IPCC Report: Wrestling with the green utopian-dystopian paradox

31 Mar 2014

Hurricane from a satellite's view

I often joke that editing BusinessGreen is like conducting my professional life in a permanent state of cognitive dissonance, although if I'm honest it is less a joke, more an insight into the ongoing psychological tension endured by all environmentalists.

Every day we run stories about both the exciting clean technologies and business models that can deliver a genuinely sustainable global economy and the rapidly escalating environmental risks that threaten the collapse of that self-same global economy. Given that green economic progress is predicated on an awareness of the viable low carbon technologies that are available and the risks we face if we fail to deploy them, we typically try to maintain a balance between these two competing visions of the future. It is this green utopian-dystopian paradox that results in the cognitive dissonance that characterises so many environmentalists as they simultaneous accept that we are on the brink of a green economic breakthrough and probably doomed to a century of climate misery.

However, it is all but impossible to look at the Intergovernmental Panel on Climate Change's (IPCC) latest climate impact report and be anything other than daunted and dispirited by the scale of the challenges we all face. There are so many terrifying predictions - all backed with the level of credibility and certainty that comes with the knowledge that this is the most peer-reviewed scientific exercise in history - that it is hard to know where to start. But here are a few of the more worrying warnings from the world's leading scientists: food supplies are already being impacted by climate change; wheat yields are expected to fall two per cent a decade; yields of some key crops could fall 25 per cent by mid-century; fish catches in some areas could fall 60 per cent; food prices may soar by 84 per cent by 2050; coastal cities will face escalating flood risks; extreme weather impacts will become more costly and frequent; climate change is likely to fuel conflict; oh, and your coffee will taste worse.

This litany of escalating climate risks is scary as it stands, but it becomes even more horrifying when you consider two factors that are rarely given sufficient weight by climate change commentators. Firstly, the scale of prospective impacts is so severe that they only have to be half right for the global economy to be facing a serious problem - and the world's finest scientific minds are absolutely convinced they are much more than half right. And secondly, the impacts are already with us and are escalating fast. The days of scary predictions that will affect the world in 2100 are gone. We are talking about scary impacts by mid-century, which means anyone under 50 has a reasonable chance of experiencing them. Today's report confirms anyone born in the past 10 years is staring down the barrel of some potentially catastrophic climate risks during the second half of their lives.

The fact that there are still people who wish to downplay these risks is laughable, although any laughter this sad reality prompts should be contemptuous in its nature. That editors of influential newspapers can read the latest IPCC report and decide to run with the angle that a warming world will lead to a boom in Arctic tourism is mind-boggling. That some media commentators, political leaders, and corporate bosses can continue to give house room to reckless and discredited arguments about net benefits from climate impacts or dubious debates about the merits of delaying efforts to reduce climate risks is a disgrace. The impacts we can expect from climate change are too wide-ranging and too severe to justify a watering down of efforts to tackle climate risks, no matter how much those who advocate a do-nothing or do-next-to-nothing approach argue to the contrary.

Political leaders, business leaders and investors need to ask themselves who they want to believe when it comes to assessing climate change risks, the UN, the Royal Society, US Defense Department, NASA, the world's largest insurers, and every major national scientific body in the world, or the tiny rag tag bunch of keyboard warriors, contrarian academics, and shadily funded libertarian 'think tanks'?

However, while it is tempting to succumb to pessimism or rail against those who are even now scouring the IPCC report with the sole aim of identifying an angle they can spin to suggest climate impacts will not be that bad, neither response will help political and business leaders deliver the response that is so urgently required.

The one question the latest wave of climate warnings should prompt is, what can we do?

Green business leaders, politicians and environmentalists need to wrestle the green utopian-dystopian paradox back into a position of balance, and from there break it completely by delivering the optimistic sustainable future that remains entirely possible. There is mounting evidence that this can be done. It is notable that this IPCC series of reports will include a detailed study later this year of the clean tech response needed to slash emissions. There is also a clear shift in the rhetoric accompanying today's report, with IPCC working group co-chair Chris Fields acknowledging that climate change is a "downer" and that there is a need for a greater focus on the "real opportunities for 21st century innovation" offered by the response to climate change.

This optimism is fuelled by the rapid progress clean technologies and green businesses have made over the past few years. Ever since the global financial crisis hit predictions have been made that the green economy would be derailed, instead it has gone from strength to strength as investment has ticked upwards, clean technologies have matured and fallen in price, and political leaders have maintained, and in some cases strengthened, their commitment to climate action. As The Telegraph's Geoffrey Lean observed over the weekend, the build up to the next major UN climate summit in Paris next year is being characterised by a cautious optimism that the US and China are edging towards an agreement to slash their greenhouse gas emissions.

What can businesses do in response to the IPCC report? They can do everything in their power to fuel this optimism by factoring climate risks into their investment decisions, rapidly mobilising investment in cost effective clean technologies, such as energy efficiency measures, renewables and electric vehicles, enhancing the climate resilience of their operations and supply chains, supporting green R&D, and using their political leverage to demand economy-wide policies that aid decarbonisation. There are pioneering multinationals and green business start-ups on every continent that have already established best practices on all of these fronts, which can now be relatively easily embraced by their peers. Faced with the risks presented by the IPCC, this is nothing more and less than the sensible course of action for any business.

At an individual level it is inevitably far harder to have an impact on a problem that is global in its nature, but that is not to say that people cannot take action. You can and should seek to reduce your climate impact, be it through eating a bit less meat, avoiding a few more flights, investing your money in a responsible fashion, or using your purchasing power to reward green businesses. But arguably the biggest impact individuals can have is in talking openly and honestly about the risks we face. Put climate resilience and energy efficiency on your agenda at work, write to your MP about your concerns, ask about where your pension is invested, complain to your newspaper if they seek to mislead you about climate impacts. It is only by creating a large and vocal constituency for climate action that we will provide businesses and politicians with the confidence they need to deliver that action at scale.

Is this enough? Will it deliver the step change in global emission reductions and climate resilience investment we need to combat the potentially catastrophic risks our agricultural systems face? Looking at the IPCC report it is hard to be optimistic, but on days like today it is worth recalling a blog post last year from the inspiring US environmental commentator David Roberts on the subject of "hope and fellowship". In it he argued that while the scale of the climate threat is daunting in the extreme, we can draw hope from the fact economic and technological change is "non-linear", rapid and unexpected transformations in the way we live our lives can and do happen. Hope remains that clean technologies can deliver just such a revolution.

And even if they don't, that does not mean we should stop trying. As Roberts argued: "Remember, there is no 'too late' here, no 'game over' - it will be a tragedy to shoot past 2 degrees to 3, but 4 is worse than 3, and 5 is worse than 4. Being unprepared for any of those will be much worse than being prepared. The future always forks; there are always better and worse paths ahead. There's always a difference to be made."

For today, pessimism is in many ways the only rational response to the IPCC's warnings. But those fighting for a green economy cannot wallow in that pessimism for too long. The green utopian-dystopian paradox can be broken, we don't have to live in a state of cognitive dissonance. It is not too late to choose the right fork in the path.

Could Siemens deliver the clean energy watershed the green economy has been waiting for?

25 Mar 2014

Digital image of Siemens plans for Green Port Hull offshore wind turbine manufacturing plant

At last. After four long years of speculation and consternation, planning applications and policy U-turns, Siemens today confirmed it will invest £160m and create 1,000 new jobs through its "Green Port Hull" project. It is a "massive vote of confidence", "excellent news for the people of Hull and the Humber", "a huge boost to the UK renewables industry", and "a major coup for the British wind industry". For once, the breathless plaudits feel justified, this really is a very big deal for the UK's green economy, and by extension, the economy as a whole.

The implications of Siemens decision to locate a flagship manufacturing wind plant in the UK are two-fold: practical and symbolic.

On a practical level this is arguably the biggest single boost to the renewables industry since the dog days of the Brown administration were marred by Vestas' decision to slash its wind turbine manufacturing operations on the Isle of Wight. The decision to locate a large scale turbine manufacturing plant in the UK will not only help to maximise the economic benefits from the UK's planned expansion of its already world-leading offshore wind fleet, it will also help cut the costs of that fleet, reducing the impact on bill payers.

This promise of lower cost turbines, helps break the chicken and egg conundrum that has seen manufacturers stall decisions on locating new plants in the UK over concerns about the scale of the market they will serve, at the same time as experts have warned the market can only be maximised if domestic plants help bring down the cost of offshore wind energy. As Siemens' Matthew Knight explained to BusinessGreen a few weeks ago, the company could only justify the investment if it was confident that a sizeable offshore wind market of around 12GW to 14GW would be built by the end of the decade. Confirmation that Siemens fully anticipates healthy growth in the market - and has almost certainly received encouraging signals about future orders from developers - provides a hugely encouraging signal for the wider market.

This signal should drive efforts to develop an even stronger engineering skills base in the north east and help mobilise further investment in the supply chain that will serve Siemens' new factory. Moreover, if Siemens is confident that a large scale market for its turbines is developing then there is a greater chance that other manufacturers will follow suit and move forward with their promised investments in Scotland and the north east, creating a wider domestic supply chain and market competition that will only serve to drive down costs further.

There are legitimate complaints to be made about why it has taken four years to deliver a decision on such a strategically important project, and detractors will rightly point out that we are still a long way from delivering the comprehensive wind energy supply chain that will serve to maximise economic gains and exports from the industry. It will take years to correct the decades of political and policy errors that have left the UK importing so many of the clean technologies it needs to deliver decarbonisation.

But Siemens plant promises to play a major role in correcting some of those errors, in part through the practical impact of its investment, and, perhaps more importantly, through the symbolic power of the UK finally playing host to a flagship renewable energy manufacturing plant.

Rightly or wrongly, symbols matter. Yesterday afternoon, I chaired an event for the Sustainable Energy Association on the potential implications of next year's election during which business leaders from across the energy efficiency and onsite renewables sectors bemoaned the way in which green improvements in the built environment were not treated as a national infrastructure priority. We all know energy efficiency improvements represent the most cost-effective means of cutting carbon emissions and enhancing energy security, but political and corporate leaders all too often have their head turned by the excitement and prestige offered by big green infrastructure projects. It is these projects - projects like the London Array, Hinkley Point, and now Siemens Green Port - that create headlines and photo opportunities, and as such they can tend to marginalise the smaller scale localised green improvements that will also prove crucial to the green economy.

This is a problem that needs to be addressed, but in doing so it would be wrong to dilute the symbolic power of these big green projects. In one swoop Siemens has demonstrated that one of the world's biggest engineering conglomerates trusts the UK's Climate Change Act and Energy Act and is confident that a transition to a lower carbon energy mix will be delivered over the next two decades, regardless of the noises off from the right wing of the Conservative Party. Others will now feed off that confidence.

The company has also provided a boost to an emerging constituency that will champion the green economy in the coming years. With Siemens factory joining Nissan's Leaf manufacturing line in Sunderland and plenty more renewable energy projects planned along the east coast it will be a brave politician from that part of the world that starts to talk down the low carbon transition - their constituents' livelihoods depend on its success. Making the green growth that economic data shows has been building for much of the past decade more visible and tangible, will only serve to reinforce political and policy support for the sector.

It will also serve to generate tax receipts. Much has been written about the Treasury's instinctive and ideological support for oil and gas, but Number 11's institutional fixation on fossil fuels is driven by the historic boost to tax revenues the industry has provided. By showing that large scale clean tech facilities employing thousands of people can generate taxes and economic growth too, Siemens and its peers will help to tilt the balance of Treasury power towards the green economy.

Most of all though, it is clean tech factories from the likes of Siemens and Nissan, coupled with solar panels from the likes of IKEA and Sainsbury's, and backing from the likes of the CBI and all three main political parties that demonstrates that a large scale low carbon economy is both possible and in the country's economic interests. Symbols matter and a bellwether project like Siemens new factory sends waves through a sector in a way that has a wider impact than the simple investment alone, welcome as it is. In offering such a ringing endorsement to the UK's green economy, Siemens has not only served to create more jobs and economic growth in a region that needs both, it has also served to make the economy-wide green transition we urgently need more likely.

Budget 2014: The need for a real green industrial policy has never been clearer

19 Mar 2014

Chimney emitting pollution at Conesville power plant

It would be easy to join the chorus of green anguish prompted by Chancellor George Osborne's Budget for polluters; easy and hugely tempting. After all, this was a budget that made no mention of climate change, despite the fact the Prime Minister regards it as "one of the most serious threats" the UK faces. A budget that promises to wring "every drop of oil we can" from the North Sea, despite the fact climate scientists are near united in warning we have to start leaving fossil fuels in the ground. And a budget that froze the government's largest carbon tax, despite the fact it was Osborne that introduced the measure, it was the government that promised policy stability for clean energy investors, and it was clear that the move will tilt the energy market in favour of carbon intensive coal-fired generation.

The floods and the debate they sparked have evidently been completely forgotten, this felt like the dirtiest budget of this parliament.

However, while there would be a certain cathartic pleasure in raging against a Chancellor whose public stance towards the green economy alternates between indifferent and hostile, the reality is that the energy policy changes announced today will go ahead. The huge £7bn support package handed to energy intensive industries will be delivered and the freeze in the carbon price floor will undermine investment in clean energy and lead to increased reliance on coal power.

This begs two important questions for the green economy. The first is the perennial question as to how can the clean energy and low carbon sectors can convince political leaders of all shades of their long term merits, while continuing to deliver the steep cost reductions that will allow them to maximise investment over the coming years? The second is how do we develop a real green industrial strategy that ensures that despite the carbon tax freeze and the hefty compensation measures offered to carbon intensive businesses the UK continues to make the transition to a low carbon industrial base?

Speaking to a government source earlier today, they downplayed the risk that the Budget would undermine decarbonisation efforts and allow a renaissance for coal. The carbon price floor freeze and accompanying compensation was justified because of competitiveness fears, they argued, and besides, even if the economics of coal do now look more attractive the UK's overarching carbon budgets mean we have to deliver deep cuts in emissions through the mid-2020s and beyond regardless of today's changes.

That is all well and good, the carbon budgets are designed to deliver exactly that long term certainty. But Osborne's assault on energy costs raises serious questions about how we comply with those carbon budgets when one of the main policies for driving the transition from coal to cleaner energy has been watered down and the financial pressure on industry to curb energy use has also been diluted.

The Budget makes it clearer than ever that the UK (and indeed all other industrialised countries) desperately needs a much more ambitious strategy for cutting emissions from those heavy industries that will always struggle with high energy costs. Encouragingly, there is some work underway in this area. The UK is slowly edging forward with its much-delayed £1bn carbon capture and storage project and the Chancellor's promise of a carbon price floor tax break for manufacturers who install ultra-efficient combined heat and power systems shows how compensation measures could be used to drive investment in cleaner technologies.

Moreover, manufacturers' association EEF revealed last year how industry is working with government on a series of ambitious decarbonisation research and development roadmaps, designed to explore how heavy industry can deliver the steep emission reductions needed in the coming decades.

However, it is fair to say that industry lobbying for increased support for low carbon R&D has been nowhere near as vocal as it has been throughout the ultimately successful campaign to secure cuts to carbon taxes and increases to compensation payouts. UK R&D spend across the industrial and energy industries continues to lag behind many other nations, which is even more worrying than it sounds when you realise global R&D spend is still failing to deliver the scale of emission reductions we need. Many executives within the industrial community are fully committed to delivering a low carbon transition, but it is self evident this transition is not happening fast enough. Does anyone have confidence that the majority of industrial firms will now take the increased compensation they have just secured and invest a large chunk of it in the next generation R&D and technologies that will ensure they comply with the UK's long term carbon targets?

It is clear that Osborne had to do something about the threat to competitiveness posed by energy costs that were in danger of accelerating away from those enjoyed by international rivals. But what is so concerning about the budget is the manner in which he watered down key policies that were helping to drive the transition to the low carbon economy but offered no new measures to compensate for the boost offered to coal power and heavy industry.

Where was the tightening of the emissions performance standard to ensure coal really does start to go offline? Where was the increase in support for renewables, nuclear and gas to ensure planned investment is not eroded by the effect of a lower than expected carbon price floor? Where was the increased funding for CCS and low carbon manufacturing R&D to ensure that, despite the weaker price signal, investment in cutting long term emissions remains an absolute priority for heavy industry?

All of this was missing, as ultimately this Budget proved once again that we have a Chancellor who has little interest in tackling climate risks, driving green investment, or building a truly resilient economy. And that is worth complaining about.

Budget 2014: Where is the climate of urgency?

19 Mar 2014

Chancellor of the Exchequer George Osborne

It would not be unreasonable to expect today's Budget to be the greenest in years. After all, less than a month ago the Prime Minister responded to the terrible floods that hit the country by declaring that "man-made climate change is one of the most serious threats that this country and this world faces". Moreover, Chancellor George Osborne, for years regarded as sceptical about the merits of the green economy, declared that he wanted to see more action to tackle climate change, albeit with a renewed focus on cost effectiveness.

With Cameron due to travel to Brussels tomorrow to make the UK's case for a binding EU-wide emissions reduction target of 40 per cent by 2030, you would expect the Prime Minister to want to use the Budget to underline how the government is responding to "one of the most serious threats that this country and this world faces", just as you would expect the Chancellor to want to provide guidance on how he plans to map a cost effective path towards meeting the tough new emissions targets the UK will soon face.

This would be an entirely consistent and responsible course of action. As Matthew D'Ancona argued recently (and I make no apologies for quoting once again one of the most important and concise demolitions of Cameron's green leadership): "If the PM truly believes that anthropogenic global warming is responsible for potentially catastrophic changes in the weather - then it ought, logically, to be his priority, more important even than economic recovery. One cannot be "pragmatic" or "in favour of sensible compromise" about a threat to the survival of the human race."

So it would not be unreasonable to look forward to a Budget today that does everything within the Treasury's power to accelerate action on climate change and support the transition to a greener economy. Osborne could highlight the increased funding for clean energy made possible through the Energy Act, champion a decision to reverse spending cuts for flood defences, and provide a compelling explanation of how he plans to mobilise more clean tech investment, while minimising costs, perhaps through an increased focus on energy efficiency and carbon pricing. And that would just be for starters, he could also talk up the soon to be launched Renewable Heat Incentive (RHI), reference the surge in solar investment that has been seen in recent months, announce new incentives to support the Green Deal, confirm the Green Investment Bank will be allowed to borrow, promise new tax breaks for clean tech manufacturers, and, most important of all, deliver an unequivocal signal that meeting ambitious long term emissions targets is non-negotiable for the UK by cancelling the review of the fourth carbon budget.

However, the chances of such an unalloyed green Budget being delivered are about as likely as Osborne announcing a reversal of his beloved 50p tax cut. It would not be unreasonable to expect a green Budget given the Prime Minister's recent rhetoric and the UK's long term climate change goals, but sadly it would still be deluded.

The reality is that while Osborne may deliver some moderately encouraging green announcements today - we already know there will be more money for flood defences and that a £50bn list of infrastructure projects seeking private investment will include numerous low carbon projects, while the RHI, Green Deal, increased compensation for energy intensive industries, new garden city, and Green Investment Bank could all get a name check - the biggest announcement impacting the green economy is still set to be the heavily trailled and highly retrograde decision to freeze the carbon price floor. Meanwhile, any hopes for a new wave of green policies from the government are likely to remain firmly locked in cold storage until after the election. He may have recently flirted with acknowledging man-made climate change is a problem, but Osborne's utterly transparent attempts to woo the right of the party in preparation for his inevitable leadership challenge means any mention he makes of green issues will be couched in the language of "competitiveness" and "cost effectiveness", which his supporters rightly or wrongly interpret as code for a deep-seated scepticism towards current green policies.

The potential impact of any carbon price floor freeze on coal emissions and clean energy investment has already been widely discussed, with RenewableUK warning this week that a decision to tilt the economics of the energy market further in favour of coal and away from clean energy could see around £4bn of renewables investment put at risk. Unless, Osborne has an as yet unheralded surprise measure up his sleeve to either stick with plans to increase the carbon price floor or mitigate the impact of a lower tax on clean energy investment the move will lead to higher emissions.

Arguments that the changes would have a negligible impact on overall emissions because the UK is part of the EU emissions trading scheme (ETS) would have more credibility if the ETS wasn't in such obvious need of widespread reform. Increased UK emissions resulting from a frozen carbon price floor would end up resulting in a slight reduction in the oversupply marring the market, but that could in turn allow the EU to retire fewer allowances when it eventually gets round to reforming the scheme. A functioning ETS would minimise the impact of the carbon price floor freeze, but with reforms to the scheme on-going it is entirely plausible that EU emissions would end up increasing overall as a result of Osborne's expected decision.

A lower carbon tax also encourages more coal plants to fund the air quality upgrades that would allow them to exploit the emissions performance standard loophole the government deliberately left open in last year's Energy Act, providing a route for more coal power stations than had been expected to continue to operate well into the 2020s. 

However, the decision to freeze the price floor would have further negative impacts beyond the immediate effect on emissions. The move would both overshadow the positive green policies the government has introduced in the past year and in changing a policy Osborne himself only introduced two years ago it would drive a proverbial coach and horses through promises that the long-awaited Energy Act would finally deliver some much needed energy investor certainty. Even those lobbying for a freeze in the carbon floor price must accept that changing such critical long term policies every two years does not constitute good governance, particularly when there has been no fundamental change in the circumstances surrounding the policy and all the concerns people had with it were obvious before it was introduced. The move further highlights how Osborne's political machinations all too often result shambolic policy-making.

In addition, it distracts from the real and serious debate over how to tackle the competitiveness issues faced by energy intensive industries as we transition to a low carbon economy. Industry needs targeted compensation to help cope with higher energy costs and reduce the risk of "carbon leakage", just as it needs support to ensure that it is investing adequately in developing the next generation technologies that will allow heavy industry to cut its greenhouse gas emissions. But by simply cutting energy taxes whenever industry lobbyists come knocking Ministers dilute the price signal that should encourage such investment, undermine the effectiveness of targeted compensation measures, and slow the transition away from dirty coal power.

It also creates the impression that whenever incumbent carbon intensive industries step their lobbying up a gear they get what they want. Ahead of the last Autumn Statement energy companies successfully got the government to water down its flagship energy efficiency scheme, despite the fact the resulting cost savings for billpayers were negligible and efficiency improvements represent the most cost effective way of tackling fuel poverty and reducing emissions. Ahead of this Budget industry appears to have successfully convinced the Chancellor that in addition to providing compensation measures to help address competitiveness issues he also needs to freeze carbon taxes. It is a safe bet the same approach will be repeated later this year with further calls to cut "green levies" and taxes, once again unaccompanied by any serious alternative proposals on how deep emission reductions can be achieved. The Chancellor's weakness in the face of this lobbying further fuels green investor fears that when the pressure comes on environmental policies are always at risk from the Treasury's axe.

However, the row over the carbon price floor is a function of a wider weakness in the government's current green economic plans, which is also expected to be much in evidence in today's Budget. Namely, the growing sense among green business leaders that the coalition is - if not running out of ideas exactly - then certainly starting to wind down. It is my understanding that following the passage of the Energy Act DECC had no big requests in front of the Treasury for this Budget. Meanwhile, Defra's ambitions for the rest of this parliament at times appear limited to hoping it does not rain too heavily and finding a more efficient way to kill badgers. There is much still to do in terms of delivering electricity market reform, sorting out the Green Deal, mobilising clean tech investment, and pushing through a long-awaited water bill, but the new policy thinking that is required for the next phase of the UK's decarbonisation journey is now firmly focused on manifesto commitments and the next parliament.

One of the merits of Cameron's decision to impose fixed term parliaments of five years was that it did promise a greater degree of political and policy stability for businesses. But with 14 months still to go until the next election many business leaders will be forgiven for wondering if four year terms might have proven more effective than a five year terms that will inevitably be characterised by policy drift and political manoeuvring during its final year. When you are dealing with "one of the most serious threats that this country and this world faces" can you really afford what risks becoming a year-long hiatus in policy thinking and delivery.

It would be nice to think that before the end of this parliament George Osborne would be able to deliver an unequivocally green Budget fully in line with the government's environmental goals. But it is not going to happen, in part because it is not in the Chancellor's nature and in part because Cameron's five year terms mean the UK's next wave of ambitious green policies will now not be delivered until 2016 at the earliest.

Lobbying against the carbon floor price is lobbying for more coal power

05 Mar 2014

coal-transfer

British industry really hates the carbon floor price. I mean really hates it. Martin Temple, chair of the EEF, spoke for many manufacturers last night when he eviscerated the government's energy policy, calling for urgent action to tackle "the raft of green levies and charges that push bills up above almost any other nation in Europe". His chief executive, Terry Scuoler, went further still suggesting the organisation's lobbying over energy costs was its most vigorous political intervention in decades.

Both the EEF and the CBI have now mobilised their biggest lobbying guns in calling for a freeze in the carbon floor price, an extension to the compensation fund for heavy industry, and, perhaps most ominously for the government's green energy policy framework, a full review of the impact of other green policies, such as the Renewable Obligation. Anyone hoping that the flood-induced renewal of the political commitment to tackling climate change might translate into some climate policy consensus has very quickly been left disappointed.

Of course, neither the EEF nor the CBI are against action to tackle climate change, quite the opposite. Both organisations stress that they remain fully committed to decarbonisation and the building of a low carbon economy, at the same time as opposing many of the flagship policies designed to deliver exactly that. This is not necessarily the contradiction it sounds. There are plenty of legitimate criticisms that can be made about the government's low carbon policy framework and there are valid concerns about the way in which high UK energy prices could result in "carbon leakage" as companies move overseas in pursuit of lower energy costs.

Many environmentalists, myself included, have huge respect for the transformation that has taken place at the CBI and the EEF with regards to environmental issues over the past decade. Both organisations understand the need to build a low carbon economy and have undertaken numerous important initiatives to help support its development. The UK is lucky to have progressive mainstream business groups that are a million miles away from the corporate dinosaurs of the Sir Digby Jones era - anyone doubting that should look at the unreconstructed lobbying against any and all environmental regulations undertaken by many of the CBI's US and European cousins.

But the simple fact is that the proposed freeze in the carbon floor price that the CBI and EEF advocate would result in the UK burning more coal, increasing emissions, and weakening the investment case for clean energy and energy efficiency. How can a government that is committed to cutting emissions and driving green investment countenance such a move?

Like so many critics of environmental policies, the CBI and the EEF are much better at diagnosing policy problems than they are at prescribing serious solutions. That is not to say that there aren't problems with the current approach, the most obvious of which being the impact of energy costs on competitiveness. But the question has to be how can that problem be addressed while we continue to cut emissions and drive green investment? Not which green levy can we get scrapped in this budget?

The CBI and EEF have said they want the carbon price floor frozen and more cash found to help industry cope with the impact of the frozen levy. But such a move would require answers to numerous questions if it is to go ahead. How do you stop emissions increasing as coal becomes more attractive? What, as Policy Exchange's Guy Newey has pointed out, do you do about the impact on clean energy investment - introduce yet more technology-specific subsidies? How do you ensure that yet another change to carbon prices doesn't torpedo long term investor confidence at a time when we need to mobilise £110bn of investment in clean energy? What, having frozen the carbon floor price, do you do about the fact that European energy prices are still structurally higher than they are in the US and China - cut yet more taxes? Politically, how do you convince the Lib Dems to sign off on a policy that will tarnish their green credentials just over a year from an election? And where, given that it has repeatedly cut corporation tax, does the business community think the cash-strapped Treasury should raise the revenue that it would have got from the increasing carbon floor price? Income tax? VAT? Capital gains? Thought not.

To my mind the CBI and EEF are yet to provide credible answers to any of these questions. However, that begs another question. What does an environmentally responsible industrial strategy actually look like? How do you address the real problems presented by competitiveness issues - and anyone doubting that they exist should have heard Temple's tale earlier this week of a steel plant with a £75m energy bill that is set to rise year-on-year and which increases by £1m every time it miscalculates the so-called Triad mechanism and keeps operating during peak periods - without compromising emission reduction efforts?

The obvious answer put forward by the CBI, the EEF, and others is to sort out the EU emissions trading scheme (ETS) and deliver an international treaty that ensures all nations are doing their fair share to cut emissions. The government should be doing all it can to deliver on both of these fronts, but even in the best possible best case scenario a reformed EU ETS and global climate change deal is not going to come into effect until 2020. In the meantime the government should be looking to ramp up green ambition domestically, not water it down.

So what can be done? The first step should be to continue to increase the carbon price floor as planned, in order to encourage a shift away from coal generation and drive investment in clean energy and energy efficiency. But that commitment should be accompanied by an explicit pledge, potentially legally backed, to retire the tax as soon as the EU ETS is adequately reformed.

Such a move would help drive continued investment in the low carbon transition, but it would also result in worsening competitiveness issues. As such the government needs to get a better sense of what these issues are and draw up a plan to deal with them. I know the British political class is often accused of a having a nasty case of inquiry-itis - the tendency to hide behind a public inquiry whenever a tough political decision has to be made. But the debate over the extent to which green policies impact industrial competitiveness is characterised by so much smoke and mirrors that a full independent inquiry would prove extremely useful. There are too many anecdotes about unnamed companies being hit by high energy costs or considering leaving the UK, and not enough hard and fully independent evidence about the true impact of these policies and the relative energy costs in other countries. Such a review could also look at whether it makes sense to consolidate the numerous different carbon taxes imposed on companies and assess how the Triad mechanism can be improved using smart grid technologies to better manage peaks in energy demand.

Where there is evidence of real and compelling competitiveness pressures relating to energy costs (and remember energy is not the sole issue that determines competitiveness) the government should extend and increase the compensation funding available for affected companies. The fact is Germany's industrial sector benefits from much more government largesse to help it cope with high energy costs and the British government should not be penalising UK firms attempting to compete with Europe's manufacturing powerhouse.

You could argue that it is inefficient to increase a tax on carbon only to increase the compensation to help companies cope with the increased tax. But it is better to address competitiveness issues where they arise, rather than offer blanket benefits to coal power plants and industrial facilities that have no intention of relocating and can cope with the higher carbon price by investing in new technology.

Moreover, a government that is truly committed to building a low carbon economy could earmark some of the compensation fund to support the kind of tax breaks, incentives, and research and development spending that is needed to develop the next generation green industrial technologies that are required to deliver real decarbonisation. The EEF is already doing some fascinating work in this area to identify the new technologies that will be needed to cut emissions from key industrial processes, while Interface's New Industrial Model highlights how manufacturers can cut emissions and embrace clean technologies in a cost effective manner, but initiatives like this undoubtedly needs more financial support.

Unfortunately, this approach begs one final question - how to fund it? That, ultimately, is the question that makes life in the Treasury so challenging. But if the UK is committed to both decarbonisation and not hampering its industry with uncompetitive energy costs then the cash has to be found from somewhere. Recycling some of the increased revenues from the carbon floor price is an option, as is throttling back on the generous tax breaks handed to the oil and gas industry or actually delivering an increase in fuel duty at a time when our cars are more efficient than ever? Giving the perennially promised tax avoidance crackdown some real teeth could also deliver real results.

Either way, the Chancellor will need to find the money from somewhere, because in doing so he could go a considerable way to winning over both the green economy and the energy intensive industries that are currently so angry with his carbon floor price.

ABOUT JAMES' BLOG

Previously known as the BusinessGreen Blog, James' Blog features musings, observations and occasional rants from BusinessGreen editor James Murray

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