Nigel Topping on affordable energy, Clean Power 2030 and why rebranding net zero is ‘silly’
While the energy transition is facing political backlash, transitioning the UK economy to net zero is likely to be significantly cheaper than a single fossil fuel price shock argues Nigel Topping, chair of the UK’s Climate Change Committee.
Earlier this month, the Climate Change Committee, the statutory body advising the UK government on emissions reductions, released the supplementary analysis for the country’s Seventh Carbon Budget.
Buried under the rather technical headline were stark findings: the total additional cost of a single fossil fuel price spike such as the 2022 crisis would likely be as large as the total net additional cost of meeting the pathway to Net Zero across every year to 2050. In other words, investing in resilience now could pay off in the long run, experts found.
This proved to be timely: around the same time, US and Israeli bombardments of Iran triggered the closure of the Strait of Hormuz and a subsequent spike in oil and gas prices.
Eight months into the conflict and with prices of Brent Crude persistently hovering above $100 per barrel, Nigel Topping, chair of the Climate Change Committee and one of the speakers at Net Zero Investor’s upcoming Transition Investment Conference, reassesses the findings.
Weighing the cost of transitioning to a net zero economy against the costs of inaction is no mean feat, particularly against the backdrop of a heated public debate around net zero.
In its latest update, the Committee compares the additional costs of the annual premium paid for low carbon assets such as EV charging points under a “Balanced Pathway” scenario, towards a baseline scenario of remaining reliant on high-carbon assets. Overall, the authors estimate that the UK government would have to invest about £110bn or 0.2% of GDP over the next 20-25 years, Topping shares. However, it would be a mistake to think that inaction would not come with a price tag, he highlights.
Indeed, during the 2022-2023 energy crisis sparked by Russia’s invasion of Ukraine, the UK government paid out some £41.6bn in energy bill support, the report points out.
Moreover, investing in the transition comes with a multiplier, with every £1 spent on the transition resulting in £2 to £4 of benefits, Topping argues.
"The impact on the economy of one price shock is about the same as the cost [of the transition]. But we get nothing for it, of course. We don't get the benefit that comes at the other end of the investment."
Optimistic scenarios
Our conversation takes place against the backdrop of ongoing talks between the US and major diesel importers on potential export restrictions of the fuel. While a full blown escalation of the crisis has so far been averted due to the G7 agreeing to release more diesel reserves, the crisis is far from over, Topping warns. "There's no end of this current spike in sight."
Moreover, this is unlikely to be the last time that the oil and gas sector will be immersed in political turmoil: "The assumption that we might only have one price spike between now and 2050 would seem to be very optimistic, let's say."
Recent history shows that relying on fossil fuels to deliver energy security could become a fallacy, he warns. "Assuming that fossil fuel prices are going to be low and stable for 30 years seems highly optimistic, given what we've seen just in the last five years."
Investment outlook
These risks should become a crucial factor for investors considering long-term infrastructure allocations right now, he stresses: "If you're an infrastructure investor, you want to know what's going to be stable for 20, 30, 40 years."
For equity investors, exposure to oil and gas shares has undeniably delivered strong returns in recent months, with oil shares going through the roof on the back of the recent surge in oil prices. But Topping argues that investors are now at risk of buying at the peak of the market: "Now would probably not be a great time to buy [oil shares]… people are making lots of money out of existing assets, but there's quite a lot of understandable caution about new fossil fuel assets."
Conversely, investments in the energy transition offer a much better long-term perspective, he argues, highlighting a stark increase of consumer demand for EV vehicles. "EV growth is destroying demand for oil-based products very significantly."
"When you make the transition to net zero, you get all the benefits of lower cost of transport, lower cost of electricity, and that price stability, which actually is great in terms of reducing risk for many classes of investment."
He does admit that there are some immediate challenges to navigate, particularly those of inflation and rises in interest rates: "We see the cost of capital go up, driven largely by the inflation driven by energy crisis. But we also see the benefits of new energy going up because the gap between the fossil fuels and the alternatives goes up. So that's a difficult needle to thread for any infrastructure investment from either government or private investors."
The US perspective
Acknowledging political backlash in the US, Topping argues that it is crucial to separate rhetoric from fact on the ground, which shows that US coal capacity has been dropping consistently since 2011.
Last year, the Trump administration attempted to counter this trend with the Federal Power Act forcing five plants to stay open. But the bigger picture remains one of decline due to lack of appetite from private investors, Topping points out.
"Under Trump, more coal-fired power stations have been retired than under Obama or Biden, because it doesn't matter what Trump says, no one's going to invest in a coal-fired power station. It's just out of the money."
Shift towards affordability
With Andy Burnham taking over as prime minister in the UK, the public discourse appears to have shifted towards affordability of energy, a trend he broadly welcomes: "Getting electricity prices down is one of the most powerful things we can do. It immediately reduces inflation, flows through into a reduction in the cost of capital, puts more money in households' pockets, and makes investment easier, all pro-growth."
However, he cautions that it would be a mistake to compromise on climate ambition in the process, warning that it would be a mistake to think "Slowing down on the transition to clean power somehow helps with the cost of energy because it won't."
"We've really got to move away from thinking of the electricity price as a technocratic output of what we've done in the past and see it as a political decision about how to drive cost of living down and growth up."
Clean Power 2030
This in turn has implications for the UK’s Clean Power 2030 ambition, he acknowledges. First released in 2024 by the UK’s Department for Energy and Net Zero, the action plan sets out a set of ambitious targets with clean energy sources set to meet 100% of annual electricity demand by the end of the decade and gas accounting for a maximum of 5%, with 95% of energy generated being derived from renewables.
However, during New York Climate Week in September, Miatta Fahnbulleh, secretary of state for Energy Security and Net Zero, appeared to downplay the 95% clean power generation target, suggesting that it could be pushed back by a year if this would help deliver more affordable energy. Just weeks later, Chris Stark, the UK’s head of the government's Mission Control for Clean Power unexpectedly announced his intention to step back from the role, casting further doubts on the future of clean power targets.
Quizzed on this, Topping acknowledges that the government was unlikely to meet the 2030 targets but highlights that the direction of travel remains unchanged. "I think we're quite clear that the 2030 targets probably won't be quite met, but if they're met two or three years later, but the general pace of change continues."
“Our advice to government has been based on what's an achievable and sensible pathway to net zero. Obviously, the government has to respond to what's going on in the shorter term."
At the same time, he appears to have little time for the argument that the term “net zero” might need rebranding.
"There's a populist narrative against net zero, but it's not backed up by the science or the economics. We need to ask ourselves, where is the backlash coming from? What I see is investment continuing to flow. EVs growing exponentially, coal-fired power being retired faster and faster, governments all around the world accelerating the transition. So there's a populist narrative against net zero, but is that... not backed up by the science or the economics?"
The strength of the concept lies in its scientific roots, he concludes: "Net zero is a very robustly factual scientific milestone… It's not a brand. So personally, I think talk of rebranding is silly. It's a scientific fact."
