CEP Energy Conversations

The cost-of-living crisis and net zero

With a number of factors at home and abroad driving the cost-of-living crisis in the UK, and net zero legislation coming under some scrutiny, our recent Energy Conversation focused on what the current situation means for the longer-term UK economic picture and the country’s ambitions to realise net zero.

The event welcomed online participants from a wide range of organisations and backgrounds who joined our panellists, Professor Rob Gross (UKERC Director), Frazer Scott (CEO of Energy Action Scotland), and our Deputy Director Dr Jamie Stewart.

Highlights from the event were also recently included in a Sky News article ‘Fuel poverty: Worst hit areas revealed as two in five households set to be affected’.

Our researchers reflect on some of the key issues that emerged during the discussion.

Dr Oluwafisayo Alabi

The current cost-of-living crises shows how exposed societal wellbeing and living standards are to market forces and unanticipated conditions. It calls for intelligence and evidence around pre-identifying and/or identifying mechanisms that may enable stronger and sustainable economic resilience. There is consensus suggesting that energy efficiency retrofitting actions and programmes may play a key role, but need to be backed by stronger political will and clearer implementation strategies to be delivered at the required scale.

Nonetheless, the crucial lesson is the need for a more proactive approach to considering various aspects and situations (including around the net zero transition) that may trigger and/or exacerbate the price pressures on the cost of living in the near to long term, despite the uncertainty on whether the current crises persist (or not).

Dr Long Zhou

The current energy and food prices escalation and the corresponding uprising of household expenditures have spawned an ongoing cost-of-living crisis facing households throughout the UK. There has been lasting debate on the reason, while many blame current geopolitical factors, there are also some who have tried to associate it with the price of commitments to tackle climate change.

I believe that if more action towards meeting net zero objectives – such as increasing building efficiency – had been taken earlier, the crisis itself could have been somewhat avoided.

However, ultimately, the costs associated with net zero actions will largely be borne by the demand side of the economy – the overlapping groups as consumers, households and taxpayers. While the overall cost of net zero to the whole economy are always highlighted, particularly given the cost-of-living crisis, it is the costs to individuals that must now be carefully understood.

It is therefore crucial that different households and people from different income levels and regions receive proper and differentiated support. It is also crucial for policymakers to consider how to raise the public and private investment required for the big challenge and what the corresponding allocation ratio should be horizontally (between different socio-economic groups) and intertemporally. Ultimately, dealing with net zero is the best way to manage the cost-of-living crisis and secure our prosperity for the future.

Dr Abdoul Karim

The current context of the world economy, characterised by an increase in the cost-of-living and energy prices, presents several challenges and opportunities for delivering the net zero objective.

On one hand, the current energy and cost of living crisis brought some pessimism to the UK net-zero objective, since this crisis has many implications for the UK economy and particularly households. Indeed, households' consumption costs increased due to the crisis and many households in the UK and Scotland are likely to fall further into poverty and will be unable to cover their basic needs. Therefore, government interventions, including household income support, are required to support these households and particularly the most vulnerable.

On the other hand, many lessons are being learned from the current crisis that can contribute to delivering the UK's net-zero transition objective. Due to higher energy costs, some able-to-pay households may be incentivised to act sooner. These actions may include energy efficiency measures such as better houses insulation and the adoption of other low-carbon technologies. Also, UK and Scottish Governments could also be driven to act. Government long-term actions including investment in energy storage and other sources of renewable energy could and should accelerate. These actions could keep the net-zero transition objective alive and prevent other energy crises.