In October, the prime minister, chancellor and energy secretary pledged billions to kickstart the UK’s first carbon capture projects – one of the biggest green spending promises of the parliament. By December, Ed Miliband was signing contracts, Sir Keir Starmer vowed to “reignite our industrial heartlands” and Rachel Reeves warned that without bold action, Britain would be stuck with low growth and falling living standards. More importantly, net zero targets wouldn’t be met without removing carbon dioxide from the atmosphere.
Fast forward and the Treasury is, reportedly, preparing to scrap the £22bn plan, after economic growth failed to materialise. What a difference a few weeks make.
The change of heart is not about the technology – carbon capture and storage (CCS) is still as underdeveloped as it was in October, when ministers extolled its virtues. The government’s climate advisers are unequivocal: net zero is impossible without CCS. But the economic circumstances have changed. Ms Reeves underestimated how slowly interest rates would fall, and the deep spending pressures left by Tory austerity. She also faces rising defence costs.
Her rigid, self-imposed fiscal rules dictate that any higher-than-expected spending in one area must be offset by cuts elsewhere. Rather than such arbitrary constraints, Britain needs a transparent system that enables strategic investment. The good news is that the Climate Change Committee told the government last week that the net cost of cutting UK’s greenhouse gas emissions in 2050 to 100% below 1990 levels is now 73% lower than it previously thought in 2020. The bad news is that the transition would still require a net cost of around £4bn a year, a little under 0.2% of GDP.
With less fiscal headroom than forecast, Ms Reeves could close the gap through borrowing or with a modest wealth tax – but rejects both. That leaves an unpalatable choice: cuts to welfare, public services or growth-driving investment in housing, energy and transport. Diverting funds from capital projects to defence risks turning her growth agenda into the usual Tory mix of deregulation, austerity and national security.
Greening Britain requires short-term expenditure for long-term gains. Reaching net zero requires upfront investment, but will lower consumer bills and reduce reliance on imported fuels, shielding the population against price shocks. Early, targeted spending is a cost-saving measure – delays lead to higher long-term spending due to climate-related disasters, economic disruption and energy price instability. While private investment will eventually play a dominant role, the climate committee makes it clear that public spending remains necessary in areas where market forces alone can’t drive change fast enough.
Labour must recognise the state’s crucial role in the green transition. BP’s retreat from renewables proves private firms can’t be trusted to phase out fossil fuels. A Common Wealth report is clear: profit-driven companies prioritise extraction over climate action. In January, it argued public ownership is the only credible way to manage the £43bn North Sea decommissioning costs while ensuring a just transition. While it must be carefully managed to avoid inefficiency, public control remains the best way to phase out fossil fuels fairly and smoothly. The UK can’t rely on foreign supply chains for green tech, or corporate goodwill to deliver net zero. Without a serious state-led green strategy, Labour’s plan risks falling short of the challenge Britain faces.
