Academic Fan-Fic of a Painless Net Zero Future
Since when are there no tradeoffs in economics?
Most of my posts have been focused on the United States for obvious reasons. But now that my news feed is broader than the New York Times, an open letter published in the UK caught my attention1. Five distinguished economists wrote the letter to assure Prime Minister Keir Starmer that “there is no trade-off between net zero and economic growth.”
As an amateur economist myself, I found the statement astonishing: Economic analysis is all about trade-offs! There’s the famous quote often attributed to Harry Truman, who quipped that he wanted to be advised by a one-handed economist, because, as a group, economists are fond of saying, “On the one hand…”. From my perspective as a physical scientist, denying trade-offs is the economist’s equivalent of asserting perpetual motion.
So I asked, “What support do these gentlemen (+ 1 lady) have in mind to profess such a consensus?” I discovered a collection of studies that, while academically sophisticated, rest on assumptions so optimistic they would make a startup pitch deck blush.
Let me walk through their key citations methodically, because, as always in economics, the devil lurks in the methodological details.
The CBI’s Multiplier Magic
These economists heavily rely on the Confederation of British Industry’s 2025 report, “The Future is Green,” which claims that the UK’s net-zero economy generated £83.1 billion in Gross Value Added in 2024, representing a 10% year-on-year growth2. More strikingly, they assert this creates a multiplier effect where “every £1 of value directly generated from net zero businesses adds an additional £1.89 of value to the UK economy.”
This 1.89x multiplier deserves scrutiny. The CBI Economics methodology, commissioned by the Energy & Climate Intelligence Unit, identifies 22,800 separate “net zero businesses” across 16 sub-sectors, ranging from renewable energy to green finance3. But here’s where the accounting becomes creative: they define the net-zero economy so broadly that it includes businesses “active in the renewable energy planning database”, i.e., any company that has filed planning applications for renewable projects. This seems like a pretty low bar.
More problematically, their multiplier calculation assumes perfect additionality—that all economic activity generated by these businesses wouldn’t exist otherwise. This violates basic economic logic. When government subsidies shift demand toward solar panels, for example, the resulting economic activity displaces activity from other sectors. The CBI’s methodology fails to account for this displacement effect, a fundamental error that inflates their impact estimates.
As a reality check: if net-zero businesses truly generated £83.1 billion with a 1.89 x multiplier, their total economic contribution would be £157 billion—roughly 6% of UK GDP. Yet, the UK’s entire electricity, gas, steam, and air conditioning sector contributes only 1.5% of the country’s GDP.4 The numbers simply don’t pencil out.
Oxford’s £5-Per-Week Fantasy
The economists cite Oxford research by co-authors Sen & Fankhauser claiming net zero costs just “£5-£7 a week”5, roughly the cost of two cups of coffee. This figure is based on their assertion that achieving net zero requires an annual investment of less than 1% of GDP.
But this estimate suffers from what might be called “denominator dilution.” When you spread massive infrastructure costs across an entire population and extended timeframe, even astronomical figures can sound modest. Back-of-the-envelope:
UK GDP (2024): ~£2.7 trillion
1% of GDP: £27 billion annually
Over 25 years (2025-2050): £675 billion
Per household (28 million): £24,000 per household
Suddenly, “two cups of coffee a week over 25 years” turns into “buying a new car tomorrow”. The Oxford team’s calculation obscures the reality that net zero requires front-loaded capital investments that most households cannot afford without significant policy intervention, precisely the distributional challenge these particular economists gloss over.
Furthermore, their GDP figure excludes what McKinsey estimates as $275 trillion in global transition costs.6 Even scaling this to UK proportions (roughly 3% of the worldwide economy) suggests the transition will cost the country £200-400 billion in required infrastructure investment, far exceeding Oxford’s estimates.
The Way Study’s Technological Optimism
The economists invoke their colleague Rupert Way’s 2022 study “Empirically grounded technology forecasts and the energy transition,” which claims that “even without accounting for climate damages or climate policy co-benefits, transitioning to a net-zero energy system by 2050 is likely to be economically beneficial.”7 This study employs a mathematical approximation of a typical “learning curve” (Wright’s Law) to forecast renewable energy costs. While methodologically sophisticated, it undermines its conclusions by flubbing two crucial assumptions. The paper assumes:
Learning curves for renewable technologies will continue indefinitely without physical constraints. However, solar panel efficiency faces thermodynamic limits (the Shockley-Queisser limit of ~33% for single-junction cells), and wind turbines encounter material constraints as they scale. The study’s probabilistic forecasts don’t adequately account for these physical boundaries.
Technology costs will always outweigh system integration costs as renewable penetration increases, grid stabilization, storage, and backup power requirements grow exponentially. Germany, with 46% renewable electricity, is the canary in the coalmine: In November 2024, it faced a Dunkelflaute (dark doldrum) event with overcast skies and little wind, forcing it to max out its backup power. Prices surged to over €800/MWh (compared to negative prices during oversupply). This is precisely the volatility that the study omits.8
The Climate Damage Calculations Game
The economists cite a 2022 Grantham Institute study that claims that under current policies, “the total cost of climate change damages to the UK is projected to increase from 1.1% of GDP at present to 3.3% by 2050 and at least 7.4% by 2100.”9 This figure (based on a model) is used to support the argument that mitigation costs pale in comparison to damage costs.
However, this damage estimate relies in part on Integrated Assessment Models (IAMs) that have a troubled forecasting record. These models typically assume:
GDP growth continues at historical rates despite climate impacts
Adaptation measures will remain static for 80 years
Temperature increases follow smooth trajectories without tipping points
The 7% GDP damage figure also includes “catastrophic disruption to the global economic system”—essentially an insurance premium against tail risks that may or may not materialize. While prudent for risk management, using such speculative figures to justify immediate policy costs requires a broad agreement on imminent danger that is absent in the current political environment.
The Carbon Leakage Blind Spot
Perhaps most tellingly, none of the studies the economists cite seriously address carbon leakage, where emissions reductions in one country drive emissions increases elsewhere. Recent data makes this omission glaring:
Global CO2 emissions hit 37.4 billion tonnes in 2024—a new record10
China’s emissions grew 0.4% despite massive renewable deployment, while India’s emissions surged 5.3% in 2024, the highest rate among major economies11
Developing countries contributed 95% of global emissions increases over the last decade and accounted for 75% (44 GT) of global emissions in 2023. If this trend continues, worldwide emissions are projected to rise 23% by 205012
The economists acknowledge that “many countries and regions are taking concerted climate actions alongside the UK,” but this fundamentally mischaracterizes the global landscape: When UK energy-intensive industries face carbon prices of £60-70 per tonne, while Chinese competitors operate without carbon constraints, production shifts to higher-emission regions, resulting in a net loss for global climate goals. Unless all countries and regions take concerted action, the atmosphere becomes a victim of the tragedy of the Commons and freeloading, both concepts heavily covered in undergraduate economics.
The Political Economy Reality Check
Beyond methodological issues, the economists’ analysis overlooks basic political considerations. Their letter reads as if policy occurs in a technocratic vacuum where optimal solutions naturally emerge from cost-benefit analysis, as if passed down from a supreme global leader. That’s not reality, at least not yet.
Consider their recommendation for “rebalancing levies onto gas from electricity.” This sounds sensible until you consider that gas heating affects 85% of UK households while electric vehicles remain concentrated among higher-income groups. Politically, this would create a regressive wealth transfer disguised as environmental policy, precisely the dynamic that has sparked backlash against climate policies across Europe.
Similarly, their call for “substantial grid and storage investments” overlooks the NIMBY constraints that have long blocked transmission projects. The reality gap between academic recommendations and political feasibility undermines the whole framework.
What the Evidence Actually Shows
Stripping away methodological optimism, the empirical evidence suggests a more sobering picture:
Costs: UK households currently pay electricity prices 19% above the EU average despite aggressive renewable deployment.13 This reflects both geography and the system integration challenges that academic models consistently underestimate.
Growth: While the CBI trumpets 10% growth in green sectors, overall UK productivity growth remains anemic at 0.5% annually, suggesting that green job creation occurs through subsidy-driven displacement rather than genuine innovation.
Global Emissions: After 30 years of climate policy, emissions continue rising. The gap between academic projections and empirical outcomes demands more humility about policy effectiveness.
Toward Honest Accounting
I’m not arguing against climate action: The physical risks are global, genuine, and urgent. But I am arguing for honest accounting that acknowledges trade-offs rather than denying them. Presenting an overtly partisan document under the guise of absolute academic truth undermines the integrity of the entire scholarly community.
A more realistic approach might include:
Technology-focused investment in genuine breakthroughs (advanced nuclear, fusion, direct air capture) rather than subsidizing easier-to-account-for mature renewables in affluent countries
Border carbon adjustments that prevent leakage while providing revenue for transitions in the developing world
Productivity metrics that measure economic value creation rather than just green job counts
The climate challenge is too important for wishful thinking disguised as rigorous analysis. After three decades of policies that promised painless transitions while delivering record emissions, perhaps it’s time for a more honest conversation about what “addressing climate change” will require. In the U.S., we’re burdened today by a “win-lose” administration hell-bent on demonstrating that we can simultaneously be independent of the rest of the world and maintain our leadership position. We cannot.
The letter concludes by urging the PM to base decisions on “plentiful economic and scientific evidence.” However, cherry-picking supportive studies while ignoring inconvenient data isn’t evidence-based policy. It’s advocacy masquerading as academic credentials. We deserve better from our academic thought leaders.
Letter dated June 3, 2025, sent to Prime Minister Keir Starmer from Professor Lord (Nicolas) Stern, IG Professor of Economics and Government and Chair, Global School of Sustainability, London School of Economics and Political Science, Professor Sam Fankhauser, Professor of Climate Economics and Policy, University of Oxford, and Research Director, Oxford Net Zero Professor Cameron Hepburn, Battcock Professor of Environmental Economics, University of Oxford, Dr Anupama Sen, Head of Policy Engagement, Smith School of Enterprise and the Environment, University of Oxford, Dr Dimitri Zenghelis, Senior Advisor, The Bennett Institute, University of Cambridge and Visiting Senior Fellow, Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science. Downloaded from https://www.smithschool.ox.ac.uk/sites/default/files/2025-06/PM_letter_No_trade_off_between_net_zero_and_economic_growth.pdf, June 12, 2025
Energy & Climate Intelligence Unit, “The future is green: The economic opportunities brought by the UK’s net zero economy,” CBI Economics, February 2025. Downloaded from https://www.cbi.org.uk/media/owxdidg1/cbi-economics-eciu-the-future-is-green-report-2025.pdf June 19, 2025
Ibid., p. 11.
The contribution was reported for 1997 and 2013, derived from the UK Parliament. “Industrial Strategy: Economic Sectors”, House of Commons Library Briefing Paper, Number 07682, 17 November 2016, Table 2, p. 14. Downloaded from
https://researchbriefings.files.parliament.uk/documents/CBP-7682/CBP-7682.pdf, June 16, 2025
Sen, A., Lightfoot Brown, H., and Fankhauser, S., “Getting a Good Deal on Net Zero,” University of Oxford, 2024, p. 3. Downloaded from https://www.smithschool.ox.ac.uk/sites/default/files/2024-07/Getting-a-Good-Deal-on-NetZero.pdf, June 16, 2025
McKinsey & Company, “The net-zero transition: What it would cost, what it could bring,” 2022. p. 75. Downloaded from https://www.mckinsey.com/capabilities/sustainability/our-insights/the-net-zero-transition-what-it-would-cost-what-it-could-bring#/download/%2F~%2Fmedia%2Fmckinsey%2Fbusiness%20functions%2Fsustainability%2Four%20insights%2Fthe%20net%20zero%20transition%20what%20it%20would%20cost%20what%20it%20could%20bring%2Fthe-net-zero-transition-what-it-would-cost-and-what-it-could-bring-final.pdf on June 15, 2025.
Way, R., Ives, M.C., Mealy, P., and Farmer, J.D., “Empirically grounded technology forecasts and the energy transition,” Joule, Vol. 6, Issue 9, September 2022. Available at https://www.cell.com/joule/fulltext/S2542-4351(22)00410-X
Rising, J., Dietz, S., Dumas, M., et al., “What will climate change cost the UK? Risks, impacts and mitigation for the net-zero transition,” Grantham Research Institute, May 2022. Downloaded from https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2022/05/What-will-climate-change-cost-the-UK-risks-impacts-mitigation-1.pdf on June 19, 2025
Press Release November 13, 2024. https://globalcarbonbudget.org/fossil-fuel-co2-emissions-increase-again-in-2024/