It has been a good few weeks for the green economy; now business and political leaders need to build on their recent momentum
It has been a good few weeks for the UK's green economy. The green bond and green IPO market is warming up nicely, investment in solar farms is booming, renewable energy output is soaring and the EU is poised to introduce major new green corporate reporting rules that will only benefit progressive businesses. Yes, there are concerns over the future of offshore wind, biomass and nuclear projects and, yes, EY's report showing the UK slipped down the league table for attracting clean energy investors is worrying, even if we remain in the top five locations for investment. But speaking to green business execs since the turn of the year, it is evident that the combination of an improving economy and an improving policy environment means there is more confidence in the sector than at any point in the last five years.
Moreover, as today's report from the Globe group of legislators proves, the UK is not alone. More than 60 countries made progress with climate change legislation last year and there are now nearly 500 "climate laws" on statute books around the world. With President Obama promising more ambitious action on climate change, the EU committing to cutting emissions at least 40 per cent by 2030 and China's government increasingly concerned about the smog crisis gripping the country, more favourable clean tech policies are on the way in the world's biggest markets. The green economy is about to have "a moment". It is "a moment" that is likely to last decades.
Best of all for British firms, the UK's political class is finally talking about climate change again with the three main parties competing to present the most compelling approach for tackling the problem. It is depressing that it has taken major floods and the wettest winter on record to convince the party leaders to talk about an issue they all agree represents a serious and escalating threat to British prosperity and security, but those committed to building a more sustainable clean economy will take succour wherever they can find it.
The past few weeks has seen Labour's Ed Miliband finally give voice to his long-standing commitment to tackling climate change, while also asserting that it is Labour, with its plans for a decarbonisation target, promised increase in flood defence spending and pledge to tackle the UK's continued reliance on coal power, that would deliver tangible action on climate change if elected. We have also seen Nick Clegg highlight the Lib Dem's achievements as both a driver of the coalition's climate change policies and a check on climate scepticism in Conservative ranks. And we have seen David Cameron again assert that "man-made climate change is one of the most serious threats that this country and this world faces".
Perhaps most important of all, Cameron has not been the sole Conservative voice issuing this warning and making the case for action to cut emissions. In the past few days, George Osborne, Eric Pickles, David Willetts and Michael Gove – all of whom have in the past been regarded as ambivalent at best on the need for climate action – have made the case for more effective action. Gove's revelation that he is a "shy green" who believes it is "unarguable that we should seek first to lessen the impact that man might have on the climate, and secondly invest appropriately in measures to mitigate and protect individuals and societies from the impact of climate change" feels particularly significant, given his position as a rising star on the right of the party.
This public re-emergence of a political consensus on the need for ambitious action to tackle climate change is hugely welcome in that it both provides businesses with greater certainty over the future direction of travel and introduces some much-needed competitive tension between the political parties as they seek to deliver the policies that are urgently needed to enable a step change in the rate of decarbonisation. But the big question for green businesses and investors is, how will this renewed political interest translate into policy action?
It is increasingly evident two positive developments for the green economy – one near term and one medium term – are now all but guaranteed.
Firstly, in the short term the controversial review of the fourth carbon budget promises to be a non-event. There is no way that the David Cameron who believes "man-made climate change is one of the most serious threats that this country and this world faces" can credibly sign off on a watering down of the UK's carbon targets for the 2020s, and there is no way the George Osborne who will almost certainly have to find more money for flood defence spending in his next budget can make him.
The new collection of essays from the Conservative Environment Network may question the effectiveness of centralised carbon targets, but it would be politically toxic for the prime minister to row back on his commitment to a Climate Change Act he proudly voted for, particularly following his recent comments on the importance of tackling climate change.
Moreover, even if he wanted to relax the fourth carbon budget, it is hard to see how he could. The beauty of the Climate Change Act is that it is flexible, but not that flexible. To change the budget for the period between 2023 and 2027 the government would have to justify the decision to water it down, win a vote in parliament and withstand an almost inevitable judicial review. There is no way these barriers can be overcome. The Lib Dems could not vote for it, green-minded Tories could not vote for it, and the independent Committee on Climate Change would argue against it. It is not an exaggeration to say that even pursuing a weakening of the budget could both bring down the coalition and make Cameron's comments on climate change look like the worst kind of political hypocrisy. The fourth carbon budget is as close to being locked down as it ever will be and businesses can start planning for the UK halving emissions against 1990 levels by 2027.
Second, the medium-term impact is that ambitious climate change policies will play a more central role than expected in the manifestos for next year's election.
We know with a high degree of confidence that Labour will commit to a decarbonisation target in the power sector, tighter restrictions on coal emissions, more spending on flood defences, a new approach to energy efficiency, continued support for nuclear, renewables and CCS, and tentative support for shale gas. We also know that the Lib Dems will put forward a package of measures designed to build on the progress the coalition has made through the Energy Act, Green Investment Bank and other measures, even if the precise details remain sketchy at this stage.
However, a big question mark still hangs over how Cameron will resolve the huge tension between his commitment to tackling climate change and the continued hostility from many within his party towards such action. The recent 2020 Group report on resource efficiency and the Conservative Environment Network essays on Responsibility and Resilience offer plenty of good ideas for how this might be done. But even among those Tories who want urgent action on climate change, there are significant divisions between those who want smart, targeted policies to drive investment and tackle waste and those who want over-arching free market mechanisms and regard anything that smacks of state intervention as anathema. Equally, there are similar divisions between those who want urgent action to cut emissions now and those, some of whom remain sceptical about the potential scale of climate impacts, who want to focus on climate adaptation and deal with rising emissions at a later date.
Whenever you see this kind of ideological and political tension, the most likely outcome remains a triangulation strategy and it is easy to envisage a Conservative manifesto that supports emissions reduction at the same time as slamming wind farms, that promotes "cheap" savings from energy efficiency while promising to cut "green levies" on energy bills, and that promises detailed policies to improve resource efficiency but talks only vaguely about climate change. You could see triangulation already underway this week as Cameron hymned the oil and gas industry one day and warned about the impacts of climate change the next. Such an approach is definitely preferable to the sidelining of climate issues that has held sway at the top of the Conservative Party in recent years, but it is also pretty obvious that you can't triangulate your way to a genuinely low-carbon economy.
However, that one concern aside, the past few weeks have left the green economy in an encouraging position. Investment and confidence is undoubtedly starting to build again as the economy strengthens and clean technologies mature. Long-standing predictions that the second half of this decade will be characterised by an explosion in the deployment of low carbon technologies and business models look increasingly prescient. Meanwhile, the combination of floods and economic opportunity – the old drivers of fear and greed – has finally forced our political leaders to push climate change and the green economy back up the agenda. The competition between the parties to deliver a successful new phase in the UK's decarbonisation strategy will benefit us all. Like I say, it has definitely been a good few weeks for the UK's green economy.
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