The transition to net zero will see public debt rise by 20 percent, but the damage will be less severe than that inflicted by the pandemic, according to the Office of Budget Responsibility.
The watchdog said the changes would add £ 469 billion, or 21 percent of GDP, to debt over the next 30 years. This is slightly less than the £ 520bn associated with the pandemic in just two years.
The lost fuel tax will have the biggest impact on the government’s fiscal position as gasoline and diesel vehicles are phased out.
Investing in zero-carbon technologies will also increase costs, and this will only be partially offset by higher carbon tax revenues.
The OBR said that additional revenue from carbon taxes would rise 1.8 percent of GDP in 2026-27, but that revenue would decline steadily to 0.5 percent of GDP in 2050-51 “as the drop in emissions will far exceed the effect of the increase in the tax rate “. .
The fiscal response to the pandemic has caused the national debt to exceed 100% of GDP for the first time since the 1960s.
While the fiscal costs of going to net zero could be significant, the OBR said they were not exceptional.
However, he cautioned that his projections are based on an optimistic scenario in which governments take early and decisive action to reduce emissions. The consequences for public finances will be severe if policy makers delay action until 2030.
Richard Hughes, president of the OBR, said: “[There] It is a scenario in which the government delays action until the 2030s. It has to manage a more hasty and costly transition to net zero and loses five years of carbon tax revenue. The price for this delay is doubling the total fiscal costs of the transition.
“If no action is taken, the debt could skyrocket to 289 percent of GDP by the end of the century.”
The OBR based its report on projections made by the Climate Change Committee, the government advisory body and the Bank of England.