Green growth: what do businesses want and what are they (not) getting?

business and industry, energy, Europe

Author(s):  David Nash
Published date:  06 Jun 2012
Source:  Public Service Europe

Is the United Kingdom government going all out for a green future or not? And what does business think? At the World Energy Summit in London, in April, British Prime Minister David Cameron said that the coalition government had achieved its objective of being the "greenest government ever". Yet, his remarks to the conference lasted a mere seven minutes and were dismissed by some of the business leaders who attended as a damp squib.

A year ago, the then Climate Change Secretary Chris Huhne announced that an ambitious 2030 target to reduce greenhouse gas emissions by 50 per cent on 1990s levels - in line with advice from the independent Committee on Climate Change - would be made law. But last month there were indications that the government was giving up on this commitment.

The UK government, it seems, blows hot and cold on green growth. And it is not the only government in Europe to do so. Indeed, in two new and related Institute for Public Policy Research reports - one looking at British industry and the other at the wider European picture - the 100 plus businesses we interviewed said that they wanted much clearer signals from governments over their plans to support low carbon growth. They felt there was a disconnect between the rhetoric of ministers and the policies they were pursuing.

This lack of clear direction is potentially a huge economic own goal. The global market for environmental goods and services is estimated to be $3.5 trillion and is growing by 4 per cent a year. And investment in low-carbon technologies and infrastructure offers one of the best pathways out of the current economic trough and into long term sustainable growth. By contrast, sticking to a high-carbon growth route is an untenable and costly policy for the UK in the long-run.

And it is not as if Europe and the UK in particular, cannot compete in the global markets for green growth. Indeed, the reports found that businesses in Europe were well placed to capture new market opportunities with British firms leading the way in developing electric vehicles, offshore wind, hydrogen fuel cells and breakthrough technologies such as zero-carbon cement. New clean-tech industries are sprouting up, while existing companies are switching their business models to take advantage of low-carbon technologies. Even for energy-intensive industries like steel, there are opportunities to tap into supply chains for clean energy infrastructure projects.

But these opportunities could be missed unless stronger and more stable policy signals from government and the EU, and an active industrial strategy to break down barriers to low carbon growth are pursued. At the same time, the coalition needs to take concerted action - rather than just a one-off token £250m tax giveaway - to support manufacturers feeling the pinch of rising energy prices. There is little evidence that carbon leakage is already occurring, but it might do in the future if energy costs continue soar and tailored incentives for energy-intensive firms to clean up their operations and develop more efficient technologies remain absent.

Among the measures we believe the British government and its European counterparts should be pursuing is a new Green Deal for small and medium-sized enterprises to help them save on their energy bills - while the UK's unilateral carbon price floor, which risks reducing British industrial competitiveness, should be scrapped with efforts instead focused on creating a central EU carbon bank to ensure greater stability in carbon prices for business.

A 2030 target to reduce emissions in the energy sector should be introduced to provide longer term investment signals, while serious consideration should be given to expanding the European Emissions Trading Scheme to include imported energy-intensive goods - in order to create a level playing field for European businesses in the global market. In addition, the EU's multi-year budget should be refocused away from inefficient agriculture subsidies and structural funds and towards more funding for low-carbon innovation. The idea that low carbon measures are a drag on growth is an outmoded concept. In fact - long-term sustainable economic growth, productive British businesses and an ambitious decarbonisation policy go hand-in-hand. It is time for the UK government, with others in Europe, to come out loud and clear - in word and deed - for green growth.