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Ever since the Climate Change Act 2008 was first passed, we have seen an ideological obsession with Net Zero 2050 to the detriment of both the public purse and the supply of our energy. I contend that the obsession with Net Zero at any cost, has had a severe impact on both our economy and our source of energy and I will spell out the course of action that should have been taken over the last twenty years or so. This is a strategy we can still pivot towards as we move towards to 2050.
Net Zero – an unhealthy obsession
A fundamental aspect of public and economic policy globally revolves around the transition to net zero and enhanced energy efficiency by 2050. In the light of rising oil prices (most notably recently with the ongoing US-Iran war), the intricate geo-strategic ramifications of energy trade, and the escalating impacts of climate change, long-term energy security has become a focal point of discussion.
As we gradually eliminate hydrocarbons (including butane, ethane, methane, oil, gas, wood, and coal), our energy in a net zero carbon economy will predominantly be derived from electricity. Consequently, the pressing question is how much energy will be required and from which sources it will be obtained. A shift towards renewable energy sources such as solar, wind, and hydro (ideally complemented by nuclear power) will render Britain’s energy supply dependent on efficient capture, storage, and distribution managed by the National Grid.
Furthermore, this obsession with Net Zero and the reliance on renewables has had a detrimental impact on both the economy as a whole (the government’s own figures and independent think-tank estimates project a cost of around £20 billion a year, or 0.8% of GDP) and the supply of our energy for both businesses and individuals. UK energy is estimated to be some of the most expensive in the world. One reason for this is the fact that electricity is still coupled to the wholesale market price of gas.
The issues at stake
- Fiscal burden and debt:
Reaching the 2050 target demands massive public and private capital outlays. The Office for Budget Responsibility (OBR) estimates that getting to net zero could add upwards of 21% of GDP to national debt by 2050. To put that into perspective, our current debt stands at almost 100% of GDP, which is over two trillion pounds.
Decarbonising power generation, phasing out internal combustion engines, replacing gas boilers etc. all require enormous subsidies and upfront investments. Moreover, at the same time the government faces a major loss of tax revenues from fuel and vehicle excise duties due to the transition to electric vehicles. - Upfront capital costs for businesses and households:
Businesses and households bear a huge part of the transition costs. For example, moving away from gas boilers to electric heat pumps requires major retrofits that can cost each household thousands of pounds. UK manufacturing firms risk losing competitiveness or facing global trade barriers if their energy costs rise faster than those in countries without strict carbon reduction timelines.
Ever since the pandemic and the accompanying energy crisis, energy prices in the UK have risen sharply from an average of £1,200 to £2,500. Without the government energy cap, analysts believe that figure could have further increased to at least £5000). - Regional Job Losses and “Older Industrial Towns”:
The transition heavily affects regions that historically relied on carbon-intensive industries like mining, steel, and heavy manufacturing. Areas in northern England and the Midlands face a disproportionate risk of industrial decline. Decarbonising the economy too quickly could lead to a sudden displacement of traditional manufacturing jobs and stranded assets in legacy supply chains. In addition, the local economies of these regions never fully recovered from the contraction of heavy industries in the 1980s and as such still suffer from below-average productivity, high rates of hidden unemployment, and lower job densities.
Given the above reality, and the damaging impact Net Zero policies have had on the economy and indeed the supply of our energy, allow me to now adumbrate an alternative, which favours the free-market and indeed which would be less burdensome both financially and indeed socially.
The answer – a free-market solution
Transitioning to a free-market approach to energy involves shifting away from state-backed subsidies (or at the very least heavily reduced subsidies) with rigid price caps and towards competitive pricing, unbundled servicing, and private investment. This model aims to drive efficiency and incentivise cleaner power generation through both genuine competition and consumer choice.
Advantages of the free-market model are three-fold. Companies that face a financial penalty for polluting will themselves seek the most cost-effective ways to cut emissions, rather than being forced to adopt government-mandated technologies. Green technology will become highly profitable when businesses are financially motivated to invent superior renewable energy systems, battery storage, and carbon-capture technologies to avoid carbon costs. Lastly, financial markets shift capital away from high-emission assets, avoiding stranded investments, and channel them into green infrastructure.
Here are three areas where free-market solutions are able to remedy some of the issues raised above:
- Carbon Pricing:
This is a foundational economic mechanism used to achieve net-zero greenhouse gas emissions by making polluters pay for the social and environmental damage caused by their emissions. It drives systemic decarbonisation by incentivising industries to adopt clean technologies and shift energy consumption where it is most cost-effective.
There are two ways of introducing Carbon Pricing: Emissions Trading Systems (often called cap-and-trade – this sets a limit, the cap – on total greenhouse gas emissions) and Carbon Tax (governments set a direct, explicit fee per tonne of C02 emitted, which increases over time to make low-carbon alternatives more financially attractive than fossil fuels).
Its role in achieving Net Zero can be summarised in three different respects: firstly, decarbonising hard-to-abate sectors (by making emissions increasingly expensive, carbon pricing forces industries like manufacturing, heavy transport, and aviation to innovate).
Secondly, bridging the gap to zero: achieving true balance requires either cutting emissions or actively removing them from the atmosphere. A high enough carbon price directly funds the development of carbon capture and storage (CCS) and nature-based removals.
Lastly, protecting domestic industries: preventing “carbon leakage” (where companies relocate to regions with weaker environmental laws), policies like the UK’s planned Carbon Border Adjustment Mechanism (CBAM) ensure imported goods face equivalent carbon costs, creating a level playing field for all. - Innovation & Capital Allocation:
Innovation and capital allocation is another method mechanism for achieving Net Zero. Capital must be redirected from legacy, emissions-intensive assets into climate solutions and green infrastructure, while innovation scales the breakthrough technologies (like green hydrogen and advanced grid storage) required to bridge the gap between current targets and commercial viability.
Its role in achieving in Net Zero can be summarised in three different respects.
Firstly, Core-Satellite Portfolios (Institutional investors and asset managers are increasingly using core-satellite allocation models. They maintain 70–80% of assets in stable, low-carbon companies with credible transition plans, and dedicate the remaining 20–30% to high-impact satellite “Climate Solutions” like green bonds and clean tech).
Secondly, the Capital Gap: despite massive growth in sustainable investing, a significant investment shortfall remains, particularly in emerging markets and scaling early-stage climate technologies. Investors are demanding more capital discipline, meaning new projects must show clear commercial viability and scalability.
Lastly, Corporate Level Allocation: companies are restructuring capital expenditure (CapEx) to cut Scope 1, 2, and 3 emissions. Capital is actively being prioritised for projects that reduce energy dependency and ensure long-term resilience against changing carbon pricing regimes. - Voluntary Carbon Markets (VCM):
These allow organisations to voluntarily purchase carbon credits to offset emissions. In relation to Net Zero, VCMs must serve strictly as a complementary tool; they cannot substitute for direct, science-aligned emissions reductions within a company’s own value chain. Their role in achieving in Net Zero can be summarised in three different respects:
Firstly, advancing net zero commitments – offsetting residual or Scope 3 emissions to close the gap between internal abatement efforts and full Net Zero goals.
Secondly, enhancing ESG and brand value – meeting rising investor and stakeholder expectations for transparency, sustainability, and ethical leadership.
Thirdly, supporting climate innovation – channelling finance into carbon removal technologies and nature-based solutions aligned with corporate values and wider environmental goals.
The above is the outline of a liberal alternative to our broken energy policies and one that favours the free-market, over and above government financial support and strict price limits, with a shift towards market-driven pricing. I believe these alternative policies will go a long way towards remedying some of the problems we face in a challenging energy environment.
Kayed Al-Haddad is spokesperson for The Liberal Party for Economics, Fiscal Policy and Monetary Policy.
