Green policies could help move UK out of the red

The UK could slash its deficit by £12bn a year by scrapping tax breaks for carbon-intensive industries and halting investment in projects that will increase carbon emissions, according to a study from sustainable business think-tank the Green Alliance.

The report, which was commissioned by Greenpeace, the RSPB and WWF-UK, challenges the widely held perception that low-carbon policies always equate to increased government spending, arguing that the Treasury could enjoy substantial savings simply by limiting support for carbon-intensive sectors.

"This report is essential reading for all those who hope to be in power after the next election," said Stephen Hale, director of Green Alliance. "It outlines how we can save £12bn over four years, by eliminating damaging government spending on road expansion, tax breaks for high-carbon industries and other spending that increases carbon emissions. It’s an important ingredient of the transition we urgently need to a low-carbon recovery."

The report calculates that the Treasury could save £1.5bn over four years by adopting simple energy and fuel efficiency measures across the public sector.

More controversially, it argues that a moratorium on road expansion and reforms to the methodology used to decide if new roads are necessary could save £5.2bn, while abolishing tax breaks against the Petroleum Revenue Tax and the Climate Change Levy could save £2.9bn.

Similarly, imposing VAT on aircraft and ships, both of which are currently zero-rated, could generate £2.2bn in extra revenue for the Treasury while helping to curb carbon emissions.

Dr Doug Parr, Greenpeace chief scientist, urged all major parties to take on the lessons from the report. "We've got to stop handing out millions in tax breaks to the airline industry and approving roads instead of cleaner alternat ives," he said. "Britain can be a world leader in renewable technologies and low-carbon transport, but only if we stop bailing out the dirty industries of the 20th century."

His comments were echoed by David Norman, head of campaigns at WWF-UK, who argued that the report provided evidence that environmental groups were adapting to the new fiscal realities.

"The hole in the country's finances means, inevitably, that measures to support the environment and tackle climate change will come under pressure," he said. "This report is a grown-up response to this dilemma, and demonstrates that with a clear vision and sense of purpose, the UK can move towards a low-carbon economy without profligate spending."

The report comes just days after the Obama administration embraced similar proposals, setting out plans in the budget for 2011 that would slash subsidies for the oil, coal and gas industries by $2.7bn (£1.7bn), primarily by removing generous tax breaks.