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