This cost of living crisis could spur Net Zero, not derail it.

In my last post I speculated the energy security crisis would drive faster clean energy deployment across Europe. It is now coming to pass. 

But what about the cost of living crisis, as food and energy prices surge? Will the proportion of people now struggling to buy everyday essentials, following years of stagnant living standards, impel decision-makers towards more climate action?

80% cheaper electric driving

With the price of filling up a petrol or diesel car hitting £2/litre, or more than £100 for the whole tank, electric vehicles have become 80% cheaper to run per mile. 

Dr Simon Evans at Carbon Brief compared the cost of a tank of petrol with the cost of electricity to drive the same distance and found a saving of £67. Compare the Market discovered electric cars are on average £600 a year cheaper to run than petrol ones.

No wonder New Automotive witnessed a 20% bump in electric sales last month, with new research from the RAC and FairCharge revealing that one in three people would consider buying an EV as their next car.

Right now the up-front cost of an EV is the biggest barrier to higher switching levels that would enable more people to benefit from these savings. But isn’t this resolvable with a bit more political focus?

The government is legislating a mandate on car companies to ensure they sell more electric vehicles as a proportion of their sales, which should wipe up to £6,600 off the cost, according to Policy Exchange. 

In France, President Macron plans to go further, unlocking big savings for drivers by launching a state-sponsored EV leasing programme. 

Centre-right think tank, Bright Blue, has suggested Ministers could offer grants to low-income households to purchase second hand EVs, alongside tax allowances to businesses with large vehicle fleets. 

Labour's Ed Miliband, like cross-bencher Baroness Worthington, has proposed zero interest loans to drivers who travel the most miles to help them cover the initial upfront cost of going electric so they can then benefit from the savings available. 

Other simple changes would help, too. It doesn’t seem fair that electric drivers with driveways and garages to charge in at home benefit from a reduced rate of VAT on the electricity they use compared to the 40% of households reliant on public charging. 

Six times cheaper energy

It’s a similar story with energy bills. Clean energy is the cheapest source of electricity and 4-6 times cheaper than gas, so why aren't families and businesses who picked a 100% green energy tariff reaping the benefits of lower bills? And given renewables already make up more than a quarter of our nation's power supply (a figure that is growing rapidly), why aren't all bills going down instead of up? 

The reason is Britain's broken power market. Politicians have allowed fossil fuels to continue setting the price for consumers, irrespective of whether the power is actually being generated by gas. Now the invasion of Ukraine has driven up gas prices to a record high, a race should be on to end the perversity of this system.

Labour's Shadow Energy Minister, Alan Whitehead, has often drawn attention to this debacle as he does in this useful blog: 

"We are stuck with high electricity prices for the foreseeable future because of gas even though we have now breached the magic point where the majority of our electricity supplies come from low carbon and gas-free sources."

UCL's Professor Michael Grubb made an analogy with train travel: 

"Households are paying for their electricity several times what it now costs to generate and transmit it from the cleanest energy sources at scale ... It’s a bit like having to pay the peak-period price for every train journey you take … the gap between cheap renewables and expensive final electricity is becoming unconscionable.”

Chancellor Sunak has finally acknowledged the need “to drive forward energy market reforms and ensure that the price paid for electricity is more reflective of the costs of production”, announcing that the government is “consulting” on it. 

Parliament will debate an Energy Bill this summer, which could offer the vehicle to get this fixed. But Sunak's caveat - "Those reforms will take time to implement" - seems to affirm what insiders are saying privately; that the draft legislation won’t include the necessary steps to decouple gas prices and energy bills. You might think the fact that the cost of living dwarfs all other public concerns would have injected a bit of urgency and ambition into the effort. 

In the meantime, electric heat pumps are now cheaper to run than gas boilers. As the Prime Minister’s friend Hugo Dixon flags up, there are ways to lower the cost of heat pumps further, such as exempting them from levies on power bills. Last week's decision by President Biden to use national security powers to mass produce them will certainly help push down the cost of them too. But Greg Jackson of Octopus Energy notes they are already comparable in price to boilers thanks to new government grants. He told the Sunday Times: “We’ve now got to a position where we can install a heat pump at a cost that is genuinely comparable to a gas boiler … And then we will keep on bringing the cost down so eventually you don’t need the grant … This is about national security and energy costs.”

£600 off through insulation

Investment in insulation could deliver millions of households even bigger savings, of around £600 per household, and do so permanently. The insulation fitted so far is already saving the economy over a billion pounds a year. Ministers’ hesitation that taxpayers money shouldn’t be directed to more insulation without demand from the public ignores the fact that the existing scheme, ECO, is over-subscribed. Their argument that previous schemes failed ignores another fact that insulation rates were 92% higher a decade ago than they are now, suggesting something better than the status quo is clearly possible.

Net Zero won’t solve the cost of living crisis on its own, but it sure can help. The build out of cheap British wind and solar farms is already saving the country money through avoided gas costs. Offshore wind developers are even paying money back to the public to the tune of hundreds of millions; a figure that could run to more than £6 billion a year. 

We should learn lessons from the failure of the 2008 Global Financial Crisis when George Osborne and David Cameron felt it necessary to “cut the green crap” to save money - and ended up costing everyone billions instead. Only by cutting out gas and oil from driving, heating and power generation will we avoid the same traps. 

According to Luke Tryl at More in Common, the public see the invasion of Ukraine, rising cost of living and climate as interlinked but not in the way that critics suggest. Now is the time for more imaginative policy-making that can meet their expectation of addressing the cost of living and climate change at the same time.