WEBVTT - Is There a Tradeoff Between Net Zero and UK Growth? 0:00:02.720 --> 0:00:18.800 Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Merin 0:00:18.840 --> 0:00:21.599 Talks Money Weekly round up, our debrief on the biggest 0:00:21.640 --> 0:00:25.360 stories in markets and economics. I'm Meren Sunset, Web Editor 0:00:25.400 --> 0:00:27.080 at Large for Bloomberg UK Wealth. 0:00:27.440 --> 0:00:30.080 I'm Jointed Stapic what are the Money Distilled newsletter and 0:00:30.160 --> 0:00:31.680 senior reporter for Bloomberg. 0:00:32.200 --> 0:00:34.479 Okay, John, there is far too much for us to 0:00:34.520 --> 0:00:36.319 talk about this week. There's so much going on when 0:00:36.320 --> 0:00:38.800 it comes to stories as volatile markets. There's war, there's 0:00:38.840 --> 0:00:41.519 defense stocks, there's crypt all over the place, all this. 0:00:42.120 --> 0:00:43.640 So what we're going to do is not talk about 0:00:43.680 --> 0:00:45.279 any of those things. We're going to do that thing 0:00:45.280 --> 0:00:48.040 where we just choose one major story, unpack it in 0:00:48.080 --> 0:00:51.960 the conversation. And this week it's all about energy. The 0:00:52.080 --> 0:00:54.279 story is about a bit of research that's come out 0:00:54.280 --> 0:00:56.960 from PEELHNT Economics which asked the question, this is the 0:00:57.000 --> 0:01:01.040 title of the research anyway, does the UK lack the 0:01:01.320 --> 0:01:06.479 energy for productivity growth? So it's a new look at 0:01:06.480 --> 0:01:10.400 the productivity puzzle, which you and I talk about endlessly. 0:01:10.760 --> 0:01:13.640 What's the problem with UK productivity? Is it about having 0:01:13.640 --> 0:01:15.920 too much cheap labor? Is it the way our welfare 0:01:15.920 --> 0:01:18.920 system is set up. Is it the decline in manufacturing 0:01:18.959 --> 0:01:20.479 as a result of Chinese growth? 0:01:20.480 --> 0:01:20.840 What is it? 0:01:20.880 --> 0:01:23.600 We talk about this all the time. This report uses 0:01:23.680 --> 0:01:26.200 data from nearly two hundred countries to make the other 0:01:26.240 --> 0:01:27.120 two hundred countries. 0:01:27.680 --> 0:01:30.200 Oh, I think the two hundred and eleven or something, but. 0:01:30.240 --> 0:01:33.959 Yeah, let's be precise, one hundred and eighty nine countries. Yes, 0:01:33.959 --> 0:01:36.040 to day from one hundred and eighty nine countries to 0:01:36.200 --> 0:01:39.800 make the argument that a miserable record of productivity over 0:01:39.840 --> 0:01:43.039 the last twenty years or so is inextricably linked to 0:01:43.120 --> 0:01:46.360 the country's drive to net zero. So that's two of 0:01:46.400 --> 0:01:50.280 our favorite subjects in a oneer net zero and productivity. 0:01:50.320 --> 0:01:52.280 So with us to dig into all this is the 0:01:52.320 --> 0:01:55.000 author of this report, Calum Pickering, who is the chief 0:01:55.080 --> 0:01:58.840 economist at Peel Hunt. Callum, welcome, thank you for joining 0:01:58.960 --> 0:01:59.360 us today. 0:02:00.000 --> 0:02:01.320 Great pleasure, Thank you for having me. 0:02:01.840 --> 0:02:04.240 Okay, now, what I want to do is start by 0:02:04.680 --> 0:02:08.400 asking you why you sat down to do this bit 0:02:08.440 --> 0:02:11.679 of research, Because while it may be data driven come 0:02:11.720 --> 0:02:16.360 as no surprise to many, it also goes against the 0:02:16.440 --> 0:02:20.320 popular narrative and might not make you very popular. So 0:02:20.400 --> 0:02:22.160 what made you sit down and say I'm going to 0:02:22.240 --> 0:02:22.440 do this. 0:02:23.040 --> 0:02:28.080 Let's start with extraordinary claims require extraordinary evidence. And what 0:02:28.240 --> 0:02:32.560 we hear from Chancellor Rachel Reeves at Ed Muliban, the 0:02:33.000 --> 0:02:36.800 Energy Secretary, both of course Labor government but also the 0:02:36.800 --> 0:02:41.280 previous Conservative government for many years, that there's no trade 0:02:41.280 --> 0:02:47.359 off between economic growth and net zero. Now, as an economist, 0:02:47.400 --> 0:02:50.519 that sort of gets my senses tingling a little. There's 0:02:50.560 --> 0:02:54.560 this general rule which is there are no policy solutions, 0:02:54.680 --> 0:02:57.240 there are only policy trade offs. Now, of course there 0:02:57.240 --> 0:02:59.440 are exceptions, but it is a general rule. It's a 0:02:59.480 --> 0:03:01.680 good rule of So I thought, this is quite a 0:03:01.680 --> 0:03:05.000 big claim to make. Let me see if it's true. 0:03:05.000 --> 0:03:09.120 And after going around the dozens of government websites where 0:03:09.160 --> 0:03:12.720 all of this data is located, I've put something together, 0:03:12.919 --> 0:03:16.320 taken a look, and actually I don't see compelling evidence 0:03:16.360 --> 0:03:18.839 that this is true. In fact, I actually see the opposite. 0:03:18.960 --> 0:03:21.440 I see, I think clear evidence that when we start 0:03:21.480 --> 0:03:26.200 to aggressively pursue our net zero policy, we see almost 0:03:26.280 --> 0:03:30.520 immediately the economic problems which we're all familiar of, slow growth, 0:03:30.600 --> 0:03:34.880 weak productivity, weak growth, and living standards. They all begin. 0:03:36.520 --> 0:03:39.200 Interesting. And you are timing this from around two thousand 0:03:39.240 --> 0:03:41.360 and five, right. A lot of people will look at 0:03:41.360 --> 0:03:44.200 the UK's productivity problem, look at your chance and go, yeah, 0:03:44.240 --> 0:03:46.720 obviously this is all about the Great Financial Crisis. It 0:03:46.760 --> 0:03:50.000 started around then, But you're taking it back a few 0:03:50.040 --> 0:03:52.280 years and saying, actually, it started a bit earlier. 0:03:53.240 --> 0:03:56.400 That's right, And we mustn't discount any of these other 0:03:56.640 --> 0:04:00.560 factors low interest rates, what that might mean for things 0:04:00.600 --> 0:04:05.320 like risk appetite, malinvestment. Also, we had to just pay 0:04:05.320 --> 0:04:08.000 a price in growth terms for a while just to 0:04:08.040 --> 0:04:10.400 fix some of the problems with the financial system that 0:04:10.520 --> 0:04:12.920 we're exposed and of course the reason for the global 0:04:12.960 --> 0:04:15.920 financial crisis. But what I look at is essentially one 0:04:16.000 --> 0:04:18.599 hundred years of data on the UK, and what we 0:04:18.600 --> 0:04:22.240 see is a very clear picture the available electricity to 0:04:22.560 --> 0:04:26.640 the UK economy. That's the stuff that firms and households 0:04:26.720 --> 0:04:30.160 can tap into to consume and produce stuff. It rises 0:04:30.360 --> 0:04:35.200 precipitously through the twentieth century until it peaks in two 0:04:35.240 --> 0:04:41.120 thousand and five. Since then, it's fallen by about twenty percent. 0:04:41.800 --> 0:04:45.800 If I then compare productivity measure it how you like 0:04:46.000 --> 0:04:49.280 output per work at output per hour or multi factor productivity, 0:04:49.279 --> 0:04:52.320 which is the best productivity measure, which blends all the 0:04:52.360 --> 0:04:56.040 factors of production. What we see is alongside that rising 0:04:56.120 --> 0:05:02.080 trend of available electricity, productivity is nicely and then after 0:05:02.240 --> 0:05:04.320 two thousand and five, around two thousand and five two 0:05:04.320 --> 0:05:06.480 thousand and six, all of these numbers start to weaken, 0:05:07.160 --> 0:05:12.000 and as our electricity availability declines, our productivity measures and 0:05:12.000 --> 0:05:14.240 our GDP measures start to move sideways. 0:05:14.400 --> 0:05:17.360 Okay, now, let's just go back a little bit and 0:05:18.080 --> 0:05:22.240 talk about how extraordinary it is to see a decline 0:05:22.320 --> 0:05:25.800 in available electricity or energy of any kind, in that 0:05:26.000 --> 0:05:29.080 this is not the first energy transition in the history 0:05:29.120 --> 0:05:31.560 of mankind. Right. There have been several others in the past, 0:05:32.040 --> 0:05:35.640 but every other time the new energy source has been 0:05:35.839 --> 0:05:39.560 additive rather than transformative. We don't use less wood than 0:05:40.000 --> 0:05:42.039 we used to as a globe, we don't use less 0:05:42.080 --> 0:05:43.599 coal than we used to as a globe, we don't 0:05:43.680 --> 0:05:46.640 use less oil, et cetera. So this is the first 0:05:46.680 --> 0:05:50.919 time a transition has been attempted that is not additive. 0:05:51.240 --> 0:05:54.440 In our UK electricity supply, you see the closing down 0:05:55.120 --> 0:05:58.320 of various parts of the energy infrastructure that are then 0:05:58.400 --> 0:05:59.080 not replaced. 0:05:59.320 --> 0:06:01.839 That's exactly where and again it's a policy choice to 0:06:01.920 --> 0:06:06.200 reduce the available electricity to the UK economy. What we 0:06:06.240 --> 0:06:09.400 have done is we've decommissioned what one might consider to 0:06:09.400 --> 0:06:14.440 be dirty forms of energy coal, oil, some gas, oddly nuclear, 0:06:15.000 --> 0:06:17.800 which is clean and it has huge potential. But as 0:06:17.839 --> 0:06:23.080 we've decommissioned these parts of the energy output infrastructure, we 0:06:23.160 --> 0:06:26.480 have not replaced them quickly enough with renewable energy, whether 0:06:26.520 --> 0:06:30.320 that's solar, wind, and the net result has been this 0:06:30.440 --> 0:06:35.320 decrease in energy availability. Now, one obvious pushback would be 0:06:35.360 --> 0:06:39.880 white bulbs give out less heat, soda, machines, computers, as 0:06:39.920 --> 0:06:42.320 the world's become more efficient, do we just not need 0:06:42.440 --> 0:06:46.520 less energy. There's a quick check there, which is, let's 0:06:46.520 --> 0:06:49.000 look at prices, how a price is behaving. That if 0:06:49.040 --> 0:06:51.560 I know roughly what I think supply is doing, and 0:06:51.600 --> 0:06:53.800 I can see how prices are behaving, I can make 0:06:53.800 --> 0:06:56.720 some judgments about the demand side of this equation. And 0:06:56.800 --> 0:06:59.960 what you see is, up until two thousand and five, 0:07:00.400 --> 0:07:04.560 not just for electricity, but consumer energy prices across all types, 0:07:04.680 --> 0:07:08.799 producer electricity energy prices across all types are actually fairly stable, 0:07:09.279 --> 0:07:13.880 not just stable, but falling relative to general prices. And 0:07:13.920 --> 0:07:15.960 then in two thousand and five we start to see 0:07:16.000 --> 0:07:21.200 this steady rise which accelerates over time in prices of 0:07:21.400 --> 0:07:24.160 all types of energy. Something, of course else happened in 0:07:24.160 --> 0:07:26.120 the early two thousands, which is we became a net 0:07:26.360 --> 0:07:31.560 importer of hydrocarbons, oil and gas, which has meant that 0:07:31.600 --> 0:07:35.480 when prices rise now we suffer negative terms of trade 0:07:35.480 --> 0:07:38.680 shocks instead of positive terms of trade shocks. It's bad 0:07:38.720 --> 0:07:42.600 for our producers and bad for our consumers. And so 0:07:42.640 --> 0:07:45.920 when you put all of this together, the staggering rise 0:07:45.960 --> 0:07:50.000 in prices, this fall in supply. Even if you make 0:07:50.080 --> 0:07:53.560 the case that yes, demand has probably come down a 0:07:53.560 --> 0:07:58.080 little bit for any given activity demand for energy, because 0:07:58.080 --> 0:08:01.080 we see prices rise as supply fall, we can say 0:08:01.120 --> 0:08:02.800 with quite a bit of confidence I think that the 0:08:02.840 --> 0:08:05.760 supply effect is larger than the demand effect. 0:08:06.560 --> 0:08:11.000 Okay, so one of the things that has happened is 0:08:11.040 --> 0:08:14.440 that we have not seen our living standards rise as 0:08:14.440 --> 0:08:16.280 a result of that. And one of the things that 0:08:16.320 --> 0:08:19.600 you much of your report compares the UK to the US, 0:08:19.600 --> 0:08:21.000 and we'll talk about that in a minute about whether 0:08:21.040 --> 0:08:24.760 we should more realistically be looking at Europe. But one 0:08:24.800 --> 0:08:27.760 of the statistics that you put in back in two 0:08:27.800 --> 0:08:30.600 thousand and five, which is when our UK electricity suppliers. 0:08:30.640 --> 0:08:33.480 You peaked, UK energy per capita was fifty percent of 0:08:33.480 --> 0:08:36.640 the US level and our living standards were around seventy 0:08:36.720 --> 0:08:39.160 nine percent of the US level by twenty twenty two, 0:08:39.200 --> 0:08:41.120 and these numbers will have definitely changed since, and not 0:08:41.160 --> 0:08:43.880 in our favor, I'm afraid. By twenty twenty two, UK 0:08:43.960 --> 0:08:47.120 per capita energy consumption had declined to around thirty eight 0:08:47.160 --> 0:08:49.760 percent of the US level, and per capita GDP had 0:08:49.760 --> 0:08:51.880 fallen seventy four percent. I think it is a little 0:08:51.920 --> 0:08:55.040 below that then, So you see that very clearly in 0:08:55.080 --> 0:08:58.520 the numbers, a very different approach. They have been growing 0:08:58.520 --> 0:09:02.520 their living standards, keeping per capita energy consumption around the same. 0:09:02.559 --> 0:09:05.960 So using efficiency like that, we've been holding our livings 0:09:05.960 --> 0:09:08.640 foundards at roughly the same level, possibly now falling given 0:09:08.679 --> 0:09:12.080 the rise in population, well actually cutting our per capture. 0:09:12.640 --> 0:09:13.880 That's the difference, right. 0:09:14.120 --> 0:09:18.040 That's exactly right. Implicitly we have made a different policy choice. 0:09:18.520 --> 0:09:21.080 The reason where now moving on to GDP per capita 0:09:21.200 --> 0:09:24.439 is because productivity is the thing that drives GDP per 0:09:24.480 --> 0:09:27.439 capita over time. It's just how efficiently can you use 0:09:27.440 --> 0:09:29.520 your factors of production? And what we should keep in 0:09:29.520 --> 0:09:31.800 mind here is energy is a very critical factor of 0:09:31.840 --> 0:09:37.880 production in a very fundamental sense. Productivity is capital over labor, 0:09:38.120 --> 0:09:40.880 and because capital requires energy, the more energy you have, 0:09:40.960 --> 0:09:44.320 the more productivity you can generate. I want it to 0:09:44.640 --> 0:09:47.280 broaden this study because you get oddities if you just 0:09:47.320 --> 0:09:49.800 look at an individual country sample. So when I look 0:09:49.800 --> 0:09:52.280 at one hundred and eighty nine countries, the data we 0:09:52.480 --> 0:09:56.000 go from nineteen ninety to twenty twenty two, you see 0:09:56.000 --> 0:10:00.240 this very strong positive correlation between per capita GDP SO 0:10:00.320 --> 0:10:04.439 living standards and per capita energy consumption. Rich countries consume 0:10:04.520 --> 0:10:07.679 more energy on a per person basis. And actually, the 0:10:07.720 --> 0:10:09.400 one thing you can say about the UK is that 0:10:09.880 --> 0:10:13.640 almost no actually no country for its size, has a 0:10:13.679 --> 0:10:16.440 higher standard of living for such a little amount of 0:10:16.600 --> 0:10:20.480 energy consumption per person. When you look at the UK 0:10:20.679 --> 0:10:23.240 versus the US, where you see a very big difference. 0:10:23.240 --> 0:10:25.080 And of course I like comparing the UK to the US. 0:10:25.080 --> 0:10:27.600 Although the UK is smaller, the makeup of its economy 0:10:27.640 --> 0:10:30.959 is actually very similar, services and consumer oriented, has a 0:10:30.960 --> 0:10:34.120 big financial system. It's credit driven, so you can't just 0:10:34.120 --> 0:10:37.720 say US is just oriented towards heavy industry or something 0:10:37.760 --> 0:10:40.600 like that. It's a very similar economy just a different scale, 0:10:41.280 --> 0:10:43.720 and the point you make is exactly right. Implicitly, we 0:10:43.760 --> 0:10:46.720 have made a very different policy choice. We have used 0:10:47.600 --> 0:10:53.280 energy efficiency progress towards using less energy for any given 0:10:53.320 --> 0:10:56.600 thing that we do to stabilize our living standards, but 0:10:56.640 --> 0:11:01.280 reduce our energy consumption. What America has done is stabilized 0:11:01.280 --> 0:11:04.920 its energy consumption but become richer over time. This is 0:11:04.960 --> 0:11:08.560 implicitly a very different policy choice. And essentially this artificial 0:11:08.600 --> 0:11:12.240 scarcity that we've imposed upon our economy, which means actually 0:11:12.280 --> 0:11:17.839 we now have the highest energy prices in the advanced world, 0:11:18.120 --> 0:11:22.040 we are excluding so many types of economic activity that 0:11:22.120 --> 0:11:25.360 would just be profitable if we had lower cost of 0:11:25.480 --> 0:11:29.280 energy and the energy available to produce them. 0:11:29.360 --> 0:11:31.360 Now, a lot of people who listen to this will 0:11:31.400 --> 0:11:33.240 be confused because one of the things that they hear 0:11:33.400 --> 0:11:38.040 constantly is that UK energy prices are only high because 0:11:38.040 --> 0:11:40.840 of the gas price, and we share that problem with 0:11:40.880 --> 0:11:41.800 the rest of Europe. 0:11:42.240 --> 0:11:46.600 Price is important, but what matters more here is just supply. 0:11:47.440 --> 0:11:51.559 Let me just step back from this study and just 0:11:51.600 --> 0:11:54.080 think about a question that we often ask ourselves in markets. 0:11:54.120 --> 0:11:56.360 We will say the old price has gone up, or 0:11:56.400 --> 0:11:57.880 the gas price has gone up. What does this mean 0:11:57.920 --> 0:12:00.880 for economic activity. Actually, I can't tell you anything about 0:12:00.880 --> 0:12:02.800 what that means for economic activity if you just tell 0:12:02.840 --> 0:12:05.760 me the price. What I care about is have we 0:12:05.840 --> 0:12:08.960 had an upside surprise in global economic activity? In other words, 0:12:09.000 --> 0:12:11.640 has demand for this stuff gone up and therefore the 0:12:11.679 --> 0:12:14.160 price has gone up? In which case, just be happy 0:12:14.160 --> 0:12:15.760 that the economy is stronger. We don't need to worry 0:12:15.760 --> 0:12:17.800 about negative effects. But if you tell me that actually 0:12:17.880 --> 0:12:20.760 we've less supply in the world because something has happened somewhere, 0:12:20.760 --> 0:12:24.080 We've had a geopolitical accident or the like, actually we 0:12:24.160 --> 0:12:26.680 need to think about price, yes, But actually I'm asking 0:12:26.920 --> 0:12:29.560 what can't we now do because we don't have the 0:12:29.600 --> 0:12:32.920 gas that we did yesterday, and that's where the economic 0:12:32.960 --> 0:12:35.360 losses actually come from. And so actually this is a 0:12:35.360 --> 0:12:38.559 really practical question, which is, if you're a company in 0:12:38.600 --> 0:12:42.400 the UK, you probably just cannot access the electricity that 0:12:42.520 --> 0:12:48.280 you need. And because demand exceeds our supply potential when 0:12:48.320 --> 0:12:52.280 it comes to electricity, we're rationing through prices. That's essentially 0:12:52.280 --> 0:12:54.680 why prices are so high. So even if you strip 0:12:54.679 --> 0:12:56.720 out all of the levees and all of these other things, 0:12:56.920 --> 0:13:00.400 we would still have abnormally high energy prices. And the 0:13:00.400 --> 0:13:02.760 thing that stands out is we have taken a very 0:13:02.760 --> 0:13:05.680 different implicit choice when it comes to our energy supply. 0:13:05.920 --> 0:13:08.360 We've reduced hours more than other countries, certainly on a 0:13:08.360 --> 0:13:09.400 per person basis. 0:13:09.679 --> 0:13:14.680 That is staggerant. It blows my mind that our actual 0:13:14.960 --> 0:13:19.520 available supply of energy has fallen by twenty percent over 0:13:19.559 --> 0:13:24.400 twenty years. I'd no real idea about that. It's so 0:13:24.960 --> 0:13:28.760 negative for growth. The point is that ultimately we need 0:13:28.840 --> 0:13:31.719 energy abundance to do all the things we want to do, 0:13:32.360 --> 0:13:34.440 and the fact is we've been rowing against that for 0:13:34.480 --> 0:13:38.520 twenty years and that is shocking. And it's actually one 0:13:38.600 --> 0:13:40.240 question now we'd have in the movie. Should get back 0:13:40.240 --> 0:13:42.480 to is later. But it's like, it's more, okay, there's 0:13:42.480 --> 0:13:45.040 policy choices, but there's also a lot of this just 0:13:45.040 --> 0:13:48.280 seems to be people not making hard decisions at the time. 0:13:48.640 --> 0:13:51.320 It's not an explicit policy choice. It's more or let's 0:13:51.320 --> 0:13:53.840 put this off until someone else's problem. 0:13:53.880 --> 0:13:56.520 That's right. It's an implicit policy choice, which I think 0:13:56.679 --> 0:14:01.080 gets more cover than is justified because we have somewhat 0:14:01.080 --> 0:14:03.400 of a mantra that there's no trade off between zero 0:14:03.559 --> 0:14:06.920 and economic growth. It's fine things have become in more 0:14:06.920 --> 0:14:09.640 efficient energy wise, and so actually, if we just reduce 0:14:09.640 --> 0:14:12.440 our energy capacity, it's probably not a big effect. Actually, 0:14:12.600 --> 0:14:15.320 what you find is, in a very simple sense, you 0:14:15.400 --> 0:14:18.600 have some critical factors of production that you need. You 0:14:18.679 --> 0:14:21.400 need land, you need labor, you need capital, and you 0:14:21.440 --> 0:14:25.080 need energy. We know where a land constrained economy, that's 0:14:25.440 --> 0:14:28.360 we consider that when we think about growth, we're all 0:14:28.400 --> 0:14:31.720 considering what the demographic effects of an aging and drinking 0:14:31.760 --> 0:14:35.160 population might be for the world. Okay, capital availability is 0:14:35.160 --> 0:14:36.920 fairly good. There's still plenty of stuff in the ground 0:14:36.920 --> 0:14:38.520 we can dig out, so we're not worried about that. 0:14:38.600 --> 0:14:42.320 But energy is just as important as these these other 0:14:42.400 --> 0:14:45.600 three These are the three things. A couple of other 0:14:45.640 --> 0:14:47.840 things that should just be taken out of this. I 0:14:47.840 --> 0:14:52.320 think one is that if you look at the government's 0:14:52.680 --> 0:14:59.280 own projections previous governments, current governments, UK electricity availability will 0:14:59.600 --> 0:15:03.960 rise over time towards the middle of the century and 0:15:04.080 --> 0:15:08.800 will exceed by a significant amount our all time peak, 0:15:08.920 --> 0:15:11.680 which was in two thousand and five. And perhaps i'd 0:15:11.720 --> 0:15:13.640 just give just give some rough numbers. In two thousand 0:15:13.680 --> 0:15:16.840 and five we had around about three hundred and eighty 0:15:17.040 --> 0:15:20.800 terra watts available to the whole economy about now, it's 0:15:20.960 --> 0:15:25.680 two hundred and eighty if the government builds out renewables 0:15:25.680 --> 0:15:27.600 and some gas, because of course you need some firm 0:15:27.640 --> 0:15:30.200 power to account for the intermittency when the sun isn't 0:15:30.200 --> 0:15:32.360 shina the wind doesn't blow, we'll get to four hundred 0:15:32.400 --> 0:15:36.080 and fifty terra what hours. And the central problem is 0:15:37.160 --> 0:15:41.000 we can decommission on time, that's we're fairly good at that, 0:15:41.240 --> 0:15:43.160 but can we actually build out on time? So things 0:15:43.160 --> 0:15:45.400 like planning, permission and regulations and all this other stuff 0:15:45.480 --> 0:15:49.080 really really matters. And I think the reason why we 0:15:49.160 --> 0:15:52.440 just need to take a cold, hard look at this 0:15:52.520 --> 0:15:56.680 kind of evidence is because we faced two really difficult 0:15:56.800 --> 0:15:59.800 choices at the moment. How do we get ahead with AI? 0:16:00.440 --> 0:16:04.640 It has huge potential for productivity gains, but it's very 0:16:04.760 --> 0:16:07.840 energy intensive in a sense, it's an industrial revolution as 0:16:07.920 --> 0:16:11.520 much as a tech revolution. But then second, we will 0:16:11.600 --> 0:16:14.200 need to raise our military spend as a percent of GDP. 0:16:14.880 --> 0:16:19.320 And again, to be frank, if you want to be 0:16:19.360 --> 0:16:22.480 a serious military power and defend yourself, you have to 0:16:22.480 --> 0:16:24.440 be able to keep your own lights on over winter. 0:16:25.360 --> 0:16:28.880 And therefore we need to have energy security and we 0:16:28.960 --> 0:16:32.520 need to be able to meet our own needs under 0:16:32.600 --> 0:16:35.440 any given circumstances, and so I think the worm is 0:16:35.480 --> 0:16:39.520 probably turning on a lot of this stuff. But the 0:16:39.640 --> 0:16:42.240 key point for me is just look at the very 0:16:42.280 --> 0:16:46.200 basic economics. The more supply you have, the biggier economy is. 0:16:46.240 --> 0:16:49.040 If you reduce that supply somewhere, you will see some 0:16:49.200 --> 0:16:53.400 negative consequences. And we have here a very clear relationship 0:16:53.480 --> 0:16:57.560 between our economic problems, which start before the financial crisis, 0:16:57.640 --> 0:17:01.200 probably amplified by the financial crisis, and this precipitous for 0:17:01.560 --> 0:17:05.320 in our electricity availability, which has been in explicit policy choice. 0:17:05.400 --> 0:17:08.280 When we look around the world, we see evidence that 0:17:08.320 --> 0:17:11.560 when economies haven't made this policy choice, like America or 0:17:11.600 --> 0:17:15.000 South Korea or even Poland, very different things happen. 0:17:15.920 --> 0:17:18.880 Callums. Can go back to what you were saying about 0:17:19.000 --> 0:17:22.360 the rise in electricity capacity by the middle of this century. 0:17:22.560 --> 0:17:26.080 Back in two thousand and five, we're at three eighty 0:17:26.720 --> 0:17:29.639 and you say that under the current government plans we 0:17:29.680 --> 0:17:34.159 get four fifty. Given the rise in our population and 0:17:34.200 --> 0:17:39.240 the demand there's going to be, that seems not very 0:17:39.280 --> 0:17:41.399 much in terms of a rise from three eighty to 0:17:41.400 --> 0:17:43.480 four to fifty. That seems like a very small amount 0:17:43.520 --> 0:17:47.800 of electricity for a country that is attempting to use 0:17:47.840 --> 0:17:49.920 more and more electricity in switch vehicles and all this 0:17:50.040 --> 0:17:51.600 kind of thing, and lots of factories over to using 0:17:51.640 --> 0:17:56.320 electricity rather than using diesel oil petrol, and an economy 0:17:56.359 --> 0:17:59.880 that we want to really participate in the ai REV 0:18:00.760 --> 0:18:02.439 that doesn't seem like anywhere near enough to me. 0:18:03.000 --> 0:18:06.480 It's hard to say at this stage. It's probably better 0:18:06.560 --> 0:18:08.720 to be on the safe side and say, let's have 0:18:09.480 --> 0:18:12.239 more energy than we'll need and see if you can 0:18:12.280 --> 0:18:14.800 sell it to someone. We'll benefit through our trade balance 0:18:14.840 --> 0:18:18.359 on exports, So that's quite right. What I would say is, 0:18:18.400 --> 0:18:21.600 if you take the official population protections, what you do 0:18:21.680 --> 0:18:25.399 see is if the government can meet its plans for 0:18:25.640 --> 0:18:29.200 raising electricity availability, you will start to see an improvement 0:18:29.240 --> 0:18:32.879 in per person energy availability, which which just came. And 0:18:32.920 --> 0:18:34.280 so the way to think about this is we should 0:18:34.359 --> 0:18:39.880 be gradually removing a headwind to economic growth. And one 0:18:39.920 --> 0:18:42.520 of the things you should say is if you make 0:18:42.560 --> 0:18:45.720 a claim like I make in what would be true 0:18:46.280 --> 0:18:50.800 if I'm right, which is if the government actually builds 0:18:50.800 --> 0:18:52.560 out and we start to see in the numbers more 0:18:52.600 --> 0:18:55.639 and more electricity made available to the UK economy, we 0:18:55.680 --> 0:18:58.240 probably should start to see some upside surprises to things 0:18:58.280 --> 0:19:01.919 like per capita GDP and product And it's really as 0:19:01.920 --> 0:19:04.080 simple as that. But of course I can't look at 0:19:04.080 --> 0:19:06.280 a quarterly data series for the next year and say 0:19:06.280 --> 0:19:07.720 whether this is right. This will be a five or 0:19:07.760 --> 0:19:11.080 a ten year think. But what I've done is I've 0:19:11.119 --> 0:19:14.520 started by asking the opposite, which is, if what the 0:19:14.560 --> 0:19:16.920 government says is true, which is there's no trade off 0:19:16.920 --> 0:19:20.160 between zero and economic growth, what would I expect to see. Well, 0:19:20.200 --> 0:19:23.399 it would be no difference between the economic performance of 0:19:23.720 --> 0:19:27.159 the UK, which has introduced this artificial screting on the 0:19:27.240 --> 0:19:31.840 energy side, and other economies that haven't. And actually what 0:19:31.880 --> 0:19:33.720 we do is we see very big differences. 0:19:34.200 --> 0:19:37.040 It seems that there's a case that you're making very 0:19:37.080 --> 0:19:40.440 well for a slightly more pragmatic approach from the UK 0:19:40.560 --> 0:19:43.240 towards net zero and approach say something along the lines 0:19:43.440 --> 0:19:47.399 of Norway's, which is continued to develop oil and gas 0:19:47.440 --> 0:19:49.959 and continue to use hydrocarbons in the same way and 0:19:50.000 --> 0:19:53.200 not necessarily expected a fall in the use of hydrocarbons, 0:19:53.280 --> 0:19:56.399 but it's nonetheless working towards towards the transition. At the 0:19:56.440 --> 0:19:58.639 same time, so maybe there's a case for us to 0:19:58.680 --> 0:19:59.920 be a little more pragmatic. 0:20:00.520 --> 0:20:03.800 Yes, I think you can probably see if you have 0:20:03.880 --> 0:20:07.399 plans for decommissioning of hydrocarbons and nuclear whether you can 0:20:07.480 --> 0:20:13.159 keep that online. I'm encouraged by the government's intention to 0:20:13.520 --> 0:20:17.240 allow the build out of modul and nuclear reactors, hopefully 0:20:17.280 --> 0:20:19.000 anywhere in the country. 0:20:18.760 --> 0:20:21.720 Although some rather depressing press on that earlier in the week, 0:20:21.800 --> 0:20:23.760 suggesting that was one of the things that Rachel Waves 0:20:23.760 --> 0:20:24.960 was planning to row back from. 0:20:25.200 --> 0:20:28.000 Let's see one thing I would just say here, which 0:20:28.040 --> 0:20:31.520 is really the unfortunate point in all of this. The 0:20:31.640 --> 0:20:34.920 UK is, on its own a big economy. We're not 0:20:34.960 --> 0:20:39.400 a small economy by any stretch, but our carbon emissions 0:20:40.000 --> 0:20:42.959 are less than one percent of global emissions, and global 0:20:42.960 --> 0:20:46.720 emissions have been rising dramatically over the past twenty years. 0:20:46.720 --> 0:20:51.400 We've almost half hours territorial emissions. There's a slight nuance there. 0:20:51.440 --> 0:20:56.000 We judge our success in reducing emissions with territorial emissions, 0:20:56.040 --> 0:20:58.600 which is what comes out of the UK economy. But 0:20:59.080 --> 0:21:01.520 of course, if what you do is you de industrialize 0:21:01.560 --> 0:21:04.840 in you'll our production to move elsewhere. If that production 0:21:05.000 --> 0:21:08.040 involves lots of hydro carbon use and pollution, and then 0:21:08.040 --> 0:21:11.600 you import that that doesn't count in this territorial emission. 0:21:11.640 --> 0:21:14.440 So you have this very unfortunate situation where the UK 0:21:14.480 --> 0:21:16.360 seems to have paid a very heavy price in terms 0:21:16.400 --> 0:21:20.359 of economic growth, in terms of productivity, but critically living standards. 0:21:20.480 --> 0:21:22.800 And you think about all of the political challenges that 0:21:22.840 --> 0:21:25.600 we've faced over the last few years that are linked 0:21:25.600 --> 0:21:29.320 to the real indignities that come from stagnant living standards, 0:21:29.600 --> 0:21:33.800 without question, and the result is, because we contribute such 0:21:33.800 --> 0:21:36.640 a small amount to global emissions, we have not changed 0:21:36.640 --> 0:21:40.080 the dial. We have not changed the global overall emissions story. 0:21:40.440 --> 0:21:45.640 We've just generated low economic growth, weak productivity, de industrialization 0:21:46.400 --> 0:21:50.840 and all of this doesn't actually change the fundamental story 0:21:50.880 --> 0:21:54.000 when it comes to the global carbon picture. And so 0:21:54.240 --> 0:21:56.560 we need to ask a very serious question whether or 0:21:56.640 --> 0:22:01.399 not this has been remains would be a sensible policy 0:22:01.480 --> 0:22:02.240 choice for us to make. 0:22:03.119 --> 0:22:05.359 Yeah, And the point of it is that that's not 0:22:05.440 --> 0:22:09.640