We are fortunate in the UK that one of the legacies of Labour’s period in office was broad agreement that we need to tackle climate change. Even the current Coalition Government appeared to accept Labour’s climate change targets, set out in the 2008 Climate Change Act, leading me to believe that Labour had created a new cross-party consensus. That clarity of direction was making the UK attractive to green investments.
Today however the question marks over the Government’s green credentials have proliferated, raising genuine scepticism over whether the Government is sincere in its support for that consensus and open for green business. Yet a new era of economic transformation is upon us – one that will create growth and investment opportunities, but only if Government can grasp the nettle.
Labour believes that the UK must have an active industrial strategy to seize the opportunities green economic growth can create. A new energy industrial revolution beckons, and our country must embrace it without delay.
The starting point is the question Building a Green Economy: a low-carbon plan for jobs and growth of climate change and the corresponding drive to reduce emissions. Is this a threat to business or an opportunity? Two well-rehearsed arguments are in contention for the ear of business and Government.
On the one side are those who argue that Government-led action on climate change is a threat to growth – an unnecessary burden on business – a lead weight around the neck of UK plc. That view says that economic growth is not possible if we tackle climate change.
The likes of the present Chancellor not only believe that the green agenda is bad for business, bad for jobs and bad for growth, but actively revel in their contempt for environmental protection. According to this view, environmental policies are a luxury that can only ever be afforded when times are good.
It is an argument, I believe we should firmly reject.
On the other side, there is the view that all economic growth threatens to deplete the world of resources; that the need to protect the planet means that advanced societies should break with their addiction to the motor car; end holidays abroad; and focus on quality of life rather than material consumption. The West, they believe should accept a lower standard of living in the interests of the planet.
Both the “extreme eco view” and the Tory right share one central premise – that economic growth and environmental sustainability are inherently irreconcilable. One forsakes the environmental policies; the other forsakes the growth. I reject both arguments.
History shows us that only economic growth spreads wealth and prosperity and with it the means to reduce poverty and civilise societies. There is a path between untrammelled growth at all costs and a zero growth world. We can grow our economy and benefit the planet; we can provide for our citizens and meet their aspirations without ruining our planet. It is not a zero sum game.
Investing in the green economy is not just a route out of recession, but a necessary and urgent adaptation to the economy and society we will need in the decades ahead. It is not something that can wait for our economy to emerge into those broad, sunlit uplands – some sort of optional addition afforded only once prosperous times have returned.
The transition to a low carbon economy must begin now, during the toughest of times; preparing the road for recovery. This is not a journey of economic altruism – but a battle for economic survival. We are on the cusp of a new industrial revolution, which is shaking up the old world order. The UK can be followers or leaders in that revolution. But the longer we delay action, the costlier mitigating and adapting to climate change will become – and the economic opportunities will slip through our fingers.
Our society did not reach this point without centuries of economic convulsion. Convulsions that created economic advance by harnessing technological change.
Successful economies are those that adapt to new technologies quickest, build the new industrial base for that era and plan the transition to avoid huge economic shocks.
Countries that first introduced rail networks in the 19th century made the fastest industrial progress. Linking their manufacturing bases with their sources of power; their goods with the ports.
The German post-war rebuilding created a new industrial base. Their production embraced cars, machines, electrical equipment, furniture – investment in manufacturing industries that underpinned their economic growth for decades; and continues to do so today.
The companies and countries that seized on the emerging communications technologies of the 20th century, saw their economies gain advantage. Frances Cairncross noted in her 1997 book The Death of Distance that the telephone, invented in 1876, was crossing the Atlantic by the 1930s, so by 1956 J Paul Getty could run his Californian oil empire from hotel rooms in Europe. More recently, the information superhighway; broadband and mobile technologies, the grandchildren of the electronic computer first invented in the 1940s, are transforming the way our economies and societies function. Such is the power of this revolution that Apple is now the world’s most valuable company overtaking oil giant Exxon Mobil; Google sits at about 12th.
The next big transition in economic terms is the move from high-carbon power to low-carbon. We need to develop plans on grid enhancements, high-speed rail network, carbon capture and storage pipelines, distributed generation technologies, integrated recycling plants, energy efficiency improvements and electric vehicle charging networks that are the platforms for green growth of the economy as a whole. These will underpin national prosperity in the 21st century in exactly the way the motorway networks underpinned prosperity in the 20th century and the railways in the 19th.
The lessons of history tell us that the early adopters win. The movers, the visionaries, the investors lock in their advantages; create oases of ideas; clusters of creativity; pools of knowledge and skills. They are the companies and nations that change the world and walk away with the prizes.
Would anyone today dispute that the green arms race has already started? A race for dominance of a global market already worth £3.2 trillion. Global investment in clean energy reached a new high of £169 billion last year – a five percent increase since 2010, even amidst a global economic slowdown. But in this race, the tectonic plates are shifting away from the developed world.
HSBC predicts that the share of the three largest industrialised low carbon markets, the USA, the EU and Japan will fall from 60% in 2009 to 53% in 2020, while China, India and Brazil will grow from 25% to 34%.
I believe those countries are not just acting to respond to climate change, but they are putting in place the productive sectors to respond to the inevitable economic demands of this new era.
In the green arms race, for UK plc the stakes could not be higher – and yet, the UK is falling behind. Since the Coalition Government came to power, the UK has slipped from third in the world for investment in green growth to seventh – behind countries like Brazil and India. Clean energy investments in the UK reached over $11 billion in 2009, but fell to just $3.3 billion in 2010 and $9.4 billion in 2011, meaning that jobs and industries that should be coming to the UK are now going overseas.
The UK’s decline in the green race hasn’t happened by chance or by accident, or because of decisions made by other governments or factors beyond our control. It has happened for three reasons.
Firstly, because of the Government’s mixed messages. Before the election, George Osborne said this: “I want a Conservative Treasury to be in the lead of developing the low carbon economy and financing a green recovery.” But last year, to cheap applause from Tory party members at their conference, he pledged: “We’re going to cut our carbon emissions no slower but also no faster than our fellow countries in Europe.” In the autumn statement last year, to placate his own backbenchers, he said that environmental measures and the transition to a low-carbon economy was a “burden” on British businesses.
Perhaps the Chancellor thinks that it’s actions, not words that count. But these throwaway remarks have real market consequences. They create uncertainty, and make the UK a less attractive place to invest. Even when people do still want to invest, they raise the cost of capital, by increasing the perception of risk in whether or not the government has the political will to deliver.
But it’s not just the Government’s pronouncements that are the problem, it’s their policies too. The second reason the UK is falling behind our rivals in the race for a low carbon economy is simply this Government’s sheer incompetence.
The best example of that is their chaotic mismanagement of the reduction in the tariff level for solar power. No one disputes the need to reduce the tariff level. Not even the solar industry.
But the way this Government has handled the process – giving just six weeks’ notice, trying to bring the cuts into force before the consultation had even finished, changing the eligibility criteria so that nine out of ten homes would be excluded – has real implications for investor confidence.
Some people might think that in the grand scale of total investment in renewable energy, what happens to the solar industry isn’t all that important. I don’t agree. At a time when the economy is flatlining and unemployment is rising, we have to ask ourselves what sort of Government chooses to destroy an industry that is actually growing and creating jobs.
And when you look at Germany, which is still second in the world for investment in clean energy, in 2010, 88% of its clean energy investments were in solar, and 83% were in small-scale projects.
In any case, what’s happened to the solar industry in this country has implications for investment in the green economy as a whole. How can the Government encourage investors to support the renewable heat incentive, the green deal or any other green policies in the future, when a growing sector, built on a flagship policy that had cross-party support, was cut off at the knees with just six weeks’ notice?
Where investors expect clarity and certainty, this Government created confusion and uncertainty. This brings me to the third reason why the UK is falling behind.
The failure of the Government’s economic policies is having a knock-on effect for our ability to make the transition to a low carbon economy. Commentators often say that the construction sector is a barometer of the health of the economy; and new build is where new standards, new skills and innovation come into play. Yet Government policy has brought housing starts to the lowest levels on record; the Government has had a stop-start approach to public sector schools and road projects; and unemployment and squeezed living standards have reduced demand so people are not investing in home improvements. Just one measure – a cut in VAT to 5% on home renovation and energy efficiency, would provide an immediate fillip to all of those individual endeavours that green homes.
Labour recognises that when public money is in short supply, the Green Investment Bank could leverage private investment and drive economic growth. But plans for the Green Investment Bank are in limbo, because the government is set to borrow £158 billion more than they planned a year ago. The date at which we will have a proper functioning Green Investment Bank, with full borrowing powers, has slipped to 2016 at the earliest.
The Government’s claim that the Green Investment Bank is part of a strategy for growth looks pretty thin if by the time it is able to deliver any real investment, growth has already returned to the economy.
The longer we put off action, the costlier mitigating and adapting to climate change will become – and the economic prizes will have been surrendered to more adventurous nations. Of course, there are risks in pioneering new technologies and developing new industries.
But sooner or later, we will have to make a transition to a low-carbon economy. The UK Government has a legal obligation to cut our carbon emissions by 80% by 2050, and that requires a programme of action.
So the real question is not whether we make a shift from a high to low carbon economy, but when, and how we do it, and whether we do it in a way, and a time, that maximises the benefits to our economy.
There will only be a small window of opportunity to assert leadership in the years ahead. The world won’t wait for us.
The transition to a green economy, is as much about making existing industries greener, through energy efficiency, technological innovation and improving industrial processes, as it is about investing in new sources of clean energy.
The vast majority, if not all, economic activity in Britain, and across the world, will have to reduce its environmental impact significantly. The evidence suggests that those companies that do so, will gain economic advantages and reduce their energy overheads.
So what are the hallmarks of an active industrial strategy to bring about the energy industrial revolution?
There are five parts. First, unlocking private investment, by delivering on Electricity Market Reform and Government acting decisively and consistently. Second, better public procurement. Third, a strategy for skills for a low-carbon economy. Fourth, a rebalanced economy, supporting growth in our regions and encouraging manufacturing. Fifth, engaging the public and communities.
The first component of an active industrial strategy is unlocking private investment. In 2010, the private sector in the UK generated a surplus of £110 billion. But the total amount of investment in the UK in clean energy – by both the public and private sector – was just £2 billion.
Around a quarter of our existing electricity generation capacity will go offline in the next decade. Replacing those power stations is a once in a generation opportunity to secure our supply and deliver a cleaner, more diverse and more sustainable electricity mix. But it will require unprecedented levels of investment – perhaps as much as £200 billion in the next decade. To get that investment we need clarity and confidence in the future of low carbon technologies. Only Government can provide the credible long-term policy signals and the comprehensive policy framework that the private sector seeks. That’s why the Government’s Electricity Market Reforms are so crucial. Outside the proposals for EMR, we also need the Government to act decisively and consistently.
The second component of an active industrial strategy for green growth is better public procurement. In the current financial situation, no government can promise they will be able to drive investment by drawing on scarce public funds. But we can be smarter about the money we do spend.
Every year we spend nearly £20 billion on housing benefit. Housing benefit is paid towards 40% of private rented tenancies – and yet homes in the private rented sector are the least energy efficient. There are about 680,000 rented properties in England with the worst energy efficiency ratings of F and G.
The state should not be subsidising substandard housing, or lining the pockets of those irresponsible landlords, who fail to make sure their homes are warm and properly insulated.
By introducing a landlords’ register, as Labour has argued for and as many landlords support, you could ensure that housing benefit was only paid in respect of properties that met a decent standard of warmth and energy efficiency. It would mean landlords have to improve their properties. But it would also create a supply chain for installers delivering the measures and small businesses manufacturing them, and it could save tenants as much as £488 a year off their energy bills.
That’s just one way we can improve public procurement to support green growth and get better value for the money we already spend.
The third part of an active industrial strategy is skills. Take nuclear power as an example. There is a continued role for nuclear power in the UK as part of a more sustainable, balanced and low-carbon future energy mix. But we haven’t built a nuclear power station in this country since 1995. If we’re planning on building more, we need people to do it. Those people need skills and training, and if the plan is to build them in the next decade, those people are already in the education system. So we need a skills strategy in place now which reaches them – and provides all the other skills that a low-carbon economy needs.
The fourth component of an active industrial strategy is rebalancing our economy: supporting growth in our regions and in the manufacturing industry. We don’t just want to be a country that installs products from overseas. We want to manufacture them too.
Wind power is a good example. It is crucial to increase our renewable energy generation and cut our carbon emissions. It is our second largest source of renewable energy and we’re the world’s eighth largest producer. But UK wind farms import 80% of equipment and services from overseas. We have to do more to develop our own supply chain, supporting manufacturing in this country, rather than just in Germany and Denmark.
We can also rebalance our economy through an active industrial strategy, by identifying parts of the country to become the hubs for our new green industries. The Government’s answer is to let the market decide. But there are obvious places which have existing infrastructure, industries and skills that can be adapted in the transition to a low carbon economy. Many of them are old manufacturing centres and industrial heartlands in regions like Yorkshire and the Humber, the North-East and Scotland, as well as regions like the South-West and Wales for newer technologies such as marine power.
The economies in these areas are in need of revitalisation. An active industrial strategy would identify these areas, drive green growth in them and encourage clustering, so we share expertise, drive innovation and stimulate new businesses.
Clustering our new green industries would also be the strategic way to deliver the most cost-effective roll out of the 200 miles of transmission connections National Grid are planning on building over the next eight years.
The fifth, and final part, of an active industrial strategy is engaging the public and communities. Household energy consumption is responsible for nearly a third of total carbon emissions. The public can’t be passive spectators as we move to a low-carbon economy – they need to be active participants. But the proportion of the public who perceive climate change and other environmental issues as important, is not just low, but falling.
We have to engage the public to make their homes more energy efficient. The Government claim the Green Deal will be a “gamechanger”. But unless we use the Green Investment Bank to make interest rates affordable, people simply won’t take it up. The right incentives need to be in place.
We have to engage small businesses too, because the current plans for the Green Deal and the Energy Company Obligation mean it’ll be dominated by the big six energy firms – rather than the small businesses, co-operatives, charities and social enterprises we want to see taking part.
We have to support the public to take-up micro-generation, so they become energy producers as well as energy consumers. The Government has to end the constant meddling and uncertainty with Feed-in Tariffs and put them on a sustainable footing.
And we have to empower communities and local authorities. The energy companies literally can’t give away insulation. The community energy saving programme was meant to help 90,000 households. Two and a half years into the scheme, and with only a matter of months left, just 30,000 households have been helped.
The Government needs to empower councils and community groups and let them get on with improving energy efficiency and generating their own power. That’s one of the reasons I’m so strongly opposed to the Government’s cuts to the Feed-in Tariff, which will exclude community groups and social housing from having solar.
Since my appointment, the thing that’s struck me more than anything else is that Britain is not short of the capital, skills or technology to make the transition to a low-carbon economy. But this Government is short of the political vision.
As a result, we’re in danger of missing a golden opportunity. Not just to reboot our economy, but to build a more resilient, and responsible economy for the future – built not just on sustained, but sustainable growth.
But we need an active industrial strategy, focused on growth, skilled job creation and a revival of Britain’s manufacturing sector, which can be both clean and green.
As we rethink and review our policies, this is an opportunity for Labour, and more importantly, for our country – and it’s one I’m determined to seize.
Rt Hon Caroline Flint MP is Labour’s Shadow Secretary of State for Energy and Climate Change