Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Merin
Speaker 1: Talks Money Weekly round up, our debrief on the biggest
Speaker 1: stories in markets and economics. I'm Meren Sunset, Web Editor
Speaker 1: at Large for Bloomberg UK Wealth.
Speaker 2: I'm Jointed Stapic what are the Money Distilled newsletter and
Speaker 2: senior reporter for Bloomberg.
Speaker 1: Okay, John, there is far too much for us to
Speaker 1: talk about this week. There's so much going on when
Speaker 1: it comes to stories as volatile markets. There's war, there's
Speaker 1: defense stocks, there's crypt all over the place, all this.
Speaker 1: So what we're going to do is not talk about
Speaker 1: any of those things. We're going to do that thing
Speaker 1: where we just choose one major story, unpack it in
Speaker 1: the conversation. And this week it's all about energy. The
Speaker 1: story is about a bit of research that's come out
Speaker 1: from PEELHNT Economics which asked the question, this is the
Speaker 1: title of the research anyway, does the UK lack the
Speaker 1: energy for productivity growth? So it's a new look at
Speaker 1: the productivity puzzle, which you and I talk about endlessly.
Speaker 1: What's the problem with UK productivity? Is it about having
Speaker 1: too much cheap labor? Is it the way our welfare
Speaker 1: system is set up. Is it the decline in manufacturing
Speaker 1: as a result of Chinese growth?
Speaker 3: What is it?
Speaker 1: We talk about this all the time. This report uses
Speaker 1: data from nearly two hundred countries to make the other
Speaker 1: two hundred countries.
Speaker 2: Oh, I think the two hundred and eleven or something, but.
Speaker 1: Yeah, let's be precise, one hundred and eighty nine countries. Yes,
Speaker 1: to day from one hundred and eighty nine countries to
Speaker 1: make the argument that a miserable record of productivity over
Speaker 1: the last twenty years or so is inextricably linked to
Speaker 1: the country's drive to net zero. So that's two of
Speaker 1: our favorite subjects in a oneer net zero and productivity.
Speaker 1: So with us to dig into all this is the
Speaker 1: author of this report, Calum Pickering, who is the chief
Speaker 1: economist at Peel Hunt. Callum, welcome, thank you for joining
Speaker 1: us today.
Speaker 3: Great pleasure, Thank you for having me.
Speaker 1: Okay, now, what I want to do is start by
Speaker 1: asking you why you sat down to do this bit
Speaker 1: of research, Because while it may be data driven come
Speaker 1: as no surprise to many, it also goes against the
Speaker 1: popular narrative and might not make you very popular. So
Speaker 1: what made you sit down and say I'm going to
Speaker 1: do this.
Speaker 3: Let's start with extraordinary claims require extraordinary evidence. And what
Speaker 3: we hear from Chancellor Rachel Reeves at Ed Muliban, the
Speaker 3: Energy Secretary, both of course Labor government but also the
Speaker 3: previous Conservative government for many years, that there's no trade
Speaker 3: off between economic growth and net zero. Now, as an economist,
Speaker 3: that sort of gets my senses tingling a little. There's
Speaker 3: this general rule which is there are no policy solutions,
Speaker 3: there are only policy trade offs. Now, of course there
Speaker 3: are exceptions, but it is a general rule. It's a
Speaker 3: good rule of So I thought, this is quite a
Speaker 3: big claim to make. Let me see if it's true.
Speaker 3: And after going around the dozens of government websites where
Speaker 3: all of this data is located, I've put something together,
Speaker 3: taken a look, and actually I don't see compelling evidence
Speaker 3: that this is true. In fact, I actually see the opposite.
Speaker 3: I see, I think clear evidence that when we start
Speaker 3: to aggressively pursue our net zero policy, we see almost
Speaker 3: immediately the economic problems which we're all familiar of, slow growth,
Speaker 3: weak productivity, weak growth, and living standards. They all begin.
Speaker 1: Interesting. And you are timing this from around two thousand
Speaker 1: and five, right. A lot of people will look at
Speaker 1: the UK's productivity problem, look at your chance and go, yeah,
Speaker 1: obviously this is all about the Great Financial Crisis. It
Speaker 1: started around then, But you're taking it back a few
Speaker 1: years and saying, actually, it started a bit earlier.
Speaker 3: That's right, And we mustn't discount any of these other
Speaker 3: factors low interest rates, what that might mean for things
Speaker 3: like risk appetite, malinvestment. Also, we had to just pay
Speaker 3: a price in growth terms for a while just to
Speaker 3: fix some of the problems with the financial system that
Speaker 3: we're exposed and of course the reason for the global
Speaker 3: financial crisis. But what I look at is essentially one
Speaker 3: hundred years of data on the UK, and what we
Speaker 3: see is a very clear picture the available electricity to
Speaker 3: the UK economy. That's the stuff that firms and households
Speaker 3: can tap into to consume and produce stuff. It rises
Speaker 3: precipitously through the twentieth century until it peaks in two
Speaker 3: thousand and five. Since then, it's fallen by about twenty percent.
Speaker 3: If I then compare productivity measure it how you like
Speaker 3: output per work at output per hour or multi factor productivity,
Speaker 3: which is the best productivity measure, which blends all the
Speaker 3: factors of production. What we see is alongside that rising
Speaker 3: trend of available electricity, productivity is nicely and then after
Speaker 3: two thousand and five, around two thousand and five two
Speaker 3: thousand and six, all of these numbers start to weaken,
Speaker 3: and as our electricity availability declines, our productivity measures and
Speaker 3: our GDP measures start to move sideways.
Speaker 1: Okay, now, let's just go back a little bit and
Speaker 1: talk about how extraordinary it is to see a decline
Speaker 1: in available electricity or energy of any kind, in that
Speaker 1: this is not the first energy transition in the history
Speaker 1: of mankind. Right. There have been several others in the past,
Speaker 1: but every other time the new energy source has been
Speaker 1: additive rather than transformative. We don't use less wood than
Speaker 1: we used to as a globe, we don't use less
Speaker 1: coal than we used to as a globe, we don't
Speaker 1: use less oil, et cetera. So this is the first
Speaker 1: time a transition has been attempted that is not additive.
Speaker 1: In our UK electricity supply, you see the closing down
Speaker 1: of various parts of the energy infrastructure that are then
Speaker 1: not replaced.
Speaker 3: That's exactly where and again it's a policy choice to
Speaker 3: reduce the available electricity to the UK economy. What we
Speaker 3: have done is we've decommissioned what one might consider to
Speaker 3: be dirty forms of energy coal, oil, some gas, oddly nuclear,
Speaker 3: which is clean and it has huge potential. But as
Speaker 3: we've decommissioned these parts of the energy output infrastructure, we
Speaker 3: have not replaced them quickly enough with renewable energy, whether
Speaker 3: that's solar, wind, and the net result has been this
Speaker 3: decrease in energy availability. Now, one obvious pushback would be
Speaker 3: white bulbs give out less heat, soda, machines, computers, as
Speaker 3: the world's become more efficient, do we just not need
Speaker 3: less energy. There's a quick check there, which is, let's
Speaker 3: look at prices, how a price is behaving. That if
Speaker 3: I know roughly what I think supply is doing, and
Speaker 3: I can see how prices are behaving, I can make
Speaker 3: some judgments about the demand side of this equation. And
Speaker 3: what you see is, up until two thousand and five,
Speaker 3: not just for electricity, but consumer energy prices across all types,
Speaker 3: producer electricity energy prices across all types are actually fairly stable,
Speaker 3: not just stable, but falling relative to general prices. And
Speaker 3: then in two thousand and five we start to see
Speaker 3: this steady rise which accelerates over time in prices of
Speaker 3: all types of energy. Something, of course else happened in
Speaker 3: the early two thousands, which is we became a net
Speaker 3: importer of hydrocarbons, oil and gas, which has meant that
Speaker 3: when prices rise now we suffer negative terms of trade
Speaker 3: shocks instead of positive terms of trade shocks. It's bad
Speaker 3: for our producers and bad for our consumers. And so
Speaker 3: when you put all of this together, the staggering rise
Speaker 3: in prices, this fall in supply. Even if you make
Speaker 3: the case that yes, demand has probably come down a
Speaker 3: little bit for any given activity demand for energy, because
Speaker 3: we see prices rise as supply fall, we can say
Speaker 3: with quite a bit of confidence I think that the
Speaker 3: supply effect is larger than the demand effect.
Speaker 1: Okay, so one of the things that has happened is
Speaker 1: that we have not seen our living standards rise as
Speaker 1: a result of that. And one of the things that
Speaker 1: you much of your report compares the UK to the US,
Speaker 1: and we'll talk about that in a minute about whether
Speaker 1: we should more realistically be looking at Europe. But one
Speaker 1: of the statistics that you put in back in two
Speaker 1: thousand and five, which is when our UK electricity suppliers.
Speaker 1: You peaked, UK energy per capita was fifty percent of
Speaker 1: the US level and our living standards were around seventy
Speaker 1: nine percent of the US level by twenty twenty two,
Speaker 1: and these numbers will have definitely changed since, and not
Speaker 1: in our favor, I'm afraid. By twenty twenty two, UK
Speaker 1: per capita energy consumption had declined to around thirty eight
Speaker 1: percent of the US level, and per capita GDP had
Speaker 1: fallen seventy four percent. I think it is a little
Speaker 1: below that then, So you see that very clearly in
Speaker 1: the numbers, a very different approach. They have been growing
Speaker 1: their living standards, keeping per capita energy consumption around the same.
Speaker 1: So using efficiency like that, we've been holding our livings
Speaker 1: foundards at roughly the same level, possibly now falling given
Speaker 1: the rise in population, well actually cutting our per capture.
Speaker 1: That's the difference, right.
Speaker 3: That's exactly right. Implicitly we have made a different policy choice.
Speaker 3: The reason where now moving on to GDP per capita
Speaker 3: is because productivity is the thing that drives GDP per
Speaker 3: capita over time. It's just how efficiently can you use
Speaker 3: your factors of production? And what we should keep in
Speaker 3: mind here is energy is a very critical factor of
Speaker 3: production in a very fundamental sense. Productivity is capital over labor,
Speaker 3: and because capital requires energy, the more energy you have,
Speaker 3: the more productivity you can generate. I want it to
Speaker 3: broaden this study because you get oddities if you just
Speaker 3: look at an individual country sample. So when I look
Speaker 3: at one hundred and eighty nine countries, the data we
Speaker 3: go from nineteen ninety to twenty twenty two, you see
Speaker 3: this very strong positive correlation between per capita GDP SO
Speaker 3: living standards and per capita energy consumption. Rich countries consume
Speaker 3: more energy on a per person basis. And actually, the
Speaker 3: one thing you can say about the UK is that
Speaker 3: almost no actually no country for its size, has a
Speaker 3: higher standard of living for such a little amount of
Speaker 3: energy consumption per person. When you look at the UK
Speaker 3: versus the US, where you see a very big difference.
Speaker 3: And of course I like comparing the UK to the US.
Speaker 3: Although the UK is smaller, the makeup of its economy
Speaker 3: is actually very similar, services and consumer oriented, has a
Speaker 3: big financial system. It's credit driven, so you can't just
Speaker 3: say US is just oriented towards heavy industry or something
Speaker 3: like that. It's a very similar economy just a different scale,
Speaker 3: and the point you make is exactly right. Implicitly, we
Speaker 3: have made a very different policy choice. We have used
Speaker 3: energy efficiency progress towards using less energy for any given
Speaker 3: thing that we do to stabilize our living standards, but
Speaker 3: reduce our energy consumption. What America has done is stabilized
Speaker 3: its energy consumption but become richer over time. This is
Speaker 3: implicitly a very different policy choice. And essentially this artificial
Speaker 3: scarcity that we've imposed upon our economy, which means actually
Speaker 3: we now have the highest energy prices in the advanced world,
Speaker 3: we are excluding so many types of economic activity that
Speaker 3: would just be profitable if we had lower cost of
Speaker 3: energy and the energy available to produce them.
Speaker 1: Now, a lot of people who listen to this will
Speaker 1: be confused because one of the things that they hear
Speaker 1: constantly is that UK energy prices are only high because
Speaker 1: of the gas price, and we share that problem with
Speaker 1: the rest of Europe.
Speaker 3: Price is important, but what matters more here is just supply.
Speaker 3: Let me just step back from this study and just
Speaker 3: think about a question that we often ask ourselves in markets.
Speaker 3: We will say the old price has gone up, or
Speaker 3: the gas price has gone up. What does this mean
Speaker 3: for economic activity. Actually, I can't tell you anything about
Speaker 3: what that means for economic activity if you just tell
Speaker 3: me the price. What I care about is have we
Speaker 3: had an upside surprise in global economic activity? In other words,
Speaker 3: has demand for this stuff gone up and therefore the
Speaker 3: price has gone up? In which case, just be happy
Speaker 3: that the economy is stronger. We don't need to worry
Speaker 3: about negative effects. But if you tell me that actually
Speaker 3: we've less supply in the world because something has happened somewhere,
Speaker 3: We've had a geopolitical accident or the like, actually we
Speaker 3: need to think about price, yes, But actually I'm asking
Speaker 3: what can't we now do because we don't have the
Speaker 3: gas that we did yesterday, and that's where the economic
Speaker 3: losses actually come from. And so actually this is a
Speaker 3: really practical question, which is, if you're a company in
Speaker 3: the UK, you probably just cannot access the electricity that
Speaker 3: you need. And because demand exceeds our supply potential when
Speaker 3: it comes to electricity, we're rationing through prices. That's essentially
Speaker 3: why prices are so high. So even if you strip
Speaker 3: out all of the levees and all of these other things,
Speaker 3: we would still have abnormally high energy prices. And the
Speaker 3: thing that stands out is we have taken a very
Speaker 3: different implicit choice when it comes to our energy supply.
Speaker 3: We've reduced hours more than other countries, certainly on a
Speaker 3: per person basis.
Speaker 2: That is staggerant. It blows my mind that our actual
Speaker 2: available supply of energy has fallen by twenty percent over
Speaker 2: twenty years. I'd no real idea about that. It's so
Speaker 2: negative for growth. The point is that ultimately we need
Speaker 2: energy abundance to do all the things we want to do,
Speaker 2: and the fact is we've been rowing against that for
Speaker 2: twenty years and that is shocking. And it's actually one
Speaker 2: question now we'd have in the movie. Should get back
Speaker 2: to is later. But it's like, it's more, okay, there's
Speaker 2: policy choices, but there's also a lot of this just
Speaker 2: seems to be people not making hard decisions at the time.
Speaker 2: It's not an explicit policy choice. It's more or let's
Speaker 2: put this off until someone else's problem.
Speaker 3: That's right. It's an implicit policy choice, which I think
Speaker 3: gets more cover than is justified because we have somewhat
Speaker 3: of a mantra that there's no trade off between zero
Speaker 3: and economic growth. It's fine things have become in more
Speaker 3: efficient energy wise, and so actually, if we just reduce
Speaker 3: our energy capacity, it's probably not a big effect. Actually,
Speaker 3: what you find is, in a very simple sense, you
Speaker 3: have some critical factors of production that you need. You
Speaker 3: need land, you need labor, you need capital, and you
Speaker 3: need energy. We know where a land constrained economy, that's
Speaker 3: we consider that when we think about growth, we're all
Speaker 3: considering what the demographic effects of an aging and drinking
Speaker 3: population might be for the world. Okay, capital availability is
Speaker 3: fairly good. There's still plenty of stuff in the ground
Speaker 3: we can dig out, so we're not worried about that.
Speaker 3: But energy is just as important as these these other
Speaker 3: three These are the three things. A couple of other
Speaker 3: things that should just be taken out of this. I
Speaker 3: think one is that if you look at the government's
Speaker 3: own projections previous governments, current governments, UK electricity availability will
Speaker 3: rise over time towards the middle of the century and
Speaker 3: will exceed by a significant amount our all time peak,
Speaker 3: which was in two thousand and five. And perhaps i'd
Speaker 3: just give just give some rough numbers. In two thousand
Speaker 3: and five we had around about three hundred and eighty
Speaker 3: terra watts available to the whole economy about now, it's
Speaker 3: two hundred and eighty if the government builds out renewables
Speaker 3: and some gas, because of course you need some firm
Speaker 3: power to account for the intermittency when the sun isn't
Speaker 3: shina the wind doesn't blow, we'll get to four hundred
Speaker 3: and fifty terra what hours. And the central problem is
Speaker 3: we can decommission on time, that's we're fairly good at that,
Speaker 3: but can we actually build out on time? So things
Speaker 3: like planning, permission and regulations and all this other stuff
Speaker 3: really really matters. And I think the reason why we
Speaker 3: just need to take a cold, hard look at this
Speaker 3: kind of evidence is because we faced two really difficult
Speaker 3: choices at the moment. How do we get ahead with AI?
Speaker 3: It has huge potential for productivity gains, but it's very
Speaker 3: energy intensive in a sense, it's an industrial revolution as
Speaker 3: much as a tech revolution. But then second, we will
Speaker 3: need to raise our military spend as a percent of GDP.
Speaker 3: And again, to be frank, if you want to be
Speaker 3: a serious military power and defend yourself, you have to
Speaker 3: be able to keep your own lights on over winter.
Speaker 3: And therefore we need to have energy security and we
Speaker 3: need to be able to meet our own needs under
Speaker 3: any given circumstances, and so I think the worm is
Speaker 3: probably turning on a lot of this stuff. But the
Speaker 3: key point for me is just look at the very
Speaker 3: basic economics. The more supply you have, the biggier economy is.
Speaker 3: If you reduce that supply somewhere, you will see some
Speaker 3: negative consequences. And we have here a very clear relationship
Speaker 3: between our economic problems, which start before the financial crisis,
Speaker 3: probably amplified by the financial crisis, and this precipitous for
Speaker 3: in our electricity availability, which has been in explicit policy choice.
Speaker 3: When we look around the world, we see evidence that
Speaker 3: when economies haven't made this policy choice, like America or
Speaker 3: South Korea or even Poland, very different things happen.
Speaker 1: Callums. Can go back to what you were saying about
Speaker 1: the rise in electricity capacity by the middle of this century.
Speaker 1: Back in two thousand and five, we're at three eighty
Speaker 1: and you say that under the current government plans we
Speaker 1: get four fifty. Given the rise in our population and
Speaker 1: the demand there's going to be, that seems not very
Speaker 1: much in terms of a rise from three eighty to
Speaker 1: four to fifty. That seems like a very small amount
Speaker 1: of electricity for a country that is attempting to use
Speaker 1: more and more electricity in switch vehicles and all this
Speaker 1: kind of thing, and lots of factories over to using
Speaker 1: electricity rather than using diesel oil petrol, and an economy
Speaker 1: that we want to really participate in the ai REV
Speaker 1: that doesn't seem like anywhere near enough to me.
Speaker 3: It's hard to say at this stage. It's probably better
Speaker 3: to be on the safe side and say, let's have
Speaker 3: more energy than we'll need and see if you can
Speaker 3: sell it to someone. We'll benefit through our trade balance
Speaker 3: on exports, So that's quite right. What I would say is,
Speaker 3: if you take the official population protections, what you do
Speaker 3: see is if the government can meet its plans for
Speaker 3: raising electricity availability, you will start to see an improvement
Speaker 3: in per person energy availability, which which just came. And
Speaker 3: so the way to think about this is we should
Speaker 3: be gradually removing a headwind to economic growth. And one
Speaker 3: of the things you should say is if you make
Speaker 3: a claim like I make in what would be true
Speaker 3: if I'm right, which is if the government actually builds
Speaker 3: out and we start to see in the numbers more
Speaker 3: and more electricity made available to the UK economy, we
Speaker 3: probably should start to see some upside surprises to things
Speaker 3: like per capita GDP and product And it's really as
Speaker 3: simple as that. But of course I can't look at
Speaker 3: a quarterly data series for the next year and say
Speaker 3: whether this is right. This will be a five or
Speaker 3: a ten year think. But what I've done is I've
Speaker 3: started by asking the opposite, which is, if what the
Speaker 3: government says is true, which is there's no trade off
Speaker 3: between zero and economic growth, what would I expect to see. Well,
Speaker 3: it would be no difference between the economic performance of
Speaker 3: the UK, which has introduced this artificial screting on the
Speaker 3: energy side, and other economies that haven't. And actually what
Speaker 3: we do is we see very big differences.
Speaker 1: It seems that there's a case that you're making very
Speaker 1: well for a slightly more pragmatic approach from the UK
Speaker 1: towards net zero and approach say something along the lines
Speaker 1: of Norway's, which is continued to develop oil and gas
Speaker 1: and continue to use hydrocarbons in the same way and
Speaker 1: not necessarily expected a fall in the use of hydrocarbons,
Speaker 1: but it's nonetheless working towards towards the transition. At the
Speaker 1: same time, so maybe there's a case for us to
Speaker 1: be a little more pragmatic.
Speaker 3: Yes, I think you can probably see if you have
Speaker 3: plans for decommissioning of hydrocarbons and nuclear whether you can
Speaker 3: keep that online. I'm encouraged by the government's intention to
Speaker 3: allow the build out of modul and nuclear reactors, hopefully
Speaker 3: anywhere in the country.
Speaker 1: Although some rather depressing press on that earlier in the week,
Speaker 1: suggesting that was one of the things that Rachel Waves
Speaker 1: was planning to row back from.
Speaker 3: Let's see one thing I would just say here, which
Speaker 3: is really the unfortunate point in all of this. The
Speaker 3: UK is, on its own a big economy. We're not
Speaker 3: a small economy by any stretch, but our carbon emissions
Speaker 3: are less than one percent of global emissions, and global
Speaker 3: emissions have been rising dramatically over the past twenty years.
Speaker 3: We've almost half hours territorial emissions. There's a slight nuance there.
Speaker 3: We judge our success in reducing emissions with territorial emissions,
Speaker 3: which is what comes out of the UK economy. But
Speaker 3: of course, if what you do is you de industrialize
Speaker 3: in you'll our production to move elsewhere. If that production
Speaker 3: involves lots of hydro carbon use and pollution, and then
Speaker 3: you import that that doesn't count in this territorial emission.
Speaker 3: So you have this very unfortunate situation where the UK
Speaker 3: seems to have paid a very heavy price in terms
Speaker 3: of economic growth, in terms of productivity, but critically living standards.
Speaker 3: And you think about all of the political challenges that
Speaker 3: we've faced over the last few years that are linked
Speaker 3: to the real indignities that come from stagnant living standards,
Speaker 3: without question, and the result is, because we contribute such
Speaker 3: a small amount to global emissions, we have not changed
Speaker 3: the dial. We have not changed the global overall emissions story.
Speaker 3: We've just generated low economic growth, weak productivity, de industrialization
Speaker 3: and all of this doesn't actually change the fundamental story
Speaker 3: when it comes to the global carbon picture. And so
Speaker 3: we need to ask a very serious question whether or
Speaker 3: not this has been remains would be a sensible policy
Speaker 3: choice for us to make.
Speaker 2: Yeah, And the point of it is that that's not
Speaker 2: saying abandon. He was just saying that during the transition
Speaker 2: period where we don't have nuclear fusion and we don't
Speaker 2: have batteries and we still haven't built enough nuclear power stations,
Speaker 2: we should maybe be keeping things like natural gas more
Speaker 2: aggressively online because we still need to grow and we
Speaker 2: still need to find solutions. And I suppose the other
Speaker 2: problem is if we've get economic stagnation, then we're also
Speaker 2: not generating any innovation, and innovation is one of the
Speaker 2: things we need to make this actual switch to net
Speaker 2: zero actually work.
Speaker 3: That's exactly right. The richest economies in the world, which
Speaker 3: are essentially the most productive economies in the world, use
Speaker 3: energy most efficiently, and so becoming richer is a good
Speaker 3: and obvious way to become more energy efficient. There are
Speaker 3: another couple of things just to throw in here, which
Speaker 3: is that the state of the world has changed. We're
Speaker 3: much more vulnerab than we once were to external geopolitical shocks,
Speaker 3: and at present we're a net hydrocarbon importer oil and gas.
Speaker 3: We have not huge, but significant reserves of this. We
Speaker 3: could make a choice to say, since we're still using
Speaker 3: this stuff, why not protect ourselves against some of these
Speaker 3: choices by exploring some of our own supply potential. That's
Speaker 3: one thing, But also keep in mind that, of course
Speaker 3: renewables have fantastic potential. The marginal cost is extremely low.
Speaker 3: The wind always blows, the sun we have this giant
Speaker 3: nuclear reactor in the sky that's just giving off energy,
Speaker 3: and this is very sensible to try and tap this stuff.
Speaker 3: But a lot of this technology requires critical minerals which
Speaker 3: we don't have in the UK. We're going to have
Speaker 3: to import these minerals, and of course they're expensive because
Speaker 3: everyone's trying to do this all at the same time,
Speaker 3: Which means what we should keep in mind is even
Speaker 3: as we transition towards majority renewables with a baseline if
Speaker 3: something like gas resolve these intmisciency issues, we should consider
Speaker 3: the fact that in this world where geo political shocks
Speaker 3: are common, that we may still suffer these external supply shocks,
Speaker 3: not necessarily directly through the energy that comes through trade,
Speaker 3: but actually through some of the critical minerals and some
Speaker 3: of the capital goods that are required to maintain and
Speaker 3: build out this stock. So we just need to take
Speaker 3: a cold, hard look at some of these choices.
Speaker 1: Yeah, this is another one of the Another one of
Speaker 1: the conflicts that has little discussed is that we talk
Speaker 1: about how important it is to have a shift towards
Speaker 1: renewables for our energy security, but of course it's not
Speaker 1: actually a secure form of energy. If we cannot continue
Speaker 1: to have access to the wear earth metals that we
Speaker 1: might need. So China, for example, at the moment, is
Speaker 1: sixty percent of global rare earth mining, ninety percent of
Speaker 1: the processing. But then in context, the US is only
Speaker 1: nine percent of the mining, and in the UK I
Speaker 1: think is an egible number. I'm not even sure we
Speaker 1: mind anywhere else at all?
Speaker 2: Do We don't think so.
Speaker 1: So with that in mind, there is no energy security
Speaker 1: in using only renewables or making a major shift to renewables.
Speaker 3: One might make it an even broader point just to
Speaker 3: say that if you want Britain to be more secure
Speaker 3: in future, pick the economic path that has the maximum
Speaker 3: probability of making you as rich as possible, and that
Speaker 3: may involve just completely throwing open the doors on some
Speaker 3: of our energy because if America, China some of the
Speaker 3: other big consumers of hydrocarbons say actually, no, we are
Speaker 3: going to continue to use this stuff, We're going to
Speaker 3: continue to pollute. Really, what is the use of the
Speaker 3: UK going in the opposite direction? Given that we actually
Speaker 3: can't change the circumstances in the world all that much.
Speaker 3: That's an unfortunate policy choice to have to make it
Speaker 3: wouldn't please me if we had to make that policy choice.
Speaker 3: But one of the key things when it comes to
Speaker 3: economic policy is you have to just take the world
Speaker 3: as it is, not how you would like it to be.
Speaker 3: And of course it would be nice just looping back
Speaker 3: to the start if there was no trade off between
Speaker 3: economic growth and net zero. But suppose that there is.
Speaker 3: Suppose there is actually a trade off between say net
Speaker 3: zero and military security. Suppose there's a trade off between
Speaker 3: net zero and funding our growing pensions liabilities, military spend,
Speaker 3: pensions liabilities. All of this requires economic growth. And if
Speaker 3: the choice by pursuing that zero is we don't achieve
Speaker 3: any economic growth or at least growth, that's not satisfactory.
Speaker 3: We need to decide which cost we're willing to take.
Speaker 3: And actually, the thing to point out is because our
Speaker 3: net zero policy doesn't really influence the world picture when
Speaker 3: it comes to carbon, the choice may actually be fairly
Speaker 3: straightforward for us. You know, if we said, actually we
Speaker 3: should pursue at zero, we should accept the lower economic growth,
Speaker 3: and we might want to pay a choice living standards.
Speaker 3: People choose to do that. That's absolutely fine. I'm an economist.
Speaker 3: It's not for me to say, which I think is
Speaker 3: the right way to go. It's just to say if
Speaker 3: you do this will happen. That's the best I can do.
Speaker 3: But people should be made aware that if you make
Speaker 3: that choice, you might not actually get what you want,
Speaker 3: which is the clean air in the limited rise in
Speaker 3: the global temperature.
Speaker 1: There is a view that none of this matters, and
Speaker 1: that the UK should be a global leader in the
Speaker 1: energy transition and in the race to net zero racist
Speaker 1: because no one else seems to be running, that we
Speaker 1: should be a global leader regardless of what anyone else
Speaker 1: is doing. Now, I suppose the obvious answer to that
Speaker 1: is if no one's following you, are you leading? Well.
Speaker 3: I don't think I could put it much better than that.
Speaker 3: The one thing that I think we should keep in
Speaker 3: mind is that in most parts of the world, living
Speaker 3: standards are much lower than they are in the UK,
Speaker 3: and security is much lower. And if you want to
Speaker 3: set the right example, a really straightforward way to do
Speaker 3: that is to have a fast growing, dynamic economy. And
Speaker 3: so when you think about global influence, typically the economies
Speaker 3: that influence the world are the ones that have the
Speaker 3: most dynamic economies. Because the thing that people really need
Speaker 3: and really want and should want, is to become richer
Speaker 3: and safer and better fit. And therefore think it will
Speaker 3: be difficult to convince people that we're leading you down
Speaker 3: a path that won't improve your LIVN standards and won't
Speaker 3: make you safer, and won't improve your food security and
Speaker 3: all these other things. But in the end it's the
Speaker 3: right way to go for all these other reasons, I
Speaker 3: don't find that very compelling. And now, of course this
Speaker 3: is a political point, but the UK is gradually becoming
Speaker 3: less important on the international stage. Twenty to twenty five
Speaker 3: years ago, the UK mattered much more. We also had
Speaker 3: a much stronger economy, We were a bigger share of
Speaker 3: global GDP, we had genuinely dynamic industries. And as our
Speaker 3: economic dynamism has weakened and other fast growing economies have
Speaker 3: moved ahead, they have naturally taken our place, and they
Speaker 3: shape global trends and they influence other economies more than
Speaker 3: we do.
Speaker 2: Coming back to the other problem is if your economy
Speaker 2: doesn't grow, then you don't innovate and you don't come
Speaker 2: to a solution for this. I think that's because I
Speaker 2: don't want to be able to come away from this
Speaker 2: thinking that all right. So it's a choice between a
Speaker 2: dirty world that's growing and a clean world that isn't.
Speaker 2: It's the things that you If you don't have economic growth,
Speaker 2: then for example, we would never have come up with AI,
Speaker 2: and EI might require energy, but AI might also who knows,
Speaker 2: solve nuclear fusion in the next ten years. Maybe who knows,
Speaker 2: it's always next ten years. But the point is that
Speaker 2: if you don't have the innovation driven by inexpensive energy
Speaker 2: and the ability to use more and more of it,
Speaker 2: then we're actually looking at collapse really eventually.
Speaker 3: Let me just make clear what I am signing the
Speaker 3: report and what I'm not signing the report. I'm not
Speaker 3: suggesting that we should abandon zero. That's in fact, I'm
Speaker 3: not really making any policy recommendations at all. What I'm
Speaker 3: doing is taking at face value what our net zero
Speaker 3: policy has produced so far, which is a reduction in
Speaker 3: energy availability through decommissioning of dirty forms of energy which
Speaker 3: has not been offset sufficiently by renewable capacity. I have again,
Speaker 3: this is not a policy prescription. If the quickest way
Speaker 3: to rapidly increase the available energy to the UK economy
Speaker 3: is through rollout of wind and solar that's probably the
Speaker 3: policy choice to make. If it's nuclear, that's the policy
Speaker 3: choice to make. If it's gas, maybe that's the policy
Speaker 3: choice to make. It's really not to have a preference
Speaker 3: in all of this, but I fully agree to your point.
Speaker 3: Look to the US as the example of a country
Speaker 3: where energy costs a low availability is extremely high. It's
Speaker 3: the most innovative, dynamic, major economy in the world, and
Speaker 3: UK tech companies startups. We're great at that, but then
Speaker 3: they have to make a choice where can we scale.
Speaker 3: And what you need for a company that wants to
Speaker 3: scale is cheap, reliable energy that's not vulnerable to global gyrations.
Speaker 3: And we can't provide that, but America can, which is
Speaker 3: why companies migrate to America. During twenty twenty two, when
Speaker 3: Europe was throttled by gas supply shortages following the Russian
Speaker 3: invasion of Ukraine, America continued to grow. If you're a
Speaker 3: company deciding in this unfortunately more risky world where you
Speaker 3: might want to spend the next ten years trying to
Speaker 3: grow your economy, and if you're a highly productive company
Speaker 3: that requires lots of cheap energy, the choice is to
Speaker 3: go to the US.
Speaker 1: I think that You've given everyone a lot to think
Speaker 1: about here, and I hope that Ed Milivan will listen
Speaker 1: to this and have a little thing. Maybe not, we'll see.
Speaker 1: That's like, come on and discuss anyway. Callum, thank you
Speaker 1: so much for joining us today. We really appreciate it.
Speaker 3: That was my great pleasure. Thank you so much.
Speaker 1: Thanks for listening to this week's Marin Talks Money Debrief.
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Speaker 1: John Underscore Steppek. This episode was produced by Sumasadi Production
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