The economics of the race to NetZero

Our transition to net-zero carbon emissions will be the most radical economic transition we’ve ever made in peacetime. 

The Industrial Revolution was driven by the active pursuit of profit. This time we are driven by the emergency facing our planet, coupled with the need to ensure a fair and just recovery of our world economies from the pandemic.

As principal of the University of Glasgow and a member of the Scotia Group – an international, independent network working together to help the COP26 process – I want to ensure that the UN climate summit in my city of Glasgow leaves a meaningful, successful and lasting legacy.

All nations must play their part, both in partnership with others and in terms of their own actions and policies. We have an opportunity in Scotland and the UK to lead from the front: to show focused government leadership, to show our willingness to collaborate across borders and to maximise our enormous capacity to innovate and drive the technologies needed for a cleaner and greener world.

In Scotland’s case, striking the balance of sustainable economic growth and increased productivity, with the commitments we’ve made to achieve a just and fair net-zero economy will be key.

But these priorities – environmental and economic – are not conflicting. They are in fact symbiotic. For it will be the green, clean and emerging technologies of the future that will see us reach our full economic potential.

Many of our global economies at present are still too heavily reliant on fossil fuels. This is something we are all too aware of this week as lawyers, policymakers and world-leaders alike converge on the banks of the River Clyde – once the beating heart of Scotland’s heavy industry, dependent on coal, oil and gas.

Now the river is home to cutting-edge researchers, making devices measured in a millionth of a millimetre, and ground-breaking innovations to understand chronic disease at the Queen Elizabeth University Hospital.

Scotland punches well above its weight internationally when it comes to research excellence and we have several institutions producing research of the highest calibre. Through this work and by attracting inward investment and equipping our graduates with the skills they need, our universities are key drivers of growth and productivity.

Indeed, last week my own institution, the University of Glasgow, published a report by London Economics estimating our economic impact is £4.4 billion a year.

Through our research and innovation in key technologies such as quantum technologies, life sciences and 5G, we are significantly driving productivity in Scotland, the UK and beyond.

Productivity is the key source of economic growth and competitiveness. A country’s ability to improve its standard of living depends almost entirely on its ability to raise its output per worker.

Unless a country is able to grow its productivity, it will find it difficult to meet the challenge of the climate emergency. Climate change and greater carbon regulation will inevitably put strains on our ability to produce. Therefore, adaptation to a net-zero world will be easier if we are able to sustain productivity growth. It will also be more likely that any transition will be just and fair.

And we’ve got great potential and great opportunities – it is up to us to find ways to capture them.

There are a few key priorities.

We need to boost productivity through a focus on key technologies for the drive to net zero, but we must ensure that we capture key elements of the value chain to use this opportunity to create hi-tech jobs and foster inclusive growth across Scotland.

We must have coherent and joined-up policy and regulations from Westminster and the devolved governments. To reach our net-zero targets and accelerate a reduction in carbon emissions, we need to see focused government leadership.

The UK Climate Change Committee articulated this well in asking for a net-zero test and net-zero strategy to ensure that all government policy, including planning decisions, is compatible with climate targets.

And it was in fact the chief executive of the UK’s Climate Change Committee, Chris Stark, who recently underlined the type of investment needed to reach net zero in Scotland and the UK. He argues that the investment needed annually at a UK level over the next 30 years amounts to only about £50 billion of extra investment each year after 2030, or £5-6 billion of extra investment in Scotland each year. This investment doesn’t need to come from government alone, but from the private sector too.

He reiterated that, by investing in key green and clean technologies, we could actually see a saving to the economy. By not spending on fossil fuels, and redirecting our attention to the technologies that can drive cheaper renewable energy production and greening domestic heating and transport, over time we could actually offset the cost of the investments overall.

By creating economies of scale in key technologies, we can ensure that we can capture the market for new products and lay the foundations for Scotland to compete internationally.

Of course, challenges remain: some of our tax revenues which fund public services depend on taxing fossil-fuel consumption in transport and other areas of economic activity. There are also going to be groups which will benefit, and other which will suffer economically as a result of the transition to net zero. These ‘distributional effects’ would need to be addressed through the way governments tax and spend.

This is a marathon race to net zero. We must pace ourselves, plan carefully and have the drive we need in reserve for the hard miles ahead. This isn’t to say we should rest on our laurels, indeed we need immediate action.

We need a shift from short-term thinking to sustained commitment and long-term investment. With all these factors in place, then Scotland can go all the way.

This article was first published by The Scotsman and is available to read here.