The long-awaited decision to retain the fourth carbon budget provides investors with some much needed certainty, now government and business must deliver on it
The government's decision to retain the fourth carbon budget in its current form is a hugely welcome development from a commercial, investment, and political perspective. For businesses the confirmation the UK aims to halve emissions against 1990 levels by 2025 provides much needed policy certainty, for investors it confirms once again there will be significant demand for green infrastructure post 2020, and for Westminster it underlines that for all the noises off in the right wing press the green wing of the coalition is alive and well.
David Cameron deserves the plaudits for rubber-stamping a decision that, as the Committee on Climate Change (CCC) has demonstrated, is both economically and scientifically rational. Equally, Ed Davey and his allies deserve huge credit for standing up to Chancellor George Osborne and his scaremongering over the potential impact of the carbon budget on competitiveness. In short, this is a good day for the green economy and a far more significant boost to low carbon investment than the sacking of a single climate sceptic cabinet minister.
Businesses and investors now know with even greater certainty that the next government will be legally obliged to deliver steep emissions reductions beyond 2020. Of course, the over-arching Climate Change Act meant they already knew this, but the clarity provided by a solid medium term target provides further assurance that the green policies required to deliver these emission reductions will continue. These policies will inevitably face reforms over time, but the likelihood is that clean energy subsidies, energy efficiency programmes, clean tech research and development, carbon pricing initiatives, and resource efficiency efforts will all have to now continue into the 2020s. Moreover, with the CCC announcing just last week that the UK is no longer on track to meet its fourth carbon budget the reality is that these various policies will have to become more, not less, ambitious.
The direction of travel has never been clearer. Entrepreneurs, executives and investors have all been warned - the opportunities presented by the green economy and the risks faced by high carbon projects have never been more explicit.
Of course, the newly approved carbon budget still comes with a number of important challenges and caveats attached.
Osborne may have lost the argument about the potential impact of the UK's carbon budget on competitiveness for now, but should the EU fail to agree a sufficiently ambitious emissions target for 2030 or the international community fail to deliver some form of agreement in Paris next year the debate about the merits of a unilateral target would quite rightly be revisited. The UK's current post-2020 target is broadly in line with what its obligations would be under the kind of climate package being discussed in Brussels for 2030, but should those negotiations falter questions pressure for the UK's target to be watered down would inevitably resurface. The current indications from both the EU and UN suggest there is renewed confidence ambitious new agreements can be reached, but businesses need to be aware that this, albeit modest, risk remains.
Similarly, political risks remain in the form of the mounting hostility to environmental policy emanating from the Conservative backbenches. Green groups would be wise not to gloat too much over Osborne's "defeat" on this issue, given the importance of having all three of the main parties committed to retaining the fourth carbon budget following next year's election. It is noticeable that David Cameron having signed off on retaining the current target has not yet commented publicly on the decision (any MPs who care about green issues should try and pin him down on his precise position on this at PMQs as soon as possible). The risk remains that Lynton Crosby was willing to let the Liberal Democrats take the credit for the ambitious target in order to help establish it as another wedge issue within the coalition that the Tories could kick against in the election campaign. He was happy to throw environmental issues under the bus in Australia in the hope that it would mobilise his base and there is little doubt he'd be willing to do it again if given the opportunity.
Personally, I'd wager that a Conservative Party led by Cameron would find it extremely difficult to go back on this decision. Any Tory victory next year followed by a post-election attempt to water down the target just months after it was finalised would torch the Prime Minister's credibility, prompt a civil war between modernisers and climate sceptics on the backbenches, and face howls of protest from business groups and a legal challenge. However, should Owen Paterson and co end up holding the whip hand in a Conservative government with a vanishingly thin majority, then all bets are off.
Of more immediate relevance are the challenges presented by rubber-stamping the fourth carbon budget. As mentioned the Committee on Climate Change (CCC) warned only last week that the UK is off-track in its efforts to meet the target and as such urgent action is needed to deliver deeper emissions cuts. The coalition now has an obligation to maintain progress through the final months of the parliament and all of the main political parties have a responsibility to set out in their manifestos how they will meet a target, which by the time of the election will be less than a decade away. Specifically, more progress is urgently needed on energy efficiency, carbon capture and storage, nuclear, and renewables.
Again, the challenge is particularly acute for a Conservative Party which is currently refusing to support a decarbonisation target for the power sector that the CCC says represents the most cost effective means of meeting post-2020 emissions targets and has indicated it will oppose new onshore wind farm developments after the election without providing sufficient detail on how it will plug the clean energy gap that will result. Cameron still needs to deliver an alternative decarbonisation strategy.
However, all the current evidence suggests the fourth carbon budget is now here to stay and that the challenges it presents are far from being insurmountable. Consequently, business leaders need to assess the policy clarity provided by Davey and Cameron and factor in the implications it presents for their business and investment plans.
This decision means that in little more than a decade the UK will be one of the world's leading green economies, powered by a significant and rising proportion of clean energy, transported by hundreds of thousands, if not millions, of electric and low carbon vehicles, and dominated by cutting-edge and energy efficient clean technologies. It is here that the opportunities lie and while not every business investing in these areas will succeed, those that do will know that this emerging green economy is being driven not just by inspiring technology and growing public demand, but also an increasingly ambitious and clear cut policy landscape.
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