What challenges does Britain need to overcome in order to implement the transition to a low-carbon economy? Will Straw, of the Institute for Public Policy Research, examines the Coalition Government’s record
In 2011, Britain’s economy fell back into a double dip recession as government and consumers cut back on spending. Figures released in July 2012 show that things are getting worse, not better. But there is a glimmer of green light among the gloom.
According to Ed Davey, the Energy and Climate Change Secretary, Britain’s green businesses grew by 4.7 per cent last year and created more than 25,000 jobs. The sector now employs nearly one million people and Britain has the sixth biggest low-carbon sector in the world.
The global market for low-carbon goods and services is growing rapidly, and Britain is well placed to benefit from that growth. For example, China is piloting its own emissions trading scheme, Mexico has become the first developing country to introduce legally binding emissions reduction targets and even oil-rich Saudi Arabia has announced the world’s largest renewable energy programme.
But not everything is straightforward. Britain faces an economic and a political challenge in realising the full potential of the green economy. In terms of the economics, businesses are understandably concerned about the rising costs associated with decarbonising the economy. The issue is the number-one concern for chemical and pharmaceutical firms, while 80 per cent of businesses told the Forum of Private Business that fuel costs were “very important” or “important” issues.
The global market for low-carbon goods and services is growing rapidly, and Britain is well placed to benefit from that growth
Energy costs are likely to rise in the next decade whatever happens, so the challenge is to keep energy bills as low as possible. Although it sounds counter-intuitive, speeding up the renewable revolution is actually the best way to ensure this happens.
Close to two-thirds of the 75 per cent increase in energy bills, from 2004 to 2010, was due to the rising wholesale price of gas, while just 16 per cent was associated with renewable power or energy efficiency. Costs for renewables are falling rapidly, while the costs of gas remain volatile.
Some people hope that a shale gas revolution in Europe could bring down energy bills, but Deutsche Bank has warned that “we do not expect the impact of shale-gas production on EU gas prices to be anywhere near as great as has been the case with US shale-gas production”.
The political challenge concerns the difficulties that governments face in delivering long-term decisions given the short-term incentives of the electoral cycle. The Coalition’s record has been particularly egregious since the Lib Dems are far more enthusiastic about the green economy than Tories, who often oppose wind farms on aesthetic grounds.
The result has been a cabinet row between Ed Davey and his predecessor, Chris Huhne, on one side and Chancellor George Osborne on the other. There is now uncertainty over whether the Government is really committed to decarbonising the power sector by 2030.
There is a world of potential for Britain’s fast-growing green businesses. The economic costs of transition can be managed; the question now is whether the Government is willing to play their part?
Will Straw is associate director for globalisation and climate change at the Institute for Public Policy Research, where he leads strategic development, including international partnerships. He co-edited The Change We Need: What Britain can learn from Obama’s victory, published by the Fabian Society, and is founder of the left-wing blog Left Foot Forward.