WEBVTT - Best of: Is There a Tradeoff Between Net Zero and UK Growth? 0:00:00.240 --> 0:00:08.280 Bloomberg Audio Studios, Podcasts, radio News. 0:00:08.320 --> 0:00:11.559 Hello, Maren Talks Money listeners. It is August, which means 0:00:11.560 --> 0:00:14.080 that we are taking a short break from recording new 0:00:14.120 --> 0:00:17.160 episodes of the podcast, but we have done something else 0:00:17.200 --> 0:00:19.479 for you instead. We are bringing you one of my 0:00:19.680 --> 0:00:22.840 favorite conversations from earlier in the year. Back in March, 0:00:22.920 --> 0:00:25.560 John and I sat down with Callum Pickering, chief economist 0:00:25.560 --> 0:00:28.680 appeal Hunt to discuss the research he did looking at 0:00:28.720 --> 0:00:31.360 whether there is a trade off between net zero and 0:00:31.760 --> 0:00:35.520 UK growth. Spoiler alert, Yes there is. It's a very 0:00:35.520 --> 0:00:38.760 interesting conversation. Everyone's talking about exactly this now on our 0:00:38.840 --> 0:00:41.839 going to for some time. Is net zero worth it? 0:00:42.159 --> 0:00:44.280 So even if you listen to when it was first published, 0:00:44.400 --> 0:00:46.720 listen again. You might find there are a few things 0:00:46.720 --> 0:00:49.000 you missed the first time around. And if you haven't 0:00:49.000 --> 0:00:51.479 listened to it yet, really definitely listen. 0:01:02.200 --> 0:01:04.840 Welcome to the Merin Talks Money weekly round up, our 0:01:04.880 --> 0:01:09.080 debrief on the biggest stories in markets and economics. I'm Merin, Sunset, 0:01:09.120 --> 0:01:11.440 Web editor at Large for Bloomberg UK Wealth. 0:01:11.800 --> 0:01:14.440 I'm Jointed Stapic What are the Money Distilled newsletter and 0:01:14.520 --> 0:01:16.039 senior reporter for Bloomberg. 0:01:16.560 --> 0:01:18.840 Okay, John, there is far too much for us to 0:01:18.880 --> 0:01:20.679 talk about this week. There's so much going on when 0:01:20.680 --> 0:01:23.160 it comes to stories as volatile markets. There's war, there's 0:01:23.200 --> 0:01:25.880 defense stocks, there's crypt all over the place, all this. 0:01:26.520 --> 0:01:28.000 So what we're going to do is not talk about 0:01:28.040 --> 0:01:29.640 any of those things. We're going to do that thing 0:01:29.640 --> 0:01:32.399 where we just choose one major story, unpack it in 0:01:32.440 --> 0:01:36.360 the conversation, And this week it's all about energy. The 0:01:36.440 --> 0:01:38.640 story is about a bit of research that's come out 0:01:38.640 --> 0:01:41.320 from PEELHNT Economics which asked the question, this is the 0:01:41.360 --> 0:01:45.399 title of the research, anyway, does the UK lack the 0:01:45.680 --> 0:01:50.840 energy for productivity growth? So it's a new look at 0:01:50.840 --> 0:01:54.760 the productivity puzzle which you and I talk about endlessly. 0:01:55.120 --> 0:01:58.000 What's the problem with UK productivity? Is it about having 0:01:58.000 --> 0:02:00.639 too much cheap labor? Is it the way our system 0:02:00.680 --> 0:02:03.440 is set up? Is it the decline in manufacturing as 0:02:03.440 --> 0:02:05.520 a result of Chinese growth? What is it? We talk 0:02:05.560 --> 0:02:08.639 about this all the time. This report uses data from 0:02:08.800 --> 0:02:11.520 nearly two hundred countries to make the other two hundred countries. 0:02:12.040 --> 0:02:15.079 Oh, I think two hundred and eleven or something, but yeah. 0:02:15.040 --> 0:02:18.320 Let's be precise, one hundred and eighty nine countries yes 0:02:18.480 --> 0:02:20.760 day from one hundred and eighty nine countries to make 0:02:20.800 --> 0:02:24.239 the argument that a miserable record of productivity over the 0:02:24.320 --> 0:02:27.560 last twenty years or so is inextricably linked to the 0:02:27.600 --> 0:02:30.880 country's drive to net zero. So that's two of our 0:02:30.880 --> 0:02:34.639 favorite subjects in a one of net zero and productivity. 0:02:34.680 --> 0:02:36.679 So with us to dig into all this is the 0:02:36.720 --> 0:02:39.400 author of this report, Calum Pickering, who is the chief 0:02:39.440 --> 0:02:43.240 economist at Peel Hunt. Callum, welcome, thank you for joining 0:02:43.320 --> 0:02:43.720 us today. 0:02:44.120 --> 0:02:45.680 My great pleasure, thank you for having me. 0:02:46.200 --> 0:02:48.600 Okay, Now, what I want to do is start by 0:02:49.040 --> 0:02:52.760 asking you why you sat down to do this bit 0:02:52.800 --> 0:02:56.000 of research. Because while it may be data driven come 0:02:56.040 --> 0:03:00.720 as no surprise to many, it also goes against the 0:03:00.800 --> 0:03:04.680 popular narrative and might not make you very popular. So 0:03:04.760 --> 0:03:06.519 what made you sit down and say I'm going to 0:03:06.600 --> 0:03:06.800 do this. 0:03:07.400 --> 0:03:12.440 Let's start with extraordinary claims require extraordinary evidence. And what 0:03:12.600 --> 0:03:16.920 we hear from Chancellor Rachel Reeves at Ed Muliban, the 0:03:17.360 --> 0:03:21.160 Energy Secretary, both of course Labor government but also the 0:03:21.160 --> 0:03:25.640 previous Conservative government for many years that there's no trade 0:03:25.639 --> 0:03:31.720 off between economic growth and net zero. Now, as an economist, 0:03:31.760 --> 0:03:34.880 that sort of gets my senses tingling a little. There's 0:03:34.920 --> 0:03:38.920 this general rule, which is there are no policy solutions, 0:03:39.040 --> 0:03:41.600 there are only policy trade offs. Now, of course there 0:03:41.600 --> 0:03:43.840 are exceptions, but it is a general rule. It's a 0:03:43.840 --> 0:03:45.920 good rule of thumb. So I thought, this is quite 0:03:45.920 --> 0:03:49.320 a big claim to make. Let me see if it's true. 0:03:49.400 --> 0:03:53.480 And after going around the dozens of government websites where 0:03:53.520 --> 0:03:57.080 all of this data is located, I've put something together, 0:03:57.280 --> 0:04:00.720 taken a look, and actually I don't see and evidence 0:04:00.720 --> 0:04:03.200 that this is true. In fact, I actually see the opposite. 0:04:03.360 --> 0:04:05.760 I see, I think clear evidence that when we start 0:04:05.840 --> 0:04:10.560 to aggressively pursue our net zero policy, we see almost 0:04:10.640 --> 0:04:14.880 immediately the economic problems which were all familiar of slow growth, 0:04:14.960 --> 0:04:19.320 weak productivity, weak growth and living standards. They all begin. 0:04:20.880 --> 0:04:23.559 Interesting. And you are timing this from around two thousand 0:04:23.600 --> 0:04:25.680 and five, right. A lot of people will look at 0:04:25.720 --> 0:04:28.560 the UK's productivity problem, look at your chance and go, yeah, 0:04:28.600 --> 0:04:31.080 obviously this is all about the great financial crisis it 0:04:31.160 --> 0:04:34.360 started around then. But you're taking it back a few 0:04:34.400 --> 0:04:36.640 years and saying, actually it started a bit earlier. 0:04:37.600 --> 0:04:40.680 That's right, and we mustn't discount any of these are 0:04:40.720 --> 0:04:44.480 the factors low interest rates? What that might mean for 0:04:44.640 --> 0:04:49.400 things like risk appetite malinvestment. Also, we had to just 0:04:49.480 --> 0:04:52.240 pay a price in growth terms for a while just 0:04:52.240 --> 0:04:54.480 to fix some of the problems with the financial system 0:04:54.640 --> 0:04:56.920 that were exposed, and of course the reason for the 0:04:56.960 --> 0:05:00.200 global financial crisis. But what I look at is stually 0:05:00.240 --> 0:05:02.839 one hundred years of data on the UK and what 0:05:02.880 --> 0:05:06.160 we see is a very clear picture the available electricity 0:05:06.520 --> 0:05:09.800 to the UK economy. That's the stuff that firms and 0:05:10.480 --> 0:05:13.919 households can tap into to consume and produce stuff. It 0:05:14.080 --> 0:05:19.200 rises precipitously through the twentieth century until it peaks in 0:05:19.360 --> 0:05:23.960 two thousand and five. Since then it's fallen by about 0:05:24.400 --> 0:05:29.720 twenty percent. If I then compare productivity measure it how 0:05:29.760 --> 0:05:32.360 you like output per work at output per hour or 0:05:32.480 --> 0:05:36.040 multi factor productivity, which is the best productivity measure which 0:05:36.080 --> 0:05:38.800 blends all the factors of production. What we see is 0:05:39.200 --> 0:05:45.080 alongside that rising trend of available electricity, productivity is rising nicely. 0:05:45.480 --> 0:05:48.320 And then after two thousand and five, around two thousand 0:05:48.360 --> 0:05:50.120 and five two thousand and six, all of these numbers 0:05:50.120 --> 0:05:55.240 start to weaken, and as our electricity availability declines, our 0:05:55.279 --> 0:05:58.640 productivity measures and our GDP measures start to move sideways. 0:05:58.760 --> 0:06:01.760 Okay, now, let's just go back a little bit and 0:06:02.440 --> 0:06:06.600 talk about how extraordinary it is to see a decline 0:06:06.680 --> 0:06:10.159 in available electricity or energy of any kind, in that 0:06:10.400 --> 0:06:13.480 this is not the first energy transition in the history 0:06:13.480 --> 0:06:15.920 of mankind, right. There have been several others in the past, 0:06:16.440 --> 0:06:20.000 but every other time the new energy source has been 0:06:20.200 --> 0:06:24.360 additive rather than transformative. We don't use less wood than 0:06:24.360 --> 0:06:26.440 we used to as a globe, we don't use less 0:06:26.440 --> 0:06:28.000 coal than we used to as a globe, we don't 0:06:28.040 --> 0:06:31.320 use less oil, etc. So this is the first time 0:06:31.880 --> 0:06:35.720 a transition has been attempted that is not additive. In 0:06:35.760 --> 0:06:39.560 our UK electricity supply, you see the closing down of 0:06:39.760 --> 0:06:43.440 various parts of the energy infrastructure that are then not replaced. 0:06:43.720 --> 0:06:46.200 That's exactly right, and again it's a policy choice to 0:06:46.279 --> 0:06:50.560 reduce the available electricity to the UK economy. What we 0:06:50.600 --> 0:06:53.760 have done is we've decommissioned what one might consider to 0:06:53.760 --> 0:06:58.800 be dirty forms of energy coal, oil, some gas, oddly nuclear, 0:06:58.880 --> 0:07:01.760 which is which is clean and it has huge potential. 0:07:01.800 --> 0:07:07.279 But as we've decommissioned these parts of the energy output infrastructure, 0:07:07.360 --> 0:07:10.600 we have not replaced them quickly enough with renewable energy. 0:07:10.600 --> 0:07:14.600 Whether that's solar wind, and the net result has been 0:07:14.600 --> 0:07:19.640 this decrease in energy availability. Now, one obvious pushback would 0:07:19.640 --> 0:07:23.400 be white bulbs give out less heat, soda machines, computers. 0:07:24.080 --> 0:07:26.120 As the world to become more efficient, do we just 0:07:26.200 --> 0:07:30.080 not need less energy. There's a quick check there, which is, 0:07:30.640 --> 0:07:32.880 let's look at prices, how a price is behaving. That 0:07:33.200 --> 0:07:35.440 if I know roughly what I think supply is doing, 0:07:35.800 --> 0:07:38.000 and I can see how prices are behaving, I can 0:07:38.000 --> 0:07:40.520 make some judgments about the demand side of this equation. 0:07:40.960 --> 0:07:44.400 And what you see is, up until two thousand and five, 0:07:44.760 --> 0:07:48.920 not just for electricity, but consumer energy prices across all types. 0:07:49.040 --> 0:07:53.160 Producer electricity energy prices across all types are actually fairly stable, 0:07:53.640 --> 0:07:58.240 not just stable, but falling relative to general prices. And 0:07:58.280 --> 0:08:00.360 then in two thousand and five we start to see 0:08:00.360 --> 0:08:05.720 this steady rise which accelerates over time in prices of 0:08:05.760 --> 0:08:08.520 all types of energy. Something, of course else happened in 0:08:08.520 --> 0:08:10.480 the early two thousands, which is we became a net 0:08:10.720 --> 0:08:15.920 importer of hydrocarbons, oil and gas, which has meant that 0:08:15.960 --> 0:08:19.840 when prices rise now we suffer negative terms of trade 0:08:19.880 --> 0:08:23.040 shocks instead of positive terms of trade shocks. It's bad 0:08:23.080 --> 0:08:26.920 for our producers and bad for our consumers. And so 0:08:27.000 --> 0:08:30.280 when you put all of this together, the staggering rise 0:08:30.320 --> 0:08:34.360 in prices, this fall in supply, even if you make 0:08:34.440 --> 0:08:37.920 the case that yes, demand has probably come down a 0:08:37.960 --> 0:08:42.440 little bit for any given activity demand for energy, because 0:08:42.440 --> 0:08:45.440 we see prices rise as supply falls, we can say 0:08:45.480 --> 0:08:47.160 with quite a bit of confidence I think that the 0:08:47.200 --> 0:08:50.120 supply effect is larger than the demand effect. 0:08:50.920 --> 0:08:55.360 Okay, so one of the things that has happened is 0:08:55.400 --> 0:08:58.800 that we have not seen our living standards rise as 0:08:58.800 --> 0:09:00.760 a result of that. One of the things that you 0:09:01.320 --> 0:09:03.960 much of your report compares the UK to the US, 0:09:03.960 --> 0:09:05.360 and we'll talk about that in a minute about whether 0:09:05.400 --> 0:09:09.160 we should more realistically be looking at Europe. But one 0:09:09.160 --> 0:09:12.120 of the statistics that you put in back in two 0:09:12.160 --> 0:09:15.000 thousand and five, which is when our UK electricity suppliers 0:09:15.040 --> 0:09:17.840 you peaked, UK energy per capita was fifty percent of 0:09:17.840 --> 0:09:21.000 the US level and our living standards were around seventy 0:09:21.080 --> 0:09:23.520 nine percent of the US level. By twenty twenty two, 0:09:23.559 --> 0:09:25.480 and these numbers will have definitely changed since, and not 0:09:25.520 --> 0:09:28.280 in our favor, I'm afraid. By twenty twenty two, UK 0:09:28.320 --> 0:09:31.480 per capita energy consumption had declined to around thirty eight 0:09:31.520 --> 0:09:34.120 percent of the US level, and per capita GDP had 0:09:34.120 --> 0:09:35.959 fallen to seventy four percent. I think it is a 0:09:35.960 --> 0:09:39.280 little below that then, So you see that very clearly 0:09:39.320 --> 0:09:42.439 in the numbers, a very different approach. They have been 0:09:42.520 --> 0:09:46.560 growing their living standards, keeping per capita energy consumption around 0:09:46.600 --> 0:09:49.840 the same. So using efficiency like that, we've been holding 0:09:49.840 --> 0:09:52.480 our living standards that roughly the same level, possibly now 0:09:52.520 --> 0:09:55.760 falling given the rise in population, while actually cutting our 0:09:55.840 --> 0:09:58.240 per capita use. That's the difference, right. 0:09:58.480 --> 0:10:02.400 That's exactly right. Implicitly we have made a different policy choice. 0:10:02.880 --> 0:10:05.440 The reason where now moving on to GDP per capita 0:10:05.559 --> 0:10:08.800 is because productivity is the thing that drives GDP per 0:10:08.840 --> 0:10:11.800 capita over time. It's just how efficiently can you use 0:10:11.840 --> 0:10:13.880 your factors of production. And what we should keep in 0:10:13.880 --> 0:10:16.160 mind here is energy is a very critical factor of 0:10:16.200 --> 0:10:22.240 production in a very fundamental sense. Productivity is capital over labor, 0:10:22.480 --> 0:10:25.240 and because capital requires energy, the more energy you have, 0:10:25.320 --> 0:10:28.680 the more productivity you can generate. I want it to 0:10:29.000 --> 0:10:31.640 broaden this study because you get oddities if you just 0:10:31.679 --> 0:10:34.160 look at an individual country sample. So when I look 0:10:34.160 --> 0:10:36.640 at one hundred and eighty nine countries, the data we 0:10:36.840 --> 0:10:40.360 go from nineteen ninety to twenty twenty two, you see 0:10:40.360 --> 0:10:44.600 this very strong positive correlation between per capita GDP SO 0:10:44.679 --> 0:10:48.800 living standards and per capital energy consumption. Rich countries consume 0:10:48.880 --> 0:10:52.080 more energy on a per person basis. And actually, the 0:10:52.080 --> 0:10:53.760 one thing you can say about the UK is that 0:10:54.240 --> 0:10:58.000 almost no actually no country for its size, has a 0:10:58.040 --> 0:11:00.840 higher standard of living for such a little amount of 0:11:00.960 --> 0:11:04.840 energy consumption per person. When you look at the UK 0:11:05.040 --> 0:11:07.600 versus the US, where you see a very big difference. 0:11:07.600 --> 0:11:09.440 And of course I like comparing the UK to the US. 0:11:09.440 --> 0:11:11.920 Although the UK is smaller, the makeup of its economy 0:11:12.000 --> 0:11:15.319 is actually very similar, services and consumer oriented, has a 0:11:15.320 --> 0:11:18.480 big financial system, it's credit driven, So you can't just 0:11:18.520 --> 0:11:22.080 say US is just oriented towards heavy industry or something 0:11:22.160 --> 0:11:24.840 like that. It's a very similar economy, just a different scale. 0:11:25.640 --> 0:11:28.080 And the point you make is exactly right. Implicitly, we 0:11:28.120 --> 0:11:31.080 have made a very different policy choice. We have used 0:11:31.960 --> 0:11:37.640 energy efficiency progress towards using less energy for any given 0:11:37.679 --> 0:11:40.960 thing that we do to stabilize our living standards but 0:11:41.000 --> 0:11:45.640 reduce our energy consumption. What America has done is stabilize 0:11:45.640 --> 0:11:49.280 its energy consumption but become richer over time. This is 0:11:49.320 --> 0:11:52.920 implicitly a very different policy choice. And essentially this artificial 0:11:52.960 --> 0:11:56.600 scarcity that we've imposed upon our economy, which means actually 0:11:56.640 --> 0:12:02.160 we now have the highest energy price in the advanced world, 0:12:02.480 --> 0:12:06.400 we are excluding so many types of economic activity that 0:12:06.480 --> 0:12:09.719 would just be profitable if we had lower cost of 0:12:09.840 --> 0:12:13.640 energy and the energy available to produce them. 0:12:13.720 --> 0:12:15.760 Now, a lot of people who listen to this will 0:12:15.760 --> 0:12:17.600 be confused because one of the things that they hear 0:12:17.760 --> 0:12:22.400 constantly is that UK energy prices are only high because 0:12:22.400 --> 0:12:25.200 of the gas price, and we share that problem with 0:12:25.240 --> 0:12:26.040 the rest of Europe. 0:12:26.600 --> 0:12:30.960 Price is important, but what matters more here is just supply. 0:12:31.800 --> 0:12:35.920 Let me just step back from this study and just 0:12:35.960 --> 0:12:38.440 think about a question that we often ask ourselves in markets. 0:12:38.480 --> 0:12:40.760 We will say, the old price has gone up, or 0:12:40.760 --> 0:12:42.240 the gas price has gone up. What does this mean 0:12:42.280 --> 0:12:45.240 for economic activity? Actually, I can't tell you anything about 0:12:45.240 --> 0:12:47.160 what that means for economic activity if you just tell 0:12:47.200 --> 0:12:50.120 me the price. What I care about is have we 0:12:50.200 --> 0:12:53.360 had an upside surprise in global economic activity? In other words, 0:12:53.360 --> 0:12:56.000 has demand for this stuff gone up and therefore the 0:12:56.040 --> 0:12:58.520 price has gone up? In which case, just be happy 0:12:58.520 --> 0:13:00.160 that the economy is stronger. We don't need to worry 0:13:00.160 --> 0:13:02.200 about negative effects. But if you tell me that actually 0:13:02.240 --> 0:13:05.120 we've less supply in the world because something has happened somewhere, 0:13:05.120 --> 0:13:08.440 We've had a geopolitical accident or the like, Actually we 0:13:08.520 --> 0:13:11.040 need to think about price, yes, But actually I'm asking 0:13:11.280 --> 0:13:13.920 what can't we now do because we don't have the 0:13:13.960 --> 0:13:17.280 gas that we did yesterday, And that's where the economic 0:13:17.320 --> 0:13:19.720 losses actually come from. And so actually this is a 0:13:19.720 --> 0:13:22.920 really practical question, which is, if you're a company in 0:13:22.960 --> 0:13:26.760 the UK, you probably just cannot access the electricity that 0:13:26.880 --> 0:13:32.679 you need. And because demand exceeds our supply potential when 0:13:32.679 --> 0:13:36.640 it comes to electricity, we're rationing through prices. That's essentially 0:13:36.640 --> 0:13:39.040 why prices are so high. So even if you strip 0:13:39.080 --> 0:13:41.080 out all of the levees and all of these other things, 0:13:41.280 --> 0:13:44.720 we would still have abnormally high energy prices. And the 0:13:44.760 --> 0:13:47.120 thing that stands out is we have taken a very 0:13:47.120 --> 0:13:50.040 different implicit choice when it comes to our energy supply. 0:13:50.280 --> 0:13:52.719 We've reduced hours more than other countries, certainly on a 0:13:52.760 --> 0:13:54.240 per person basis. 0:13:54.040 --> 0:13:59.839 That is stigerant. It blows my mind. The actual availables 0:14:00.200 --> 0:14:04.520 ply of energy has fallen by twenty percent over twenty years. 0:14:04.559 --> 0:14:11.160 I'd no real idea about that it's so negative for growth. 0:14:11.200 --> 0:14:14.600 The point is that ultimately we need energy abundance to 0:14:14.679 --> 0:14:17.000 do all the things we want to do, and the 0:14:17.040 --> 0:14:19.440 fact is we've been rowing against that for twenty years 0:14:19.440 --> 0:14:23.320 and that is shocking. And it's actually one question now 0:14:23.360 --> 0:14:24.960 we'd have in the movie. Should get back to is later, 0:14:24.960 --> 0:14:27.840 But it's like, it's more, okay, there's policy choices, but 0:14:27.840 --> 0:14:29.840 there's also a lot of this just seems to be 0:14:29.880 --> 0:14:33.200 people not making hard decisions at the time. It's not 0:14:33.280 --> 0:14:36.000 an explicit policy choice. It's more or let's put this 0:14:36.080 --> 0:14:38.200 off until someone else's problem. 0:14:38.240 --> 0:14:40.880 That's right, it's an implicit policy choice, which I think 0:14:41.040 --> 0:14:45.440 gets more cover than is justified because we have somewhat 0:14:45.440 --> 0:14:47.760 of a mantra that there's no trade off between zero 0:14:47.920 --> 0:14:51.240 and economic growth. It's fine, seems to become in more 0:14:51.280 --> 0:14:54.000 efficient energy wise, and so actually if we just reduce 0:14:54.040 --> 0:14:56.800 our energy capacity, it's probably not a big effect. Actually, 0:14:56.960 --> 0:14:59.720 what you find is, in a very simple sense, you 0:14:59.720 --> 0:15:02.960 have some critical factors of production that you need. You 0:15:03.040 --> 0:15:05.760 need land, you need labor, you need capital, and you 0:15:05.800 --> 0:15:09.440 need energy. We know where a land constrained economy that's 0:15:09.840 --> 0:15:12.720 we consider that when we think about growth. We're all 0:15:12.760 --> 0:15:16.080 considering what the demographic effects of an aging and drinking 0:15:16.120 --> 0:15:19.520 population might be for the world. Okay, capital availability is 0:15:19.520 --> 0:15:21.280 fairly good. There's still plenty of stuff in the ground 0:15:21.280 --> 0:15:22.880 we can dig out, so we're not worried about that. 0:15:22.960 --> 0:15:26.680 But energy is just as important as these these other 0:15:26.760 --> 0:15:30.000 three these are the three things. A couple of other 0:15:30.000 --> 0:15:32.200 things that should just be taken out of this. I 0:15:32.200 --> 0:15:36.680 think one is that if you look at the government's 0:15:37.080 --> 0:15:43.640 own projections, previous governments, current governments, UK electricity availability will 0:15:43.960 --> 0:15:48.320 rise over time towards the middle of the century and 0:15:48.440 --> 0:15:53.160 will exceed by a significant amount our all time peak, 0:15:53.280 --> 0:15:55.920 which was in two thousand and five. And perhaps I 0:15:56.080 --> 0:15:58.000 just give just give some rough numbers. In two thousand 0:15:58.040 --> 0:16:00.880 and five we had a round about three hundred and 0:16:00.960 --> 0:16:04.920 eighty terra watts available to the whole economy. About now 0:16:04.960 --> 0:16:09.360 it's two hundred and eighty. If the government builds out 0:16:09.400 --> 0:16:11.720 renewables and some gas, because of course you need some 0:16:11.760 --> 0:16:14.280 firm power to account for the intermittency when the sun 0:16:14.360 --> 0:16:16.400 isn't shining, the wind doesn't blow, we'll get to four 0:16:16.480 --> 0:16:20.280 hundred and fifty terra what hours. And the central problem 0:16:20.360 --> 0:16:25.200 is we can decommission on time, that's we're fairly good 0:16:25.240 --> 0:16:27.120 at that, but can we actually build out on time? 0:16:27.200 --> 0:16:29.280 So things like planning, permission and regulations and all this 0:16:29.320 --> 0:16:32.280 other stuff really really matters. And I think the reason 0:16:32.360 --> 0:16:35.400 why we just need to take a cold, hard look 0:16:35.680 --> 0:16:39.800 at this kind of evidence is because we face two 0:16:40.120 --> 0:16:43.160 really difficult choices at the moment. How do we get 0:16:43.160 --> 0:16:48.440 ahead with AI? It has huge potential for productivity gains, 0:16:48.440 --> 0:16:50.840 but it's very energy intensive in a sense, it's an 0:16:51.080 --> 0:16:54.840 industrial revolution as much as a tech revolution. But then second, 0:16:55.600 --> 0:16:57.760 we will need to raise our military spend as a 0:16:57.760 --> 0:17:03.160 percent of GDP. And again, to be frank, if you 0:17:03.280 --> 0:17:06.439 want to be a serious military power and defend yourself, 0:17:06.440 --> 0:17:08.000 you have to be able to keep your own lights 0:17:08.040 --> 0:17:12.119 on over winter. And therefore we need to have energy 0:17:12.160 --> 0:17:15.440 security and we need to be able to meet our 0:17:15.480 --> 0:17:19.280 own needs under any given circumstances. And so I think 0:17:19.320 --> 0:17:22.159 the worm is probably turning on a lot of this stuff. 0:17:22.400 --> 0:17:26.040 But the key point for me is just look at 0:17:26.040 --> 0:17:29.520 the very basic economics. The more supply you have, the 0:17:29.560 --> 0:17:32.320 BIGGI your economy is. If you reduce that supply somewhere, 0:17:32.359 --> 0:17:36.040 you will see some negative consequences and we have here 0:17:36.080 --> 0:17:40.600 a very clear relationship between our economic problems, which start 0:17:40.640 --> 0:17:44.080 before the financial crisis, probably amplified by the financial crisis, 0:17:44.400 --> 0:17:48.119 and this precipitous for in our electricity availability, which has 0:17:48.160 --> 0:17:51.320 been an explicit policy choice. When we look around the world, 0:17:51.520 --> 0:17:54.760 we see evidence that when economies haven't made this policy choice, 0:17:54.920 --> 0:17:58.879 like America or South Korea or even Poland, very different 0:17:58.880 --> 0:17:59.399 things happen. 0:18:00.280 --> 0:18:03.560 Callums, go back to what you were saying about the 0:18:03.920 --> 0:18:06.760 rise in electricty capacity by the middle of this century. 0:18:06.920 --> 0:18:10.439 Back in two thousand and five, we're at three eighty 0:18:11.080 --> 0:18:14.000 and you say that under the current government plans we 0:18:14.040 --> 0:18:18.520 get four fifty. Given the rise in our population and 0:18:18.560 --> 0:18:23.600 the demand there's going to be, that seems not very 0:18:23.640 --> 0:18:25.720 much in terms of a rise from three eighty to 0:18:25.760 --> 0:18:27.960 four fifty. That seems like a very small amount of 0:18:27.960 --> 0:18:32.360 electricity For a country that is attempting to use more 0:18:32.359 --> 0:18:34.560 and more electricity in switch vehicles and all this kind 0:18:34.560 --> 0:18:36.560 of thing, and lots of factories over to using electricity 0:18:36.680 --> 0:18:40.800 rather than using diesel oil petrol, and an economy that 0:18:40.840 --> 0:18:45.199 we want to really participate in the Ai revolution. That 0:18:45.240 --> 0:18:46.800 doesn't seem like anywhere near enough to me. 0:18:47.359 --> 0:18:50.840 It's hard to say at this stage. It's probably better 0:18:50.920 --> 0:18:53.080 to be on the safe side and say let's have 0:18:53.880 --> 0:18:56.399 more energy than we'll need mm hmm, and see if 0:18:56.400 --> 0:18:58.800 you can sult to someone. We'll benefit through our trade 0:18:58.800 --> 0:19:02.360 balance on exports, So that's quite right. What I would 0:19:02.400 --> 0:19:05.680 say is, if you take the official population protections, what 0:19:05.720 --> 0:19:08.720 you do see is if the government can meet its 0:19:09.080 --> 0:19:13.040 plans for raising electricity availability, you will start to see 0:19:13.040 --> 0:19:16.960 an improvement in per person energy availability, which which just came. 0:19:17.160 --> 0:19:18.359 And so the way to think about this is we 0:19:18.400 --> 0:19:23.760 should be gradually removing a headwind to economic growth. And 0:19:24.080 --> 0:19:26.679 one of the things you should say is if you 0:19:26.720 --> 0:19:29.720 make a claim like I make in what would be 0:19:29.800 --> 0:19:34.879 true if I'm right, which is if the government actually 0:19:34.880 --> 0:19:36.800 builds out and we start to see in the numbers 0:19:36.800 --> 0:19:39.440 more and more electricity made available to the UK economy, 0:19:39.880 --> 0:19:42.359 we probably should start to see some upside surprises to 0:19:42.400 --> 0:19:46.160 things like per capita GDP and productivity. And it's really 0:19:46.160 --> 0:19:48.320 as simple as that. But of course I can't look 0:19:48.359 --> 0:19:50.439 at a quarterly data series for the next year and 0:19:50.480 --> 0:19:51.960 say whether this is right. This will be a five 0:19:52.040 --> 0:19:55.280 or a ten year think. But what I've done is 0:19:55.280 --> 0:19:58.800 I've started by asking the opposite, which is, if what 0:19:58.800 --> 0:20:01.120 the government says is true, which is there's no trade 0:20:01.119 --> 0:20:03.320 off between net zero and economic growth, what would I 0:20:03.359 --> 0:20:06.560 expect to see. Well, it would be no difference between 0:20:06.560 --> 0:20:10.480 the economic performance of the UK, which has introduced this 0:20:10.560 --> 0:20:15.399 artificial scarty on the energy side, and other economies that haven't. 0:20:15.720 --> 0:20:18.080 And actually what we do is we see very big differences. 0:20:18.560 --> 0:20:21.400 It seems that there's a case that you're making very 0:20:21.440 --> 0:20:24.800 well for a slightly more pragmatic approach from the UK 0:20:24.960 --> 0:20:27.600 towards net zero and approach say something along the lines 0:20:27.800 --> 0:20:31.720 of Norway's, which is continued to develop oil and gas 0:20:31.800 --> 0:20:34.359 and continue to use hydrocarbons in the same way and 0:20:34.400 --> 0:20:37.560 not necessarily expected a fall in the use of hydrocarbons, 0:20:37.640 --> 0:20:40.679 but it is nonetheless working towards towards the transition at 0:20:40.680 --> 0:20:42.919 the same time. So maybe there's a case for us 0:20:42.960 --> 0:20:44.320 to be a little more pragmatic. 0:20:44.880 --> 0:20:48.159 Yes, I think you can probably see if you have 0:20:48.240 --> 0:20:51.760 plans for decommissioning of hydrocarbons and nuclear whether you can 0:20:51.840 --> 0:20:57.520 keep that aline. I'm encouraged by the government's intention to 0:20:57.880 --> 0:21:01.600 allow the build out of modern the nuclear reactors, hopefully 0:21:01.640 --> 0:21:03.359 anywhere in the country. 0:21:03.119 --> 0:21:06.080 Although's some rather depressing press on that earlier in the week, 0:21:06.200 --> 0:21:08.119 suggesting that was one of the things that Rachel wads 0:21:08.119 --> 0:21:09.359 we was planning to grow back from. 0:21:09.560 --> 0:21:12.359 Let's see one thing I would just say here, which 0:21:12.400 --> 0:21:15.879 is really the unfortunate point in all of this. The 0:21:16.000 --> 0:21:19.280 UK is on its own a big economy. We're not 0:21:19.320 --> 0:21:23.760 a small economy by any stretch, but our carbon emissions 0:21:24.359 --> 0:21:27.320 are less than one percent of global emissions, and global 0:21:27.320 --> 0:21:31.080 emissions have been rising dramatically over the past twenty years. 0:21:31.119 --> 0:21:35.760 We've almost half hours territorial emissions. There's a slight nuance there. 0:21:35.800 --> 0:21:40.360 We judge our success in reducing emissions with territorial emissions, 0:21:40.400 --> 0:21:43.000 which is what comes out of the UK economy. But 0:21:43.440 --> 0:21:45.880 of course, if what you do is you de industrialize 0:21:45.920 --> 0:21:49.200 in you'll our production to move elsewhere. If that production 0:21:49.359 --> 0:21:52.399 involves lots of hydro carbon use and pollution and then 0:21:52.440 --> 0:21:55.920 you import that, that doesn't count in this territorial emission. 0:21:56.000 --> 0:21:58.800 So you have this very unfortunate situation where the UK 0:21:58.800 --> 0:22:00.760 seems to have paid a very heavy price in terms 0:22:00.760 --> 0:22:04.720 of economic growth, in terms of productivity, but critically living standards, 0:22:04.880 --> 0:22:07.159