#climatechange – Martin Wheatcroft

ICAEW chart of the week: climate change and the public finances

My chart for ICAEW this week looks at how climate change is now expected to make the OBR’s dire predictions for the public finances even worse.

A line chart on climate change and the public finances, with three curved lines for public sector net as a share of GDP over fifty years. with labels from March 2034 onwards.

Bottom line: Baseline public sector net debt/GDP. Falls from just under 100% of GDP to 90% of GDP in March 2034 and then rises to 100%, 130%, 188% and 274% of GDP in March 2044, 2054, 2064 and 2074 respectively.

Middle line: Baseline + climate change (below 3°C scenario). Rises from 94% of GDP in March 2034 (label not shown) to 114%, 157%, 235% and 348% of GDP in March 2044, 2054, 2064 and 2074 respectively.

Top line: Baseline + climate change + economic shocks. Rises from 104% in March 2034 to 134%, 187%, 275% and then 398% in March 2074.

18 Jul 2025. Chart by Martin Wheatcroft FCA. Design by Sunday. Sources: OBR, 'Fiscal risks and sustainability', Sep 2024 and Jul 2025 reports.

ICAEW’s chart of the week is on climate change this week, illustrating how it could add a further 74 percentage points to the Office for Budget Responsibility (OBR)’s already disheartening baseline projection for public sector net debt of 274% of GDP to reach 348% of GDP, or potentially 398% if economic shocks are included.

The baseline projection, published by the OBR in September 2024, showed public sector net debt as a proportion of the size of the economy falling from just under 100% of GDP to 90% of GDP in March 2034 and then rising to 100%, 130%, 188% and 274% of GDP in March 2044, 2054, 2064 and 2074 respectively.

One of the main drivers of the baseline projection is the expected rise in spending on pensions, health and social care as more people live longer, sometimes less healthy lives, combined with a falling fertility rate that means there will be proportionately fewer working age adults to pay the taxes needed to fund that rise.

Incorporating the OBR’s new central projection for climate change, public sector net debt would be 94% of GDP in March 2034 (not shown in the chart because of a lack of space between lines) and then 114%, 157%, 235% and 348% of GDP in March 2044, 2054, 2064 and 2074 respectively. Adding potential economic shocks on top would increase the projection for public sector net debt/GDP to 104% in March 2034 rising to 134%, 187%, 275% and then 398% in March 2074.

The September 2024 baseline projection included the loss of fuel duty receipts from the phasing out of petrol and diesel vehicles between now and 2050, but the OBR in its recent July 2025 fiscal and sustainability report has looked in more detail at both the incremental costs of transitioning to net zero and the damage that is likely to result from a much warmer and wetter climate in several different scenarios.

OBR’s central ‘below 3°C’ scenario is based on global average temperatures rising by 2.9°C above pre-industrial levels by 2100, of which weather and other damage associated with a much warmer and wetter climate is projected to add 17 percentage points to accumulated debt over the next half century from direct and indirect costs and revenue losses. Climate damage is also expected to result in slower economic growth that would add 27 percentage points over 50 years by reducing the denominator in the debt to GDP ratio. The government’s share of transition costs (including lower tax receipts from higher private sector spending) is projected to add 7 percentage points, while there is a 22 percentage point impact from the incremental debt interest that would be incurred on a higher level of debt.

This is before taking account of recessions and other potential economic shocks, which based on historical patterns are expected to add 10% of GDP to public sector net debt every decade or so.

The chart does not reflect other risks identified by the OBR in its latest report, where it reports that the exposures to the public finances have increased since its assessment last year. One risk they did look at in some detail is the prospect of higher interest rates on government borrowing on the basis that demand for gilts reduces as the Bank of England winds down its holdings of gilts (quantitative tightening) and defined benefit pension schemes gradually sell their holdings of gilts to fund pension payments. This risk might be mitigated by selling shorter-dated gilts, although shorter maturities would make the public finances less resilient by increasing the amount of debt needing to be refinanced each year.

The OBR’s dismal assessment of the prospects for the public finances highlights just how difficult a financial position the UK finds itself in, with a lot to do (and some luck needed) if it is to be restored to a sustainable path. At the same time, the costs of climate change are now becoming that much more apparent as extreme weather events and other climate-related costs start to show up in public finance and insurance data.

For more information about the role of the accountancy profession in climate change, visit ICAEW’s climate hub.

This chart was originally published by ICAEW.

ICAEW chart of the week: hot weather

The chart this week is on the topic (or is that tropic?) of temperature, illustrating how hot weather has become hotter since the 1880s.

Column chart illustrating the maximum daily temperature by decade in ℃.

1880s: 29.3°C
1890s: 29.0°C
1900s: 31.2°C
1910s: 30.9°C
1920s: 31.0°C
1930s: 30.5°C
1940s: 31.5°C
1950s: 29.9°C
1960s: 29.6°C
1970s: 33.1°C
1980s: 29.9°C
1990s: 33.4°C
2000s: 33.0°C
2010s: 34.2°C
2020s: 37.3°C

Our chart this week is on hot weather, looking at how the maximum daily temperature in each decade has increased since the 1880s, according to the Met Office’s Hadley Centre Central England Temperature dataset. This is not from a single weather station, but averaged from several stations in order to be “representative of a roughly triangular area of the United Kingdom enclosed by Lancashire, London and Bristol”, according to the Met Office.

The Central England dataset reported a maximum temperature of 37.3% on 19 July, three degrees below the provisional highest temperature ever recorded in the UK of 40.3°C in Coningsby in Lincolnshire on the same day. However, as the chart illustrates, this was still substantially higher than the highest temperatures reported in each of the previous decades.

Of course, the 2020s are far from over and there is a strong possibility that the peak in this decade will be even higher.

These were the maximum daily temperatures by decade in the Central England datasets:
1880s: 29.3°C (11 Aug 1884)
1890s: 29.0°C (18 Aug 1893)
1900s: 31.2°C (1 Sep 1906)
1910s: 30.9°C ( 9 Aug 1910)
1920s: 31.0°C (12 Jul 1923)
1930s: 30.5°C (27 Aug 1930)
1940s: 31.5°C (29 Jul 1948)
1950s: 29.9°C (6 Jun 1950)1
1960s: 29.6°C (29 Aug 1961)
1970s: 33.1°C (3 Jul 1976)
1980s: 29.9°C (28 Jul 1984)
1990s: 33.4°C (3 Aug 1990)
2000s: 33.0°C (19 Jul 2006)
2010s: 34.2°C (25 Jul 2019)
2020s: 37.3°C (19 Jul 2022)

This approach does not provide a full picture of climate change over the past 140 years, as we are just looking at the daily peaks of temperature in each decade. However, it does echo more scientifically-rigorous analysis of the climate that confirms that the planet is warming up, with even hotter temperatures expected in future decades if we don’t take action.

This chart was originally published on the ICAEW website.

ICAEW chart of the week: the path to net zero

All eyes have been on COP26 as the world’s leaders seek to set a course to eliminating carbon emissions over the next quarter of a century or so. Our chart highlights what it will take for the UK to do its part of delivering net zero by 2050.

Chart showing how the UK plans to go from 520m tonnes CO2-equivalent of greenhouse gas emissions in 2019 to net zero in 2020:

146m power & heat in 2019 -57m power -86m heat = 3m in 2050

167m transport in 2019 -117m domestic transport -24m international travel = 26m in 2050

207m industry, agriculture & waste in 2019 -86m industry -42m agriculture -27m waste = 52m in 2050

less: 81m greenhouse gas removals in 2050

to get to net zero

The Breakthrough Agenda agreed at COP26 by countries representing more than 70% of the world economy will be key, by making clean technologies the most affordable, accessible and attractive choice for all globally in each of the most polluting sectors. This involves ensuring that clean power, zero emission vehicles, near-zero emission steel, green hydrogen and climate-resilient sustainable agriculture are in place by 2030 so that countries including the UK can deliver on their ambitious plans to eliminate greenhouse emissions from their economies.

For the UK, the plan is to reduce greenhouse gas emissions from the 520m tonnes CO2-equivalent (tCO2e) emitted in 2019 to between 75m and 81m in 2050, with a combination of natural and technological solutions to remove an equivalent amount of carbon from the atmosphere to bring net emissions down to zero. This is based on the scenarios set out in the UK’s Net Zero Strategy published on 19 October 2021, which starts from 146m tCO2e of emissions from power and heat, 167m tCO2e from transport and 207 tCO2e from industry, agriculture & waste.

The different steps that will be needed to achieve this goal start with decarbonising power generation and heating, going from 146m to 3m tCO2e in 2050. The UK has already made substantial progress in installing renewable generation and appears on track to achieve the 57 MtCO2e further reduction to almost entirely remove fossil fuels from electricity. Challenging as that will be, it will be even more difficult to replace natural gas as the principal source of heating for the majority of buildings across the UK in order to find a further 86m tCO2e of reduction.

Eliminating 117m out of 122m tCO2e of emissions from domestic transport will mainly be accomplished by replacing petrol and diesel vehicles with electric, not only requiring affordable car technology but an entire new infrastructure of charging points. There is less optimism for international travel, where the ambition is to take out 24m of the 45m tCO2e emitted in 2019 in the ‘high innovation’ scenario presented in the chart and only 10m tCO2e in the other two scenarios (which assume greater reductions in other areas to arrive at a similar end point).

Industry, agriculture, and waste have even more to do, with businesses including steel producers, manufacturers and the fuel supply chain needing to decarbonise to remove 86m tCO2e out of 104m tCO2e. Agriculture and land use will need to take out 42m of 63m tCO2e of emissions, while emissions from waste and fluorinated greenhouse gases (F-gases) will need to come down by 27m from 40m to 13m tCO2e.

The result will be a UK economy still emitting 81m tCO2e a year, comprising 3m from power and heat, 26m from transport and 52m from industry, agriculture, and waste. Net zero will be achieved by removing an equivalent amount of carbon from the atmosphere, partially through natural means but in practice through technological solutions that have yet to be developed.

There is a lot that all of us need to do to achieve net zero here in the UK. The positive news emerging from COP26 is that the rest of the world is also committed to doing so too – a global solution for a global climate emergency.

This chart was originally published by ICAEW.

ICAEW chart of the week: OBR climate change scenarios

Our chart this week is on the OBR Fiscal Risks Report, highlighting how delaying action to achieve net zero could double the cost to the public finances compared with acting more quickly.

Chart show public debt change in 2150-51 as % of GDP for different scenarios: Investment switch and motoring tax -12%, early action high productivity +10%, early action scenario +21%, early action low productivity +32%, late action scenario +43%, unmitigated climate change +38%. The final column for unmitigated climate change also has the public debt change in 2100-01% of +161%.

With two ‘once in a century’ events in less than two decades adding more than £1tn to public debt, it is unsurprising that the OBR’s Fiscal Risks Report published earlier this week places much more emphasis than previous reports on the potential for catastrophic risks, whether that be from further pandemics, major wars, climate change or cyberattacks.

The report focuses on three particular risks: the coronavirus pandemic, the cost of debt, and climate change, with the latter being the subject of the #icaewchartoftheweek.

The OBR distinguishes fiscal risks from climate change between those stemming from global warming itself (physical risks) and those relating to the move to a low-carbon economy, including the policies to achieve that (transition risks). In unmitigated climate change scenarios, the physical risks dominate, whereas the more that is done to mitigate global warming by reducing emissions, the more important transition risks become.

The chart illustrates two main scenarios explored by the OBR – an early action scenario where the UK and other governments around the world push forward with plans to achieve net zero by 2050 and a late action scenario where the UK government delays taking actions to decarbonise the economy. The chart also shows three variants on the early action scenario depending on whether decarbonisation boosts or damages productivity or where investment is switched from other areas and motoring taxes retained.

In the early action scenario, the OBR estimate that public sector debt would rise by 21% of GDP by 2050-51 (equivalent to £469bn in current prices) as a consequence of lost fuel duties and other taxes of 19%, additional spending of 6%, indirect economic effects of 6% and interest on borrowing of 4% less 14% from carbon taxes imposed to incentivise the shift to net zero.

The high productivity variant is similar in terms of costs and carbon tax receipts, but with indirect economic effects contributing additional tax receipts with a consequent reduction in borrowing costs over 30 years, resulting in net additional debt of 10% of GDP. The low productivity variant assumes the reverse with lower tax receipts and a smaller economy combining to increase the net increase in public debt to 32% of GDP. The other variant identified by the OBR has the effect of reducing public debt, where investment in decarbonisation is funded by cutting other public investment plans and existing motoring taxes are shifted onto electric cars to retain that source of income to the exchequer.

A key finding in the report is that delaying action would cost a lot more than moving early with public sector debt rising by 43% in 2050-51, more than double the early action scenario, as it would require a more radical intervention costing more and resulting in more adverse economic effects.

Ironically, the OBR estimates that doing nothing would have a smaller impact on net debt by 2050-51 than the late action scenario as decarbonisation costs would not be incurred. However, the OBR estimates that unmitigated climate change would have a significant impact for the rest of the century, with public debt potentially rising to 289% of GDP by 2100-01 if action is not taken to prevent temperatures rising around the world.

For more information read the OBR Fiscal Risks Report.

This chart was originally published by ICAEW.

ICAEW chart of the week: UK electricity projections

6 November 2020: Renewables, imports and nuclear are expected to provide around 85% of UK electricity generation by 2040, but will that be good enough to achieve carbon neutrality a decade later in 2050?

UK electricity projections chart (reference scenario):
Nuclear: 48 TWh in 2008, 62 TWh in 2020, 86 TWh in 2040.
Imports: 11 TWh, 28 TWh, 74 TWh.
Renewables: 23 TWh, 125 TWh, 188 TWh.
Carbon: 297 TWh, 109 TWh, 58 TWh in 2040.

The latest official energy and emissions projections, released by the Department for Business, Energy & Industrial Strategy (BEIS) on 30 October 2020, now extend out to 2040 – a decade before the 2050 target set by the UK Government to reach net zero.

The #icaewchartoftheweek takes a look at the progress being made on decarbonising electricity generation, with renewables, nuclear and imported electricity (much of which comes from nuclear or renewable sources) expected to increase from around 20% in 2008 to 66% this year and to just over 85% in 2040.

Overall electricity demand is expected to fall over the first half of the coming decade as improved energy efficiency and energy conservation measures (such as better insulation) continue to offset more demand from a growing population and economy (caveats apply). Lower demand in the residential and services sectors are then expected to be outweighed by higher demand for industrial and transport, particularly the latter as electric vehicles take to the roads.

Coal has now been almost entirely eliminated from electricity generation, falling from 118 TWh in 2008 (when there was also 6 TWh from oil and 173 TWh from natural gas) to 2 TWh projected in 2020 alongside 107 TWh from natural gas. Even so, coal may remain a small part of the mix even in 2040 as part of a projected 5 TWh of electricity from carbon capture and storage (CCS) plants. This should leave just 53 TWh from low (but still not no) carbon natural gas generation to eliminate over the subsequent decade.

Unfortunately, electricity is only part of the energy picture, with the reference scenario calculated by BEIS projecting that carbon sources will provide 980 TWh of final energy consumption in 2040 outside of electricity supply and direct power from renewables. This includes the equivalent of around 370 TWh from natural gas used domestically, 250 TWh from diesel and petrol used in transport, and 160 TWh from aviation fuels.

So while there continues to be welcome progress in greening the electricity supply, achieving net zero overall is not going to be as easy.

This chart was originally published on the ICAEW website.