subsidies and the associated back-up for a long time to come. The supply chain supporting the new electricity and transport technologies stretches to mining and refining in China, South East Asia and Russia. Very little is mined, refined or fabricated in the UK, and these supply chains are far from net zero. The consumer will need to pay the costs to fund all these investments; costs that are now higher due to the higher interest rates. The narrative needs to be changed. It’s not going to be an almost free lunch. If it is, then we can stop the subsidies right now. But we can’t and we shouldn’t. Net zero realism requires honesty about the actual costs that need to be paid, and the necessity of reducing our carbon consumption and measuring our emissions properly. To really help reduce global emissions, there are three things we in the UK should focus on: offshore wind; carbon capture and storage (CCS); and scientific research to develop decarbonising technologies. Concentrating on these globally significant investments rather than trying to do everything is the best way to make the UK’s contribution. If we are not going to be honest, the risk is that the rise of AfD in Germany and the farmers’ party in the Netherlands, and the Republican march in the US will sink the whole project, with all the terrible consequences that may follow. For more on this, read my paper: Net Zero Realism - https://dieterhelm.co.uk/natural-capital-environment/net-zero-realism/

The Treasury gets accused of not spending enough on school roofs, on health to cut the waiting lists, on local government and social care, on subsidising battery factories and steel plants, and these are corralled together to blame it for the deep structural problems in the British economy. But are these really the Treasury’s fault? There may be issues with how the Treasury functions – for example, its focus on cash, and on siloed cost–benefit analysis undertaken government department by department. But these are details that could be sorted out. What really matters is that the Treasury faces the unenviable task of holding the fiscal line when faced with huge demands for more and more spending, on almost everything. It is not only the usual suspects above, but net zero, immigration, and bailing out local government as well. Neither political party is suggesting that taxes are going to go up to pay for all this. Unless and until we understand that we have to pay, and that we have to start living within our economic and environmental means in the sustainable economy, then we need to stop blaming the Treasury for our cake-ism. Ultimately, it is us and our unsustainable economy that are at fault.

Air traffic control, school buildings, the railways, potholes in the roads, leaking water pipes, local electricity networks failing when the wind blows from the wrong direction. Why does it feel that everything in Britain is broken? The real problem is a lack of capital maintenance. The assets need to be maintained and fixed when they break, paid for from current spending – not from new investment. Avoiding capital maintenance to save money is short-sighted. A functioning society and a functioning economy need the core infrastructures to be kept in a good condition, and the costs of not doing so are asymmetrically high. Part of the blame lies with the regulators for not forcing utility companies to pay for the maintenance. But we don’t want to pay higher taxes or higher customer bills to restore the currently poorly maintained infrastructures. This problem can be solved, if we can learn to live within our means in the sustainable economy. To do this, we need a full audit of the assets we have and to budget for the long-term costs of maintaining them continually and properly.

Labour has been busy setting out its plans for the economy, and its pitch to potential voters, of no new income or wealth taxes. Instead, the essential improvements to public services will all be paid for through economic growth. But are the proposed policies to deliver this growth coherent? This prompts two questions: where will the growth come from, and where will the money come from to underpin the investment to deliver that economic growth? Labour is betting on a couple of things – housebuilding, including building on the green belt; and “green” investment and net zero for the power sector by 2030! Even the Conservatives’ ambition of 2035 is extremely tight. These policies will be against a very different economic background to that of the past 30 years of very low interest rates. With the current interest rate at 5%, the costs are much higher, presenting a whole new ballpark. Moreover, it is not at all clear where the money is going to come from for all the investment needed. This podcast looks at the reality behind Labour’s proposals

“Unlocking” and “unleashing” funds is not as straightforward as UK politicians would have us believe. The simple fact is that there are few UK savings to invest. Households don’t save very much; the corporate sector does not retain earnings; and the government borrows increasingly greater sums. As a result, we are relying on money from investors abroad to invest. Worse, foreigners lend us the money to consume beyond our means as imports exceed exports by a wide margin. As beggars, we can’t be choosy about who lends to us and on what terms. Investment is a voluntary activity. We can continue to beg the foreigners or turn ourselves into savers. We’ve witnessed the result of financial engineering by, and poor regulation of, a major utility company, with investors being asked to stump up at least £1 billion to salvage Thames Water. These same investors have lots of potential opportunities to invest elsewhere. The obvious solution, while hugely unpalatable, is for the UK to stop being beggars: to live within our external balance of payments means, to save for retirement and almost all of our investment needs, to retain earnings, and to change the tax incentives on companies. The government would need to change its behaviour too, running surpluses not deficits. This is unpalatable because it will mean lowering the standard of living in the UK and paying higher taxes. We can be choosers only if we choose to save and live within our means.

The net zero electricity targets in the UK are fast-approaching. On current policies, there is little chance that we get there by 2035, let alone Labour’s 2030. UK energy infrastructure is not designed around intermittent wind, intermittent solar, active demand management, around electric car charging, air conditioning and heat pumps and decentralised home generation. A radical system change is required in both the electricity transmission and distribution systems. This is all going to cost a lot more than our leaders would have us believe. The supply chains for the transition are not UK-based, so we are reliant on the critical imports for net zero – the minerals, refined products, batteries, solar panels, wind turbines and much else. We run a very large trade deficit, so foreigners will also have to lend us the money to pay for these imports. We don’t even have enough skilled people – when it comes to smart meters, for example, we are still at 50% coverage only, even though the aim had been to install meters in all households by 2019/20. It is going to take twice as long and twice the cost for even this part of the net zero infrastructure to be completed. How will the required changes be financed? Who will pay the dividends, interest and capital, including the capital maintenance? In a high-interest, high-inflation world, the economics changes significantly. It’s hard to see how all the investment needed will be delivered. Something has to give. Either we have to pay higher taxes, higher energy bills and start switching from consumption to saving, or the net zero targets will inevitably slip back. Time for our leaders to spell out what it would really take to get to net zero.

The government would have us believe that not only can we get to net zero in electricity by 2035, but that it won’t cost very much. All the green investment needed will be paid for through borrowing, and the returns on that investment will pay back the initial outlay and the interest. The problem with this approach is that it is not us, the polluters, who pay for the damage we have caused to the environment, but rather that debt will be passed on to the next generation. This is the result of the shift from pay-as-you-go, the approach that existed from 1945 to the end of the 1970s, with each generation effectively paying through their utility bills for the investment and capital maintenance of the systems (an “intergenerational contract”), to pay-when-delivered, the approach adopted during the Thatcher government in the 1980s and the great privatisation boom. The understanding was then that newly privatised utilities would borrow and pay back from the returns they made from the future customers. Forty years later, and this appetite for debt has become addictive. This podcast looks at the risks of this borrowing, with the result that we are living beyond our means, what this means for the next generation, and what we need to do now to mitigate this.

The science on climate change is pretty clear and not new. The latest IPPC report is pretty dire in its predictions, but our understanding of the science is not new – it has been around since the 19th century. Alongside this science and increasing understanding, however, is what is happening on the ground – a different universe altogether. This podcast looks at this reality, and why now is the time to get real about the implications of a world of 1.5ºC+ within our lifetimes, not only in terms of the likely costs, but also what it means in terms changing our behaviour.

What role can the UK seriously can play in tackling climate change? The “delusion of grandeur” we have been led to believe is that we can do it all. This delusion is falling away – when it comes to green technology, the UK is not the envy of the world in the twenty-first century. The US is positioning itself to play a major role in this, through its Inflation Reduction Act, the Chips Act and the Infrastructure Act. The UK can’t match this scale of initiative. The EU, too, is big, and is likely to allow member governments to play a large role similar to that being carved out in the US. In this global context, what is the UK’s role in climate change mitigation? Rather than try to do everything, the UK should focus on the three areas that it is good at: offshore wind; carbon capture and storage (CCS); and research. In this podcast, I explain why, and how concentrating on these three comparative advantages will enable us to make a serious contribution to mitigating climate change globally – the only thing that really matters.

Getting to net zero is necessary but it will not be cheap. Everyone is clamouring for government subsidies: steel, battery factories, offshore wind, farmers, and customers and SMEs hit by high energy prices, as well as new nuclear power, CCS offshore, and hydrogen. The great gas price crisis is already easing, but not the demand for state support. It’s a lobbyists’ dream. Both main political parties in the UK are in this “subsidy game”. The Labour Party also has Great British Energy and its fast-track “mission” to get to zero emissions in electricity by 2030, requiring a lot of fast-tracked extra subsidies. It’s not just the UK. The US has its Inflation Reduction Act, Infrastructure Act and the Chips Act – state interventions not seen since Franklin Roosevelt’s New Deal. Europe is playing catch-up, looking to water down its competition policy limits on state aid. In this subsidy world, what should we do? Listen to this podcast to find out more.

Keir Starmer, Leader of the Opposition, has come up with his five missions to match Rishi Sunak’s five pledges. But taking a look at two specifically – the highest sustained economic growth in the G7 and zero carbon electricity by 2030 (not just net zero) – are these missions both credible and deliverable? While there are some positives – in particular a longer-term horizon and a focus on infrastructure – there are serious flaws in both. On economic growth, the performance of the rest of the G7 is obviously out of Starmer’s control, and it is not clear what “sustained” actually means. There is also the awkward question of where all the money is going to come from for all this investment. Given the poor current savings record in the UK, it relies overwhelmingly on foreigners. On zero-carbon electricity, is it seriously possible to effect such a radical reform of the system within six years if Labour wins, and if the next election is in 2024? Planning law, planning law implementation, the supply chains, the networks and all the rest? The good news is that we now have a serious debate about what needs to be done to achieve an economic revival and tackle climate change. The bad news is that no politician seems to be willing to engage with the fundamental realities: we don’t save and we rely on foreigner investors, preferring to live well beyond our diminished post-BREXIT means.

What was privatisation really all about? Its advocates thought private sector meant efficiency, versus the failing, inefficient, public sector entities. But now looking at our neighbours in Europe - for example, in water - the evidence does not suggest that we have achieved the promised nirvana. UK utilities are not the envy of the world. Two more profound features of the past 30 years of privatisation have since emerged. First, the move from pay-as-you-go to pay-when-delivered. Under pay-as-you-go, current customers paid for the investment and the next generation benefited from the new infrastructure. They in turn would pay for the investment for the next generation, and so on. Under pay-when-delivered, future customers would pay for the new investments, and the balance sheets would be the way of raising the finance. But that is not what happened: the balance sheets have instead been used for financial engineering, mortgaging the assets and paying out dividends to shareholders. There is now no more money in the balance sheets to pay for new assets. We are being forced back to pay-as-you-go but with the added millstone of all the debt on the balance sheets as well. The second, related feature, is that the investment has had to come not from the UK savers, but from foreign investors who now own most of our core utilities and infrastructure networks. We sell them the ‘family silver’ to live beyond our means. But will we be able to afford to pay them back on their investment? Given the current cost of living crisis and state of the UK economy, the returns on investment are looking less secure.

While each of the current challenges in our core services (NHS, Royal Mail, water, rail, etc) may have has its own explanations, causes and proposed fixes, together they ultimately add up to a systemic problem. Sticking plasters are not going to deliver the decent services a civilised society should expect to have. It’s not that we don’t know how to fix these problems, but rather we are not prepared to do what is necessary to put them right. As a society, we need to pay for these services and save to pay for the investment required and the ongoing maintenance. We prefer consumption now, selfishly expecting future generations to pay. What would living within our means really look like? What are the essential components of a sustainable economy? In this podcast, I outline the important ones: the polluter-pays principle; public money for public goods; investment in infrastructure through funding and finance; and proper saving for the future. The reality is proving inescapable, and we need to stop living beyond our means.

With a lot of investment required for UK infrastructure – in water, in broadband/fibre, in the wind farms, the electricity grid, in heating conversions, and in electric transport - a massive amount of money is needed, but where is it going to come from? Savings are necessary to pay for the investment, but we are no longer a nation of savers, and we therefore have to rely on the savings of foreigners. Foreign savings finance our UK investment programmes, assuming that the next generation will pay the interest, provide the profits and pay back the debt. We import 8% of GDP more than we export. Foreigners lend us the money to cover this excess consumption, balancing our balance of payments. In exchange we sell them the family silver. That’s why so much of UK infrastructure and utilities have overseas owners. This all runs counter to the desire of the current government to shed the UK of its dependence on non-domestic investors. It is foreign investors or no investment, as long as we refuse to save and choose to live beyond our means. This situation is not sustainable.

As the International Energy Agency forecasts another gas crisis in 2024, let’s look at the facts. There are three reasons why the IEA’s fears may not materialise. First, on the Russia–Ukraine position, it was Russia that decided to turn off the taps, and it can choose to turn them on again. There are good reasons why it may do so, not least because its economy is suffering seriously. Second, LNG (from the US, Qatar and Australia) has created a serious alternative option, and it is in plentiful supply. Third, there is the efficiency factor. The result of high gas prices has been a remarkable reduction in demand and the possibility of a global recession will reduce overall gas demand. Efficiency gains from price shocks tend to be irreversible. These three factors all lead to the real possibility that the IEA's predicted gas price shock is over-stated. While short-term planning for emergencies is important, the wider, more medium-term, requirement is to plan for energy policy reform.

Greta was right. COP27 has not made serious progress on mitigating climate change. Instead of concentrating on addressing the failures at Glasgow to set nationally determined contributions (NDCs) matching the 1.5˚C target, COP27 has been all about the past, about reparations for loss and damage. More pious words, 36,000 attendees and a new fund are not going to make much impact, and in the meantime the world carries on relying on fossil fuels for 80% of its energy, the rest being largely hydro and nuclear. It is hard to imagine that voters in the developed democratic economies are going to vote for even 1% GDP to fund the transfers to the developed world, given that so far the Climate Fund has offered less than the annual dividend of Saudi Aramco, and even this has not been delivered. The COPs have not halted the relentless increases of about 2 parts per million in the carbon concentration in the atmosphere, the only measure that counts. Rather than one more heave, what is needed is to rebase on the polluter-pays principle, and therefore on carbon consumption. That would mean paying for carbon emissions and natural capital destruction, and would put us on a sustainable consumption path. COP27 has not even edged us forward and another 27 COPs probably won’t. Time to change the model – urgently.

26 COPs to date have not delivered, so why will COP27 (or even the next 27 COPs) be any different? It won't and here is why. It's all about the money, and the money is all about who pays for the pollution – the stock put up in the atmosphere since the Industrial Revolution, and the continuing emissions being added now. The $100 billion per annum promised at past COPs (but never actually fully delivered) is chicken feed compared to what the polluter-pays principle dictates. It is less than the annual dividend of Saudi Aramco. Worse, because the nationally determined contributions (NDCs) measure only carbon territorial production, they don't even properly measure the current pollution. It is carbon consumption – including all those carbon-intensive goods imported from developing countries – that needs to be added back in to determine the true carbon responsibilities. The polluter-pays principle would put a price on carbon emissions and the NDCs would need to shift to a carbon consumption basis, not carbon production, including the carbon embedded in imports. There needs to be both a carbon price on all carbon, imported or otherwise (dealing with current emissions), and compensation for past pollution and the damage it is causing. To walk the walk, and not just talk the talk, polluters really do need to pay. The real reason why this is not going to happen at COP27, or at the COPs that follow, is that politicians don't get elected to make polluters pay, because the ultimate polluters are us the consumers of all those carbon-based goods and services. If we want to stop causing climate change, the pollution has to be paid for.

Whenever there is a fossil-fuel price shock, there’s a great temptation to think that the higher prices are here to stay, that this is the ‘new normal’. It happened after the great OPEC shocks of the 1970s, and in the run-up to the oil price peak in 2014. All the usual suspects who benefit from higher prices are at it again now: “prices are going to stay high” and “we’re in for a decade of high prices”. It's possible, but we should also consider that there could be a reversal in gas prices. There’s plenty of fossil fuels in the world to fry the planet many times over. And markets do usually tend to work. The recent energy forecasts coming out of the Office for Budget Responsibility do not model a low-price scenario. But what we have actually seen this autumn has been remarkable resilience and adaptation in Europe to the high prices, and to Russians turning off the gas tap. The market has responded in both supply and demand terms, and gas prices have come down considerably. What does this mean going forward? What happens to the economy if the anticipated continuing high gas prices do not materialise? What happens to the price caps, the massive interventions, to inflation and interest rates if and when gas prices fall further?

The sound of Russian gunfire and the alarm has gone off on energy security. The retreat from the net zero strategies is all too apparent: keeping coal-fired power stations running, increasing the coal burn, drilling for more oil and gas and even considering opening a new coal mine, cutting fuel duties and subsidising household energy, and supporting large energy users. The simple illusion that building lots of renewables can be pursued without taking seriously the security of supply consequences has left the UK exposed to the biggest impacts of the gas price shocks, even though it imports only around 4% of its gas from Russia. Decarbonisation with intermittent, low-density, disaggregated wind requires a lot of back-up, which will mostly be gas in the next decade or so. Asleep at the wheel, having neglected security of supply, ministers now face the consequences of no gas storage and short-term spot wholesale markets. Ignoring the facts that 80% of global energy comes from fossil fuels, that the destruction of the natural environment to soak up carbon has left the Amazon as a net emitter, and that the stock of carbon in the atmosphere has continued to go up year on year by 2 parts per million since 1990, including last year with the lockdowns, means that the claim that net zero on a territorial basis will unilaterally stop the UK causing climate change is sadly misguided. The current energy crisis – what I call the "first net zero energy price crisis" – should sound a very loud alarm bell. It is time to face up to what unilateralism means: paying the costs of our carbon consumption, and applying that pollution carbon price to imports as well as agriculture, heating, power, transport and industry at home.

Faced with sharply rising household energy bills, there is great political consensus that this is a good time to bash the companies with a windfall tax. Prices have gone up, companies are benefiting from the troubles in Ukraine, and governments are in the business of redistribution. There are two questions: first, what exactly is a windfall; and second, why have windfalls emerged? Windfalls arise all the time in competitive markets; they happen when prices, but not costs, go up. The converse happens too: prices fall, whilst costs go up. It's swings and roundabouts, and investors take their chances. In the North Sea, prices can only be excessive if the offshore taxation regime is flawed – and the answer is to put that tax regime right. Onshore in the electricity market, prices are excessive if the wholesale market does not reflect the costs. It doesn’t: the wholesale price of electricity is roughly equal to the spot price of gas, whereas the costs of more than half the electricity generated have nothing to do with the gas price. The lessons from this sorry episode are: fix North Sea taxation, and reform the electricity market to meet the challenges and cost structures of the net zero targets and security of supply.

How do we pay not just for the immediate costs of energy, but for the full transition to net zero? Right now the UK economy is around 80% dependent on fossil fuels, just as it was back in 1970 - and much the same as the rest of the world. We have 28 years to get this down to a residual, all of which needs to be sequestrated. We have the 2050 net zero target and the 2035 target for net zero for electricity - just 13 years away. This is a transition on a scale last seen in converting a peacetime economy into a wartime economy ready for the Second World War. We are all in this together as citizens and we have to find a way to pay for this that enables all citizens to participate fully in society and the economy. This means that we need a social tariff, to provide the basic social primary good of energy. It breaks the link between price and costs, and brings the better-off customers and the Treasury into this picture. None of the current short-term fixes is going to address the costly long haul to net zero. Sticky plasters like loans and Council Tax rebates assume that our current energy price crisis is temporary. It is not. Lots and lots of intermittent wind will increase costs, which we should pay – as citizens and not just consumers.

From April, the average household will be paying around £2,000 a year for their energy. By October it may be closer to £3,000. Many will struggle to pay. This price does not reflect the true energy costs, which are lower. Consumers are paying too much. Whilst the price of gas has gone up, this is only one part of energy costs. Energy costs from nuclear and from renewables have not increased. The costs of the network distributors are too high. The costs of supply failures are being added to the bills. Then there are all the costs from past renewables subsidies and a host of policy costs. Five years ago I carried out the Cost of Energy Review, setting out why we are all paying too much and what should be done about it. Five years later, failing to implement its main recommendations has made the situation much worse. It does not have to be like this, but it will take a rethink of energy policy and some rapid changes.

What would sustainable agriculture look like? It would be zero carbon consumption or better, deliver food sustainably whilst preserving and enhancing natural capital (including the soils and the peat), offset carbon emissions elsewhere, and pass the assets on to the next generation in good shape. What we have now is no carbon price, no carbon border adjustments, and no overall plan for land use, including carbon sequestration. Agriculture is the largest carbon emitter relative to size in the economy. We have a bottom-up, case-by-case approach, with ELMs (Environmental Land Management schemes) in England and a voluntary carbon offsetting market that looks like the Wild West. There is a chasm between what is going on and net zero. The scope for improvement is correspondingly vast and the time is short – just 28 years to net zero. Creating a green and prosperous agriculture requires a step change, with credible offsetting, credible public goods funding, and polluters being made to pay. All are perfectly achievable and economically efficient, but not if we continue with the current timid approaches.

The reasons why energy prices have shot up are well known: the Russians and extra demand in the Far East when it comes to gas, exacerbated in the UK by the lack of storage, the scale of the intermittent renewables, and the fast-track exit from coal. The UK government assumes that this is all very temporary, that gas prices will fall back by the autumn, and that the temporary storm can be weathered by, in particular, a £200 loan to customers, which will be easier to repay as the energy bills fall back again. Don't bank on it: the energy bills are not just the consequence of rising gas prices, and higher gas prices may not be all that temporary. But, even if they are, there are other reasons why energy bills may keep going up. There are the legacy costs of past renewables subsidies, there are more subsidies to come, there are the system costs of integrating a huge further increase in offshore wind, and then there are nuclear and other low-carbon technologies to come. Dealing with climate change is a must, and it is not going to be cheap. Better to tell the truth, so that we all know what is in store in this radical transition, than delude people that the £200 is going to be easy to pay back. Get ready for permanently higher costs to come.