Last week's controversial environmental policy moves dealt a blow to many green industries, but the sector has little choice but to move past its justified outrage
It doesn't look any better at a few days' distance, does it? Last week's flurry of environmental policy announcements amounted to a series of body blows to the green economy that will make it ever harder to deliver on the government's stated goal of limiting temperature rises to 2C. An effective climate strategy that delivers on Ministers' promise of cost effective decarbonisation might yet be built out of the confused wreckage that is the current low carbon policy regime, but for now the policy signals for those who want to deliver cleaner infrastructure and business models look decidedly weaker than they did two and half months ago.
Why did the Chancellor and the Prime Minister do it? (And don't buy into the narrative this is all George Osborne's doing, David Cameron does retain some influence over what his government does). Why did they effectively increase taxes on clean power, while cutting taxes for fossil fuels? Why did they ditch even the pretence of a commitment to shifting taxation from incomes to pollution? Why did they weaken incentives for cleaner vehicles? Why did they scrap zero carbon home standards? Why did they announce the privatisation of the Green Investment Bank? Why are they embracing road-building and airport expansion while shunting rail electrification plans into a siding? Why are they doing all this at the same time as insisting the government will "continue to promote the low carbon investment and innovation needed to support global action on climate change"?
The answer reminds me of the punchline to the vulgar old joke about the nature of canine personal grooming habits: because they can.
The Conservative government's move to water down or scrap a host of green policies has been enabled by two of the environmental movement's perennial failings. Firstly, the failure to convert a generally high levels of public support for environmental causes into a sufficiently large, engaged, vocal, and mainstream constituency means there is next to no political penalty the government has to pay for policies that damage the green economy. From fracking to Heathrow and foxes to badgers, green campaign groups have proven very effective at blocking certain policies and projects, but they have proven much less effective at harnessing public and political support for the large scale low carbon transition that is required.
Secondly, the clean energy sector has failed to make the big picture climate change arguments that justify special treatment for an emerging industry. Traditionally, industries built on subsidies get very good at defending them, to the point where these subsidies become so entrenched they are barely recognised as government support. So the banking industry successfully argues 'give us massive bail outs or we'll take down the economy', the fossil fuel industry says 'hand us our tax breaks and state subsidies or we'll take our jobs and energy elsewhere', and the agricultural industry warns 'keep the EU cash flowing or we'll leave your milk to go sour and blockade your roads with burning sheep'.
Partly because it genuinely wants to operate without subsidies and partly because it is battling incumbent operators who have spent decades perfecting their subsidy justifying narrative, the clean energy industry has never been as effective at convincing policymakers that it justifiably qualifies as a special case (with the exception of the nuclear and cleaner branches of the fossil fuel sectors, obviously). The failure to convince centre-right policy makers that if it weren't for climate change we could simply go on burning coal and that it is the threat presented by climate risks that necessitates targeted policies to mobilise clean energy investment has always left the industry vulnerable to the kind of policy setbacks now emanating from the Treasury.
The green economy needs to tackle both these long standing weaknesses. Support for the low carbon transition must become ever more vocal and the link between government's welcome commitments to climate action and specific measures on the ground to drive decarbonisation needs to become far more explicit. However, these are long term, almost generational, challenges. The key question presented by last week's policy moves and the general stepping up of the government's opposition to various clean technologies is how to respond in the coming weeks and months.
The easy (and in many ways justified) answer is to succumb to righteous outrage.
"Making renewable electricity pay a carbon tax is like making apple juice pay an alcohol tax," said Friends of the Earth of the decision to extend the Climate Change Levy to renewable power. A "considerable concern" and a move to "disincentivise take up of low emission vehicles", said the SMMT of the changes to vehicle excise duty. "Short-sighted, unnecessary, retrograde and damaging to the house building industry", said the Green Building Council of the scrapping of zero carbon home standards. Cameron might as well go "hug a coal power station", said former Energy and Climate Change Secretary Ed Davey of the budget as a whole.
By far the worst aspect of many of these policy changes is the shakiness of the mandate under which they are being made.
The decision to end support for new onshore wind farms at the same time as backing cost effective decarbonisation might not make much sense, but it was part of a manifesto that did not make much sense. The Tories said they would halt onshore wind farm development, they won the election, and now they are working to halt onshore wind farm development. You might not agree with it, but it is fair enough. In fact, in many ways it would be wrong of the government not to deliver on its promise.
But many of the changes announced last week were either only vaguely hinted at in the manifesto or not mentioned at all. Given the way in which any study you wish to look at shows building energy efficiency measures installed at the point of construction and carbon pricing that penalises polluters represent two of the most cost effective ways of cutting emissions you could argue some of these moves run directly counter to the manifesto's central climate policy pledge.
With characteristic chutzpah the Chancellor has seized the opportunity to boost tax revenues at the green economy's expense while buying himself favour with those backbenchers who are instinctively hostile to the idea of low carbon industrial policy, safe in the knowledge a weak opposition and largely compliant media won't make a fuss or highlight the increasingly contradictory nature of the government's climate strategy.
Unfortunately, outrage, however cathartic, will not get you very far. Green businesses need to find a way to work with and around the Chancellor to ensure they continue to prosper, and despite the many worrying signals from the budget, opportunities to do so still abound.
The last parliament was about providing the foundations for decarbonisation and the government got its programme half right, delivering policies that helped mobilise investment but were too often undermined by weak execution (the Green Deal, CCS funding, smart meter roll out) or insufficient cost control (Levy Control Framework, Final Investment Decision enabling process). This parliament is supposedly about cost effective decarbonisation, and the early signs are the government is again getting it half right, making the right noises about the potential for competitive clean tech but then making contradictory policy moves (halting development of cost effective onshore wind, making negligible progress on energy efficiency, increasing taxes on renewables).
Green businesses need to take the government's aspiration to deliver cost effective decarbonisation at face value and demonstrate how they can deliver on it. That means making more noise about the rapid reduction in the cost of renewables and the high economic cost of fossil fuels. That means showing how clever policy moves could cut costs further (recent work by IPPR and Policy Exchange reveals there is ample room for further cost reductions). That means supporting greater competition between different forms of emissions reduction and recognising that a review of complex overlapping carbon tax and energy efficiency schemes need not necessarily translate into a watering down. That means demonstrating how extending the LCF clean energy budget is more cost effective than torching the UK's low carbon energy programme at a time when contract auctions are starting to push down costs. And that means showing how a Green Investment Bank that retains a significant government stake could help lower the cost of capital for green infrastructure.
Ultimately though, green businesses need to prove the Chancellor right. From low carbon vehicles to renewable energy taxes Osborne's policy moves are nominally justified by the argument green technologies can increasingly "stand on their own two feet" and prosper with lower levels of policy support. Osborne apparently reckons higher taxes on renewable energy will not stop growing numbers of businesses investing in clean power, weaker energy efficiency standards won't stop construction firms embracing greener building techniques, higher costs for those purchasing low carbon vehicles won't undermine the appeal of greener cars, and lower taxes on fossil fuels won't make it harder to meet international climate goals.
These are heroic, perhaps even naïve and reckless, assumptions. Moreover, it will be doubly difficult for green businesses to prove them justified when their counterparts in the US, Germany, Japan, and China continue to be supported by policy measures that recognise the economic, environmental, and commercial value of nurturing emerging clean industries and providing green investors with clear investment signals. But, in some respects, Osborne may be right. Electric cars remain compelling propositions even if the taxes on them increase, many companies will see the value in sourcing 100 per cent renewables even if there is a fiscal penalty for doing so, the case for cutting carbon emissions remains unanswerable even if certain narrow policies makes it harder to deliver.
Green businesses have no choice but to embrace the self-sufficiency challenge the Chancellor wants to set, not least because the alternative is to watch the UK's position as a clean tech hub and green industrial pioneer go up in smoke.
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