A low-carbon modern industrial strategy

It is often claimed that to tackle climate change we must sacrifice some economic prosperity. The raw statistics clearly disprove this, and show that you can in fact have both. Between 1990 and 2014, the UK’s greenhouse gas emissions fell by 35%. In the same period, the UK’s gross domestic product increased by 62%. So strong growth can go hand in hand with climate change mitigation.

But we should go further than this defensive position. We should instead argue that decarbonisation is an economic opportunity. This claim has two parts. First, cheap, efficient, clean energy reduces costs for business and households. Second, our leadership in the clean technologies of the future is vital for securing the UK’s long-term economic prosperity. And this was the narrative that is resoundingly endorsed in this week’s green paper on the modern industrial strategy.

Reducing energy costs for business

Energy is at the heart of the industrial strategy, and was one of the ten pillars under the heading “delivering affordable energy and clean growth”. The first half of the chapter focuses on reducing the cost of energy for businesses. It is true that UK energy costs are higher than many industrial competitors: in 2015, average UK industrial electricity prices including taxes were the third highest in the EU, behind Italy and Germany. A 2016 PwC report found that this is primarily due to higher ‘commodity prices’, such as gas and coal. So in other words climate policies are not the main driver.

However, it is true that levies to fund climate change policies, like Contracts for Difference or Feed-in Tariffs, are a component of energy bills. To ensure these are minimised, the Government is now committed to carry out a review on the cost of decarbonisation.

It is essential that we cut emissions in the cheapest way possible to keep businesses competitive and households’ utility bills affordable. Current policy already reflects this principle: a fundamental provision of the Climate Change Act 2008 is that the Committee on Climate Change advises the government on how to cut emissions in the most cost-effective way.

What should the new government review focus on? One of the simplest ways for the Government to reduce energy costs would be to encourage homes and businesses to use less energy in the first place. To do this, government must leverage more private investment into energy efficiency and decentralised renewables. Bright Blue has called for the government to issue 'Help to Improve' loan guarantees. This would reduce the cost of financing loans below the rate offered by the private sector.

But as well as reducing demand, we need to decarbonise the supply and replace ageing power stations. As argued elsewhere on this blog, Ministers could reduce the cost of this new energy infrastructure by enabling mature technologies such as onshore wind and solar to compete for zero-subsidy, fixed-price contracts. The Conservatives’ 2015 General Election manifesto commitment to stop subsidised onshore wind developments can be respected if fixed-price contracts are awarded on a competitive basis to whichever energy is cheapest.

Supporting the industries of the future

Many conservatives are instinctively hesitant about government choosing which industries are likely to be successful in the future. The Government’s modern industrial strategy sought to address these concerns by focusing on providing favourable conditions for growth to emerging sectors, rather than offer direct financial support to incumbents. Instead of subsidies, the Government’s preferred policy levers are skills, institutions, infrastructure, research, and regulatory reform. Three low-carbon sectors get particular mention in the plan: battery storage, ultra-low emission vehicles, and nuclear.

First, Ministers have commissioned a review into a new research institution to enable the UK to become a global leader in battery storage. Bright Blue strongly welcomes this; in our 2015 report Green and responsible conservatism, we called on the Government to initiate a major research programme on storage. Batteries will be key for guaranteeing security of supply with a higher proportion of our electricity coming from variable renewables. There is also mounting evidence that storage will save consumers money on their bills, with a recent Carbon Trust report estimating a £2.4 billion benefit by 2030.

Second, the Government appointed Richard Parry-Jones, former chair of Network Rail, to conduct a sectoral review for ultra-low emission vehicles. The review will propose changes to regulation, tax, infrastructure, and other policies, which will form the basis of a ‘sector deal’. One of the regulatory changes government should consider is enabling all English cities to set up low emission zones in pollution hotspots. This would provide a nudge to urban motorists to swap their diesel car for a cleaner, electric alternative. Infrastructure improvements are needed too, which means, above all, increasing the number of rapid charging points. Bright Blue has recommended that the Government issue loan guarantees to private providers to reduce their cost of capital and encourage them to invest in new charging points.

Finally, a sector review for the nuclear industry to be carried out by Lord Hutton, chair of the Nuclear Industry Association, was announced. Tackling the shortage in STEM skills and technical education should be a priority for any nuclear sector deal. Bright Blue has argued that a lifetime tuition fee loan account, to enable anyone at any point in their lives to have the upfront funding to pay for any type of higher education, whether vocational or academic. The loans should be paid back through the PAYE system above a certain salary threshold.

The modern industrial strategy has set out a strong framework on which supportive policies to drive British industrial success can hang. That three of the five early sector deals announced were directly in the low carbon economy shows the industrial opportunity the government sees from emission reduction. Conservative peer Lord Deben has said that “economic self-harm would be to not have the Climate Change Act.” He’s right, and this week’s modern industrial strategy shows that the Government is in agreement too.

Sam Hall is a researcher at Bright Blue

Why conservatives should welcome the circular economy

Not many people have heard about the ‘circular economy’, and even fewer know what it means. But, among environmentalists, it’s increasingly talked of as a major new economic trend.

It’s a term that means different things to different people. But the core of the idea is resource efficiency, the idea of reusing and recycling materials, and maximising the economic value of the things that we produce. It is a move away from the linear economic model of ‘make-use-dispose’, and a way to promote sustainable growth in a future of resource scarcity and a growing global population.

Making the circular economy a tangible concept can be hard. In the Green Alliance’s 2015 report on the circular economy, they outlined some of the different examples of circular economy activities. These include:

·      Reusing. Using the finished product for the same purpose as it was originally manufactured (e.g. using a second-hand iPhone)

·      Servitisation. Using assets more efficiently, such as through leasing or short-term service provision (e.g. renting a room via AirBnB)

·      Recycling. Using recovered materials to create new products

·      Biorefining. Extracting useful, valuable material from biowaste

Domestically, ministers at Defra are supportive of the circular economy. In December 2015, the EU Commission published a new action plan on the circular economy, which includes new common targets for EU Member States on waste and landfill use. It’s something that will increase in importance, therefore, in the coming years. This blog will look at some of the evidence around the economic and environmental impact of the circular economy.

Economic

There are significant economic benefits for businesses of cutting waste and being more efficient in their consumption of resources. A circular economy approach can help firms reduce their costs and make them more competitive globally.

Last year, the Green Alliance analysed the impact of the circular economy on employment. They studied the performance of the waste and recycling industry between 2000 and 2010, a period in which landfill declined and recycling rates rose. During that time, employment in the sector increased from 75,000 to 130,000 people, and sales turnover nearly tripled, up from £6.5 billion to £19 billion. They also examined the potential for the whole circular economy up to 2030. They found that there’s the potential for between 54,000 and 102,000 net jobs to be created in that time.

As more resources are consumed and they become scarcer, businesses that rely on natural resources will become more susceptible to price volatility. The circular economy reduces businesses’ exposure to these price risks. The Ellen MacArthur Foundation, an organisation set up to promote the circular economy, has worked with McKinsey to quantify the benefits to businesses of being more resource efficient. They have found that, by reducing the amount of raw materials businesses need, the net material savings across the whole EU could be between $340-630 billion per year.

Environmental

As well as offering economic benefits to businesses, there are advantages to the environment of a circular economy approach. The circular economy recognises that some natural resources are limited. To achieve sustainable economic growth, countries cannot rely on infinite consumption of finite resources.

Many activities associated with the circular economy reduce greenhouse gas emissions, and therefore support efforts to mitigate climate change. For instance, recycling food waste rather than sending it to landfill reduces harmful methane emissions. Through the process of anaerobic digestion, food waste creates biogas, a low-carbon energy source that displaces fossil fuels.

Circular economy approaches can also reduce pollution that is harmful to the natural environment. For example, the Ellen MacArthur Foundation has produced a report on plastics and the circular economy. Eight million tonnes of plastic leaks into the ocean every year, adding to the total of 150 million tonnes of plastic that is in the ocean today. Plastics also represent about 6% of global oil consumption, and is thus a major driver of fossil fuels use. In a circular economy, these environmental impacts could be mitigated through greater recycling, greater use of reusable packaging, and the use of compostable packaging.  

Conclusion

The more the circular economy approach is adopted, the greater the scale of economic transformation is required. For instance, the Chatham House has argued that a circular economy implies the decoupling of rising prosperity with growth in resource consumption. This talk of economic revolution can make conservatives anxious.

The idea of a circular economy, however, shouldn’t be seen in such stark terms. Organisations like WRAP and the Ellen MacArthur Foundation partner with businesses to develop circular economy approaches that increase their profits. It can be a very practical way of reducing inefficient economic activity and improving the natural environment. Conservatives should ignore the hyperbole, and embrace the opportunity that it offers.

Winning the green global race

Conservatives care for much more than a strong economy, important though that is. Beautiful landscapes and diverse wildlife all have intrinsic value. They improve our quality of life, and conservatives should protect and enhance them.

However, the dichotomy between economic progress and safeguarding the environment is a false one. We are now seeing that the transition from polluting fossil fuels to sustainable energy sources offers a major economic opportunity. Policies to tackle climate change sometimes get framed as harmful for economic competitiveness. But countries that take a strong lead on environmental action can gain a competitive advantage in the new global low-carbon economy. Global investment in new green energy infrastructure is boosting economic growth and creating jobs.

A number of reports have come out in the past month, which have quantified the size of this green economic dividend. These include a major study by the Renewable Energy Policy Network for the 21st Century (REN21), a report by the International Renewable Energy Agency (IRENA), and a survey by the Office for National Statistics (ONS). This blog will highlight some of the principal findings.

Investment

Investment in global renewable energy in 2015 was $286 billion, according to REN21. This is an increase on the previous year’s total of $273 billion. It is also double the amount of investment that new coal and gas-fired power attracted over the same 12 months. In the rankings of countries for renewable power investments, the UK came fourth, after China, the US, and Japan.

A major milestone was achieved in 2015, as renewable investment in developing countries outstripped that of developed nations. Moreover, this crossover has occurred before the effects of the Paris Agreement in December 2015 have been felt, where additional finance assistance was pledged to developing countries to help them mitigate and adapt to climate change.

Employment

There were just over eight million jobs in the green economy globally last year, according to the IRENA data. Europe’s share of this green employment was 1.17 million in 2014. Following a 20% increase in solar installations around the world last year, solar energy is now the biggest green employer overall.

The latest ONS figures show that the UK’s green economy employed 238,500 people in 2014 and turned over £46.2 billion. Energy efficiency is the biggest employer within this sector, supporting 155,000 jobs. That statistic underlines the imperative for a successor policy to the Green Deal to ensure this market continues to thrive, which we will be exploring in the second report from our Green conservatism project.

Low-carbon transport makes up over half of the UK’s green export market, generating nearly £3 billion for the UK economy. This reflects the current strength of the UK’s automotive industry, which now manufactures and exports pure electric vehicles around the world. For example, the Nissan Leaf is produced for the whole European market in Sunderland. With news this week that there are now globally over one million electric vehicles on the road, the potential for growth in this sector is significant.

But do these green jobs outweigh jobs lost in other sectors, such as fossil fuels? The UK Energy Research Council produced a report last year examining this very question. It's clear that net employment is what matters in this debate, as government spending in a particular sector will always boost short-term employment. Their study found reasonable evidence the renewables sector is more labour-intensive than fossil fuels, both in the construction phase and the average lifetime of the plant.

The UK in the green global race

The low-carbon transition is happening across the world, and momentum is gathering. The issue is not whether the UK participates in this, but whether it leads and wins big shares of these important new markets. At the moment, the UK is in a good position. It was the first country in the world to put into statute a framework for cutting emissions and it is now the first developed country to phase out coal-fired electricity. The UK is also the world leader in offshore wind with the most installed capacity of any country.

In the last Parliament, the Prime Minister would often refer to the ‘global race’. In few sectors is the opportunity as great or the competition as fierce as the green economy. Conservatives should champion environmental policy, as it will help Britain succeed in winning the green global race.

Sam Hall is a Researcher at Bright Blue