Why are climate and nature getting the short straw with government spending?

1. Introduction

When considering how to mitigate the effects of the climate and nature emergency, or what has to be done to adapt to the effects we can’t mitigate sufficiently, the talk will mostly involve a myriad of practical things like switching to renewable energy, electrifying transport, changing the way we grow and consume our food or retrofitting homes for both insulation and to cope with hotter outside temperatures.

In the majority of these changes and solutions there will be an upfront cost, ongoing costs as well as savings.

How and when money is spent therefore is the one aspect that connects all the these disparate things together. It is pointless to discuss and plan for house retrofits or even speculative technologies like carbon capture unless someone, at an early stage, is prepared to put up some money to start things off, or commit to longer term risk-taking where it’s needed.

In its 6th Carbon Budget report, the Climate Change Committee produced projections for the capital costs and operational savings for all of its recommendations to achieve net zero by 2050, as shown in Figure 2.

Within 15 years the graph projects that we, as a country, must be investing over £50bn pa, and also shows increasing savings, eventually offsetting most of the investment. However, neither the report, nor graph, attempt to show how these sums should be split between the government and private sectors as this will be determined by government policy.

As has been the case for decades, and as we saw with the Covid vaccines, if innovations and new technologies or sectors are to make it to market, or be part of fixing a problem, the original risk investment is almost always shouldered by government in the form of funding for say research and development, viability trials etc.

In this case, however, the government is holding back from publishing its own financial projections in full and is likely to start small and to involve what it sees as constraints in terms of what it can tax and borrow to cover the costs. 

The following pieces therefore provide a summary of how money is created and flows around the economy in a way that suggests that in the real economy, of people and resources, these constraints are fictitious and indicate political rather than financial obstacles to government investment in the climate and nature emergency.

1. Introduction

2. The banks, the government and that Money Tree

3. The mythical government purse

4. Government “borrowing”

5. So what is Quantitative Easing (QE)?

6. Further reading

Why are climate and nature getting the short straw with government spending?

2. The banks, the government, and that Money Tree

Back in the late 1970s, after qualifying as an accountant, I went to work for a large city practice. I was told by those who had experience of them that, if I valued my will to live, I should avoid bank audits. Whilst training I had seen hundreds of clients’ bank statements, for all types of account, and so felt I knew all I needed to know about banking.  

Up until recently I believed the conventional wisdom that, when my bank lent me £500 to start my own practice back in 1981, it could only do so because it was backed up by the money sitting in the accounts of other customers. 

I received the first bank statements for my business loan and current accounts, seeing £500 credited to the latter and debited to the former, but even as a wizard bookkeeper, I never appreciated that this was the end of the story, one credit, one debit, nobody else was involved.

Last year I watched a 2014 video on the Bank of England’s website explaining that 97% of the money available to us in the economy is created by what I describe above. In other words, my bank created that £500 out of thin air and I spent it out into the economy. Then, when I finally repaid the £500 loan, the money was effectively destroyed. 

Along with the video there was a debate in Parliament about this money creation and it turns out that, in a poll, 90% of MPs had no idea that it worked like this. Like me, they believed banks were constrained by the amount held in customers’ accounts. 

My retired auditor’s brain then dug deeper and I learned that as well as high street banks being  licenced by the Bank of England (BoE) to create this new money it too has a similar role in relation to government spending. So when the government tells the BoE to pay the NHS £4bn, the bank credits the NHS’s bank account with £4bn and debits the Treasury’s overdraft account with £4bn. That’s it, nothing else.

The surprise was that this overdraft is created anew every day, the BoE doesn’t turn to the Treasury and say, “hold on there’s only £3bn of taxpayers’ money sitting in your account”, it just spends the £4bn into existence on overdraft, rather than loan.

So, the Government instructs the BoE to create money for its own spending and commercial banks create the rest whenever they lend to anyone. 

The above view on government spending reflects a new way of looking at how governments, like the UK, who issue their own currency, control the money flowing around their economies. There are several threads but, in general, it’s known as “Modern Monetary Theory” (MMT) and this is explored further in the following pieces.

1. Introduction

2. The banks, the government and that Money Tree

3. The mythical government purse

4. Government “borrowing”

5. So what is Quantitative Easing (QE)?

6. Further reading

Why are climate and nature getting the short straw with government spending?

3. The mythical government purse

Back in the 1970s & 80s, my prime function as an accountant revolved around the concept that tax was an overhead not an obligation and so, according to clients and my bosses, it was my job to keep their tax bills as low as possible.

As I developed my own practice and tax regulation became more sophisticated I got fed up with this pressure and started trotting out the line that, “as you are using the roads, police, schools & the NHS, it’s my job to make sure you pay the right amount of tax”.  In other words, as we still hear today, tax pays for government spending.

So all these years later how does this hold up to scrutiny under the realities of money creation and through the lens of MMT?

Tax is collected into a government account with the BoE but there’s no matching or correlation with government spending. In other words, rather than “tax & spend” it’s “spend & tax” with the policies for both sides being independently decided and processed. 

To sum up, similar to my bank loan, the government tells the BoE to spend money into existence and then the tax system claws back some of the money, effectively destroying it.  There is no “government purse”, no “taxpayer’s money” and certainly no household type budget that you or I have to operate. Unlike the government, we are limited by our income, we can’t create new money.

The best analogy for all of this is air miles. You fly and earn air miles and then later you reclaim some or all of them against future flights. The operator records both sides for you but doesn’t keep its own stock of air miles to hand out, it just creates them as you fly (spends), and destroys them as you reclaim them (taxes).

Every month, the government adds up what it has spent and deducts the tax collected, reporting the difference as that month’s shortfall, referred to as a deficit*.  It does this because that’s what it has always done; from 50+ years ago when there was a hard limit on new money. The government deficit isn’t lost money, as it would be in say a business, it merely reflects the net amount of money created that month that the government has left out with us. It’s our surplus sitting in millions of bank accounts.

At this point there’s an obvious question. If the government spends out more than it collects, month after month, this will just accumulate a larger overdraft with the BoE. Surely, as an independent public body, the BoE will want the overdraft cleared?  

The government does actually clear the overdraft by “borrowing” (more in the next piece) but, as the BoE is owned 100% by the Treasury, even if it didn’t, the Bank could never send around the bailiffs to collect. To keep it simple, just think of the BoE as part of government.

So my line to clients bemoaning their tax bills never did hold up to scrutiny.  When the government decides to spend on something, be it the NHS or free school meals, despite what it says, it’s not a “who’s going to pay?” or “what public spending will we need to cut?” decision. It’s a political decision. The government can always pay for anything in pounds sterling it needs to, it can’t default or run out of money.

That’s not to say that the government should just keep spending (printing) money without limit. If too much money is allowed to flow into the real economy, ie more money than can be absorbed by the available people, goods and resources needed to do the work, the spending might spark inflation. Excess government money flowing out would compete with the private sector, already employing the people etc, resulting in increased wages and prices. Through the lens of MMT therefore, taxation’s prime role has nothing to do with spending, rather it’s needed to make sure that excess money is not left out in the economy.

With the above in mind, when the government’s advisors say that billions need to be spent on retrofitting our homes or clawed back in fossil fuel subsidies to help deal with climate change, the government may well ask, “who is going to pay for it?” But it’s more likely to be the case that, unlike Covid or the 2008 financial crash, in which that question was never asked, the government doesn’t yet view Climate Change as an emergency.

*In 8 of the previous 60+ years the tax exceeds the spend and so the “surplus” is deducted from historic deficits.

1. Introduction

2. The banks, the government and that Money Tree

3. The mythical government purse

4. Government “borrowing”

5. So what is Quantitative Easing (QE)?

6. Further reading

Why are climate and nature getting the short straw with government spending?

4. Government “borrowing”

As an accountant I was reasonably cautious in advising clients over their finances, but was anything but cautious with my own. I spent several years accumulating maximum balances on credit cards and overdrafts only to resort to what were known as “consolidation loans” in which various banks would lend me the money to pay off all the expensive debts, so that I could start the process all over again.

Similarly, as mentioned above, the government works out its deficit for the month, represented by what it’s spent less what it’s taxed, and borrows money to settle its overdraft with the BoE. This is why the terms “government deficit” and “borrowing/debt” are often interchanged in the news whereas it’s important to appreciate how monthly deficits create a monthly overdraft with the BoE, which is then paid off by adding to accumulating government borrowing/debt.

The government borrows, partly because that’s what it used to do before 1971, when there were outside limits on the number of pounds the government could have in circulation, and partly because, like tax, borrowing is another way for the government to control money circulating in the economy. By offering somewhere safe for people and organisations to save their spare money, ie by them “lending” it to the government, money is effectively clawed back out of circulation.

Think of it this way: when you or I save with our bank we know that about £85,000 in any one banking group is safe, because it’s covered by a government guarantee, and the government can always pay its sterling debts, it can’t go bust.  Corporations, banks, financial institutions and pension funds have much  more than £85,000 needing a safe home and so they go straight to the horse’s mouth and invest in government debt, in the form of bonds called “Gilts”. They know that this is the safest place for their money, they know the government can never default when it comes time to repay, plus they get some interest on their savings.

Technically this looks like government “borrowing” but, changing spectacles, maybe it’s more realistic these days to see it as others’ savings. In effect all the government is doing is taking back the original pounds it spent into the economy, or authorised the banks to create, swapping them for Gilts, carrying a gold border, a repayment date and interest. In other words, the government is just taking back one form of money it created and exchanging it for another it created. 

And when those Gilts fall due in say 10 years time? The BoE creates new money to redeem (repay) them, increasing the government’s overdraft, resulting again in the government creating new Gilts to pay it off. And so it goes on, a constant recycling of debt with the outstanding balance at any time representing the total sum of money that’s been pumped into the economy, and not taxed back,  since records began.

So when politicians talk about having to reduce government debt, they are thinking in terms that are now 50 years out of date. The bailiffs will never knock at the door and, even if they did, the government can just create more money to pay them off.  Reducing the debt can be seen as paying back the savings that institutions rely upon or, at the extreme, paying back my Premium Bonds and National Savings Certificates.

Rather than the level of debt being a problem, it’s more important to concentrate on the levels of interest the government pays on that debt. For many years now this has not been a concern as interest rates have been at record lows. In some cases, government debt has even been issued at negative interest rates.  This is a difficult concept to grasp but, for the purpose of having somewhere safe to save its money, an institution is prepared to pay the government for the privilege.

1. Introduction

2. The banks, the government and that Money Tree

3. The mythical government purse

4. Government “borrowing”

5. So what is Quantitative Easing (QE)?

6. Further reading

Why are climate and nature getting the short straw with government spending?

5. So what is Quantitative Easing (QE)?

Before describing the process, whilst MMT sees QE through a different lens, proponents of MMT are not generally in favour of it.

As mentioned above, before 1971, the quantity of pounds the government could put into circulation was limited. This was because, following the Second World War, sterling, and many other currencies, were established with a fixed rate of exchange against the US$, which was itself limited by the gold reserves held by the USA, using a fixed price of $36 for an ounce of gold. 

That framework was finally dismantled in 1971 and so the UK and others went their own way meaning that, without a hard value limit, the number of £s in circulation are now limited “softly” by what the UK economy can use productively and by BoE policy. 

Last century, during the world wars and the financial crisis of the early 1930s, the government needed to spend, or otherwise inject, huge extra sums into the economy and financial systems, to keep everything and everyone going. This century, during the financial crash in 2008 and the Covid 19 pandemic, the government has had to do the same thing.

As already described, when the government spends it is effectively putting more new money into the economy but, if there’s nothing substantial to spend on, and the economy needs a large injection of new money at short notice, what it does is to tell the BoE to again create new money but use it to buy back some of the bonds previously issued by the government.

This process of the BoE buying government debt is “QE” with the main difference over creating money by spending being that, when spending, the money goes into the economy as a whole, eg to the NHS, Green Home incentives or furlough payments, whereas with QE the money goes to the financial markets to keep the financial system going with the hope that some will trickle down to the rest of us.

So, on paper, the total amount of government borrowing doesn’t actually change when this happens. It’s just that now, rather than all the bonds being held by (and money owed to) corporations, financial institutions and pension funds, some are now owned by (and the money owed to) the BoE.  

Most economists and politicians see this as the BoE directly funding government expenditure with new money, sparking memories of Germany and Zimbabwe “printing money” last century without limit, with resulting huge rates of inflation and devaluation against other currencies. 

They fear that unlimited printing of money will send the UK down the same road. However, they ignore the fact that those economies were already deeply in crisis before the excess printing took place with other countries able to take advantage in reparations, trade and finance. The risks of  international trade are always present, regardless of how you look at the domestic economy, making it more important to ensure that the domestic economy is kept healthy and, as we do at the moment, keeping borrowing in foreign currencies low. 

Those who fear QE also fail to acknowledge that today the creation (printing) of money actually takes place every time the government spends, way in advance of any QE.

Looking at QE from a different angle, with the BoE being wholly owned by the government, when it buys government debt it has effectively cancelled it; the government has paid itself back. 

To put some scale to this, during 2020/21 the government spent hundreds of billions on Covid 19, increasing its debt, but then the BoE bought about 90% of this via QE. Around that time the government’s total debt was a little over £2tn (£2,000bn), a seemingly scary sum, representing a year’s worth of the country’s GDP, but then £900bn (45%) of this was owned by (owed to) the BoE, so perhaps not so scary. 

Returning to fears of QE creating inflation, it’s worth pointing out that the current QE balance still includes the sums pumped into the financial systems a dozen years ago following the financial crash, yet inflation has remained at, or below, the BoE’s 2% target. Also, as mentioned, QE puts money back into the markets, not our pockets, and so inflation is more likely to occur, as it has, in increased prices of stocks and shares and property. This is one of the reasons why QE is not favoured by supporters of MMT, as most of the money never gets to where it’s needed, the real economy, going instead to stagnate with high-wealth corporations and individuals and so being more difficult to claw back.

A dozen years ago the coalition government got panicky about all of this and said it needed to reduce the debt created after the financial crash of 2008 and so started 10 years of austerity, drawing back cash previously injected into the economy and cutting public spending. The trouble is that, as most of the original money injected into the economy had been spent and wasn’t sitting around in our savings accounts, clawing it back led to unnecessary hardship on most individuals and businesses. Let’s hope the current government does not take the austerity route to deal with the Covid “debt”.

So, what about the next emergency? Will the government of the day see the common sense of doing what’s necessary? Again, if the current government saw climate change as an emergency, and recognised the true power of the pound, we’d already know the answer to this.

1. Introduction

2. The banks, the government and that Money Tree

3. The mythical government purse

4. Government “borrowing”

5. So what is Quantitative Easing (QE)?

6. Further reading

Why are climate and nature getting the short straw with government spending?

6. Further reading

Banks really are magic money trees – an article by Positive Money

TED talk by Stephanie Kelton – on deficits not being a problem under MMT

Power of the Pound – a video explaining the concept of MMT for the UK

Government debt and Covid 19 – an article by Positive Money

Chair of the US House Budget Committee – promoting MMT for the $6tn budget proposals 

50 years without gold backed money – a talk by Richard Murphy

Money & QE – a talk by Richard Murphy

Hyperinflation in Germany and Zimbabwe – an article by Positive Money

Bank of England video – on money creation and QE

Guardian article – The US considering minting a trillion dollar coin to enable the government to keep spending (no it’s not April 1st)

An economy for climate & nature

More often than not, when discussing what needs to be done about the climate-nature emergency, thoughts turn to practical issues around reducing greenhouse gas emissions and other impacts we have on the natural world.

If we are lucky, and we don’t get distracted by promises of future technical solutions to solve the problems, maintaining business as usual, we’ll pick up on advice over what and how we buy and consume goods, materials and resources. 

Pretty much everything we buy, or use, both in goods and services, comes with a carbon cost and/or another impact on the environment. By looking at this in detail, we may be able to chose to buy an alternative, less damaging, item or one that is more long lasting and capable of repair, we may even be able to share the item or service with others and then, if we buy correctly, the items used may be easy to recycle or even reused elsewhere.

The whole object of this regenerative and circular system is to make stuff and activities sustainable and resilient with no more waste than the environment can reasonably handle.

What is not appreciated however, or perhaps is seen as a side issue that makes political sense but is somehow disengaged from the above model, is the economic aspects of these decisions and how they can actually follow the same path.

Take for example a brand of smartphone.  Each year, despite having built perhaps hundreds of thousands of last year’s model, that are now destined to sit on shelves or be recycled or relegated to a second hand market, the company has already got a million of this year’s model in production with millions of $s being spent on marketing to convince consumers that the model they bought last year, or maybe the year before, is now all but obsolete and that, they “must” have the latest model.

This whole process is a perfect example of a wholly non-regenerative system, with wasted materials,  carbon and chemicals, in which natural and precious resources are used for a short time, then thrown away or left to rot. 

This process is mimicked by the company’s financial incentive to constantly create new goods, for ever increasing prices that often rely on cheap labour but, despite large material and marketing costs, wasteful premises and other services, will create not just the profits the company needs to sustain the business but also excess profits to be syphoned out by shareholders whose only interest in the business is the financial return on their investment, an investment that, unless it was at the inception of the business, went to the previous disengaged shareholder when she sold her shares to you. What then happens to those excess profits? 

Most of them end up propping up a financial market, for a tiny % of corporations, that was originally designed to “oil the wheels” of businesses, by providing new finance, but which has now morphed into a separate and self-interested industry creating vast wealth for a tiny minority. 

So, do the millionaire/billionaire owners and other shareholders recycle the money back into the economy in the trickle-down manner originally anticipated by this 20th century economic model? How many yachts, cars or houses do they need, how many household staff or chauffeurs can they pay? In reality the majority of the wealth is just churned to grow the financial markets or is sent away to offshore investments somewhere doing nothing other than gaining interest or saving tax for their owners.

I say the economic aspects mimic the physical product aspects but, when you think about it, it’s the hope of, and desire for, the financial incentives that actually drives the whole thing, not the other way around. In that process, not only does the business generate and perpetuate increasing inequality in wealth and influence, between its shareholder/owners and their lowest paid people, customers and suppliers, but it continues to grow, increasing the waste, environmental and social damage year on year.

That is one business and one product, now multiply that up and you have an economy that is dependent on continuous growth, regardless of its impacts on the wellbeing of the humans and environment. The mantra of growth for growth’s sake has been the norm for nearly a century, and you’ll hear many say “yes it’s not perfect, you have to accept the inequality in society, but look at what it’s done for us in a hundred years”. To which you might reply “But at what cost to them?”

To what use could the wasted and stagnated wealth, as well as the wasteful processes in making it, have been put or, better still, what if the money and processes had been designed to favour just the purpose and wellbeing of the business and its stakeholders, without the obsession for bigger profits and more stuff, how about planning for enough? 

Perhaps working hours could have been cut, with previously unemployed people being given jobs, and all with decent salaries.

Perhaps, rather than seeing other organisations as competitors, to be out competed and even asset stripped as they go out of business, they could be seen as collaborators, sharing resources, cross fertilising ideas and, together, being more resilient and happy than as two competing entities. 

To paraphrase Kate Raworth of Doughnut Economics fame: We currently have economies that have to grow, whether or not we and the planet thrive, whereas what we need are economies that make us and the planet thrive, whether or not they grow.

The best example of how this actually works in practice is in social enterprises or cooperatives, where products and services follow a regenerative route and where profits are still be made but where negative material and social impacts are kept to a minimum or even turned into a positive and where all those with a stake in each enterprise, be they customers, suppliers, employees, partners, owners etc, all share a fair distribution of the fruits of the enterprise’s efforts and where any remaining profits are kept within the enterprise to help it develop and be more sustainable, or invested in other fledgling enterprises with similar purposes.

This is not a political attack on capitalism, rather it’s an acknowledgement, beyond politics, that the capitalism we practiced has outlived its purpose and is now doing more harm than good. Given the threats we face from climate and nature breakdowns only a type of 21st century economics described above will be fit for purpose and will remove the infinite growth obsessions that drove the 20th century economies and helped create the mess we are in. 

Other reading & links:

Nature and the economy: how can we prosper within planetary limits?
Wellbeing Economy Alliance
A healthy economy should be designed to thrive not grow – Kate Raworth
Nature & The Economy – who speaks for the trees? The Lorax at 50

Government releases its Hydrogen Strategy

Number 2 of the Government’s 10 Point Plan:

“Working with industry aiming to generate 5GW of low carbon hydrogen production capacity by 2030 for industry, transport, power and homes, and aiming to develop the first town heated entirely by hydrogen by the end of the decade”

On 17 August 2021 the department for Business, Energy and Industrial Strategy (BEIS) released its Hydrogen Strategy announcing, in the press release:

  • A ‘twin track’ approach to supporting multiple technologies including ‘green’ electrolytic and ‘blue’ carbon capture-enabled hydrogen production.
  • A UK hydrogen economy could be worth £900 million and create over 9,000 high-quality jobs by 2030, potentially rising to 100,000 jobs and worth up to £13 billion by 2050
  • Hydrogen could play an important role in decarbonising polluting, energy-intensive industries like chemicals, oil refineries, power and heavy transport like shipping, HGV lorries and trains
  • By 2050 20-35% of the UK’s energy consumption could be hydrogen-based.
  • A consultation to be launched, based on offshore wind, to look at ways to overcome the cost gap between low carbon hydrogen and fossil fuels, plus a consultation on a £240 million Net Zero Hydrogen Fund, to support the commercial deployment of new low carbon hydrogen production plants.
  • Working with industry to assess the safety, technical feasibility, and cost effectiveness of mixing 20% hydrogen into the existing gas supply.
  • £105 million in UK government funding provided to support polluting industries to significantly slash their emissions

In the original press release, and elsewhere, it was mentioned that 3 million homes would be powered by hydrogen by 2030 but BEIS have now amended the press release and confirmed that this was an equivalent illustration and that hydrogen will predominantly be used in heavy industry.

As stated in the strategy, with currently almost no low carbon production of hydrogen in the UK or globally, meeting the 2030 target will require rapid and significant scale up over coming years. It then describes where Hydrogen comes from:

“There are almost no abundant natural sources of pure hydrogen, which means that it has to be manufactured. The most common production route is steam methane reformation (SMR), where natural gas is reacted with steam to form hydrogen. This is a carbon-intensive process, but one which can be made low carbon through the addition of carbon capture, usage and storage (CCUS) – to produce a gas often called ‘blue hydrogen’. Hydrogen can also be produced through electrolysis, where electricity is used to split water into hydrogen and oxygen – gas from this process is often referred to as ‘green hydrogen’ or zero carbon hydrogen when the electricity comes from renewable sources. Today most hydrogen produced and used in the UK and globally is high carbon, coming from fossil fuels with no carbon capture; less than 1% can be called low carbon. For hydrogen to play a part in our journey to net zero, all current and future production will need to be low carbon.”

So in following its “twin track” approach the government assumes that blue hydrogen will initially start the strategy going with green hydrogen becoming more abundant (and cheap) in later decades. Without specifying proportions however, it seems that in both mix and, as shown below, use, the government is relying on the market to find the best combination.

Some key points:

Here is a graph from the report showing the estimated hydrogen demand in various sectors, in Terawatt Hours (TWh) (one Trillion Kilowatt hours), in 2030 & 2035.

Note in particular the 0-45 estimate for heating, this reflects the uncertainty about the lesser priority of hydrogen for domestic use and the availability today of alternatives, eg Heat Pumps. To put this into perspective the anticipated <1 TWh in 2030 and up to 45 TWh in 2035 represents about 0.2% and 10% respectively of the UK’s current energy demand for space and water heating.

It’s likely therefore that, as mentioned in the Climate Change Committee’s (CCC’s) balanced pathway to Net Zero, hydrogen may play a part in heating where the housing is near to the hydrogen production and electrification is not possible or where there is stored hydrogen created from surplus renewable energy.

Unless using this stored hydrogen however, it makes little sense to use green hydrogen for heating when the renewable energy used to create it would be better used to provide the heating directly and so save the wasted energy from conversion.

It’s often quoted that “the only waste from using hydrogen is water”.  This is true when hydrogen is used in “fuel cells”, where a chemical reaction takes place, or where hydrogen is burned in pure oxygen but it is not true when, as would be the case with heating, it is burned in air. Air’s main constituent is Nitrogen and burning hydrogen in it produces other pollutants, known as NOx. The strategy considers these and how industry must ensure they are kept within emission limits, opponents however consider that, along with the infrastructure changes needed, it’s unacceptable to plan for any such emissions.

As explained in an Annex, with an established battery electric vehicle industry now well established, cars and vans do not feature in transport assumptions, leaving the use of hydrogen for haulage, busses, rail, shipping and aviation however, given the rapid development in battery technology, the annex casts doubt over the likelihood of the first three. Consequently, as mentioned above, it seems the government will wait and see what the markets come up with.

In 2050 the strategy estimates somewhere between 20% to 35% of the UK’s total energy demand being provided by hydrogen.  In the CCC’s 6th Carbon Budget report last year, its balanced pathway relied upon a maximum of about 20%. Until the government releases its own energy pathway it’s not possible to reconcile the two.

As blue hydrogen relies on a supply of natural gas there’s suspicion outside government over its promotion as an energy source by the fossil fuel industry and studies, including this one in the USA, indicate that current production methods, including carbon capture and storage, result in significant CO2 and Methane (CH4) emissions, both in the extraction of the gas in the first place and then leakage in the capture and storage processes. 

This view was reinforced by reports that Chris Jackson, the chair of the UK Hydrogen and Fuel Cell Association resigned in advance of the government’s strategy saying he could no longer lead an industry association that included oil companies backing blue hydrogen projects, because the schemes were “not sustainable” and “make no sense at all”.

As mentioned above, in its twin track approach, the government sees blue hydrogen as useful in creating a path to green hydrogen but, with BEIS talking about up to 15 year contracts, concern has been voiced among climate groups that over-reliance on blue could lock the UK into decades of North Sea gas production, fossil-fuel imports and millions of tonnes of carbon emissions. 

ACT’s view is that there will be a place for hydrogen in providing energy where electrification is not possible and in some industrial and chemical processes. With the uncertainties over the impacts of its production however and without scaled-up and effective capture and storage, blue hydrogen is wholly inappropriate as a solution and so efforts are better directed towards immediate reductions in the use of fossil fuels with any hydrogen pathway being primarily towards green hydrogen.

Other relevant links:

ACT’s Technologies to support Net Zero Section 3 Hydrogen

The Telegraph Billions to be funnelled into hydrogen subsidies as UK races to hit net zero

The Guardian Government reveals plans for £4bn hydrogen investment by 2030 

BBC News Hydrogen power offers jobs boost, says government

UKERC Pathway to net zero heating in the UK

The Climate Change Committee Hydrogen in a low-carbon economy

Six Months to COP26

In the lead up to COP26 debates are intensifying over some key issues, some of which have rumbled on for over a decade, passing through and beyond COP21 in Paris more than five years ago.

Explored in part in our website post Know your Net Zero from your NETs and BECCS, there is growing tension between two groups. In one are those who promote the importance of doing all we can today to reduce emissions and decarbonise the economy, thus keeping us from exceeding carbon budgets. In the other are those who believe we can rely on current and future technologies to provide both cleaner and more efficient energy and remove, use or store carbon in the decades ahead.

At the heart of the latter approach is a belief that we can, and should, live our lives relatively unchanged, taking up new technology like electric cars and relying on the markets and technological innovation to provide sufficient clean energy and cope with other mitigation paths.

Those who follow the former approach, however, worry that with carbon budgets and related emission reduction pathways only giving us perhaps a 50:50 chance of keeping the temperature increase to 1.5℃, we should concentrate on reducing demand and consumption today and using technologies available today, which will not only accelerate emission reductions but will also give cleaner energy (such as wind and solar) a better chance of catching up with current demand and that from newly electrified areas such as transport. The changes in lifestyle necessary for this route are seen by some as unnecessary sacrifices and by others as common sense.

What clouds the issue is that many fossil fuel companies are promoting the technological route, raising the suspicion that they do so because it delays the inevitable demise of their industries and, in say the case of gas, prolongs its use for the production of hydrogen.

There are other related and intertwined considerations within these debates:

Equity – All official emission reduction pathways, from the Paris Agreement to the recent International Energy Agency report, call for fairness in tackling climate change. To recognise historic emissions this calls for developed countries – the “Global North” – to take a proportionately smaller cut of the remaining carbon budget than the poorer countries – the “Global South” – and also requires the Global North to reduce emissions faster than, and to provide support to, the Global South. It also extends to reducing the burden we place on future generations in mitigating climate change.

The few – Following the above, it’s been the case for many years that the richest 10% of the global population are responsible for perhaps 50% of global emissions and that if they reduced their emissions to say the level of the average European, global emissions would immediately drop by 30%, with everyone else doing nothing. This brings the national and global debate above to a personal level.

Triaging solutions – As technologies develop there will be several areas in which they can be used. For example, as Hydrogen production is developed there is a choice between its use in heating, transport, steel or even as energy storage, in place of batteries. Decisions will have to be made as to where the most benefit (environmental rather than economic) can be gained from its use. Similarly with biofuels,

Economic Growth – The same pathways also assume continued economic growth of typically 2-3% pa, perhaps doubling economies in the next thirty years. Whilst some countries, like the UK, have managed to achieve growth, whilst reducing emissions, this is partly as a result of a shift away from manufacturing to service industries thus, effectively, exporting their emissions to other countries. Globally therefore the graph of increasing emissions follows very closely the graph of economic growth and there remains little evidence that the two can be “decoupled” any time soon. Consequently many are now promoting ways to reduce or even reverse growth or to disregard it altogether in favour of more human and nature-based measures of Wellbeing.

Carbon financials – there are a plethora of money led incentives and penalties designed to decarbonise our economies, from carbon trading to taxation. One that is gaining favour is known as “Carbon Fee & Dividend” which imposes a tax at the point of production or import of fossil fuels which is then distributed to the population of the country consuming the fuel as a dividend on a per capita basis. The tax will add to the cost of the fuel in the consumer’s hand and so consumers who use the least will gain the most when they receive their share of the dividend and the highest users will suffer the most in a net cost.

Further reading and watching to get you in the mood:

Dr. Hugh Hunt & Professor Kevin Anderson discussing Climate Change realities at COP21 Paris (30 minute video)
An entertaining and easy to follow chat in December 2015, by a couple of scientists following the COP picking out on the key points above.

John Kerry: US climate envoy criticised for optimism on clean tech
Reaction to the interview with Andrew Marr and the quote “I’m told by scientists that 50% of the reductions we have to make (to get to near zero emissions) by 2050 or 2045 are going to come from technologies we don’t yet have.”

Climate scientists: concept of net zero is a dangerous trap
Three scientists speaking out against the increasing reliance on Net Zero.

In defence of net zero
The editor of Business Green responding to the doubts over Net Zero

Sir David Attenborough Presents: Breaking Boundaries (10 min video)
Discussing the potential for humanity to destabilise planetary systems.

No new oil, gas or coal development if world is to reach net zero by 2050, says world energy body
A Guardian article on the recent International Energy Agency Report on the 2050 Net Zero roadmap for the energy sector.