Is the ‘booming Net-zero economy’ really a key driver of growth?

On Monday the Energy and Climate Intelligence Unit published a report by CBI Economics that generated plenty of uncritical headlines about the ‘booming net zero economy’.

In particular, the report claimed that the total economic value (gross value added – GVA) generated by the sector grew by 10.1% last year, and that this supported the equivalent of 951,000 full-time jobs. The energy secretary Ed Miliband added that ‘these numbers speak for themselves. Net zero is essential to growth, a strong economy and money in working people’s pockets’.

Unfortunately, the figures in the CBI report simply do not justify this spin.

For a start, there are valid questions about how the CBI has defined the ‘net zero economy’, the accounting for taxes and subsidies, and the failure to address the impacts that the rush to decarbonise the grid might be having on energy bills and energy security. But even putting these concerns aside, the whole approach is conceptually flawed.

Take the headline that between 2023 and 2024, the contribution from the sector grew by 10.1%, which led to the conclusion that the Net Zero economy is now a key driver of growth. Note first that that figure refers to GVA in current prices, so not adjusted for inflation. It would therefore be plain wrong to compare this figure to the growth of less than 1% in real GDP in the economy as a whole (as some others have done).

More importantly, just because one sector expanded relatively quickly does not mean it ‘drove growth’. Activity may simply have shifted (or been reclassified) to this sector from others. Indeed, the benefit from boosting one sector may have been more than outweighed by the costs to others.

For example, if more people decide (or are forced) to buy from a shop with higher prices and large taxpayer subsidies, can that shop really be said to be driving growth even if overall retail sales are unchanged? The answer is obviously ‘no’.

The report also makes a lot of the ‘multiplier effects’ with ‘every £1 of value generated by the Net Zero economy creating an additional £1.89 in the wider economy’. To get this figure, the report counts supply chain activities and ‘broader economic contributions’, including spending by people working in the supply chains.

But the same would presumably apply to any capital-intensive, high-earning activities – for example, making petrol cars rather than electric vehicles. A skilled worker installing solar panels could presumably do just as well installing gas boilers or wood burners. There is nothing special here about the ‘net zero economy’.

Similarly, the report notes that the ‘net zero economy’ now employs a large number of people and that these are paid more than the average worker. It even claims that net zero can make ‘significant contributions towards solving the UK’s productivity puzzle’.

But the energy sector has always been one with relatively high productivity and high pay – think of workers in the North Sea oil and gas industry. Again, there is nothing special here about the ‘Net Zero’ part.

In short, the CBI report simply confirms that increasing amounts of scarce resources – including labour and capital – are being deployed in activities classified as ‘Net Zero’. This diversion of resources could be just as much a cost as a benefit. All in all, this report tells us next to nothing about whether net zero is good or bad for the economy as a whole.