Clean tech could provide the power for the Northern Powerhouse and deliver the productivity boost the government craves, but only if Ministers end their attacks on the green economy and deliver a credible policy landscape
There is no way of spinning it, the first two and a half months of the new parliament have not been kind to the UK's green economy. In fact, they seem to be reaching playground bully levels of unkind.
The appointment of Tory modernisers to key environmental positions and the reassertion of the government's commitment to the Climate Change Act meant environmentalist's worst fears about a climate sceptic coup at CCHQ proved unfounded, but that has been pretty much the only positive development green businesses and investors have seen since May.
Instead of the strategy for delivering cost-effective decarbonisation that was promised, low carbon industries have received a series of policy blows, many of which were not mandated by anything as democratically legitimate as a manifesto commitment.
Taxes on renewable energy have been increased, incentives for electric cars have been diluted, the onshore wind industry has been halted (and at least one company has closed), the Green Investment Bank is being prepped for privatisation, zero carbon home standards have been torched along with the energy bill savings that would have resulted, promises on fracking safeguards have been reneged upon, environmental regulations are in the firing line, the spending axe looms at DECC and Defra, a review of carbon taxes threatens further policy uncertainty, the row over energy bills has been reignited amidst fears there is little money left for the next round of clean energy projects, and now the government has let it be known further cuts to subsidies are on the way as part of a "big reset" of current policies.
Worst of all, the Committee of Climate Change confirmed what many within the green economy have feared for several years: the UK is no longer on track to meet its carbon targets for the mid-2020s.
Far from responding with a clear plan for putting the UK back on track, the government's environmental policy priorities currently seem to be stopping wind farms, promoting fracking, and finding a way to tweak the Fox Hunting Ban to allow fox hunting. Hug a husky, it is not. The poor mutt is currently cowering in the corner, fearing it is about to sent to the dogs' home in the sky.
Last week, I argued in responding to these body blows green businesses needed to pick themselves up, dust themselves off, and focus ever harder on demonstrating cost effective decarbonisation is both possible and desirable. In essence, they have to prove the Chancellor right when he argues clean technologies should compete without recourse to subsidy.
But while this long term project must continue it is equally clear without ambitious and effective policy action the UK will now struggle to meet its mid-term climate change targets, forgoing billions of pounds of investment in much needed infrastructure in the process, letting the country's position as a clean tech hub slip, and ensuring Ministers turn up in Paris with about as much credibility as an Exxon executive at a climate march.
So, what needs to be done? As MPs depart on their lengthy summer recess, what policies should the government be working on to ensure that by the time parliament returns in the autumn the credible cost effective decarbonisation strategy that was promised in the manifesto actually materialises? Many of the environmental and climate challenges the UK faces are borderline intractable and generational in their time-frames, but there are a number of short term steps Ministers can and should take. So, in the tradition of policy briefing documents everywhere, here is a five point plan for Amber Rudd and co to consider:
1. Efficiency, efficiency, efficiency
The UK's energy efficiency strategy is in crisis, the number of efficiency upgrades being carried out is well down on its peak and there are serious concerns the market driven by the Energy Company Obligation (ECO) scheme is about to grind to a halt. And yet, as Policy Exchange's Richard Howard observes, this is the one policy area that cuts both carbon emissions and energy bills. It is far cheaper in the long run to reduce the amount of energy we use than build ever more generating capacity. Government needs to stop talking about energy efficiency, and actually re-prioritise its activities so energy saving is regarded as just as important as generation. Action on energy efficiency has to be the defining hallmark of any cost effective decarbonisation strategy.
Best of all for Conservative ministers, energy efficiency is, by definition, a productivity story. It is about doing more with less and at lower cost. A comprehensive energy efficiency strategy focused as much on businesses as households could help tackle the 'productivity puzzle/crisis' the Chancellor is wrestling with.
What does this mean in practice? Firstly, the decision to scrap zero carbon home standards needs to be reversed. It is not too late for green-minded Tories to learn from their Eurosceptic brethren and demonstrate that a majority of 12 requires the government to compromise occasionally. The justification for such a rebellion is obvious. The government was elected on a platform of cost effective decarbonisation, nothing is more cost effective than installing energy saving measures at the lowest cost point, the point of construction. Moreover, hundreds of businesses never wanted the rules scrapped, and unlike those lobbying for the weakening of efficiency standards, they have the confidence to make their case in public.
The EU decision to restore A-G energy labels for appliances also needs to be fast-tracked and demand management schemes need to be given a bigger role to play in the new capacity market.
But most of all, domestic, corporate, and public sector energy efficiency schemes all need to beefed up. The Salix scheme's pay-as-you-save financing model should be expanded and the Green Deal and ECO schemes need to be made much more attractive, ideally by making energy efficiency a national infrastructure priority.
How to do this without breaking already over-stretched budgets? Well, one of the few bright spots in Labour's election campaign was a package of reforms to energy efficiency policy that promised to improve five million homes in 10 years and all within the current spending envelope. The Tories should continue their ‘Worker's Party' gambit and steal it pretty much wholesale.
2. Don't be frit on the LCF and auctions
Auctioning clean energy subsidy contracts works. It has worked in other countries and the first wave of contracts worked here (even if there are legitimate concerns the current regime does not suit mid-sized solar farm developers). Competition pushes down prices and encourages innovation - Conservatives should instinctively understand this. Far from being subject to speculation about its immediate future, as is the case now, a system of contract auctions should be at the heart of any centre-right, cost-effective decarbonisation strategy.
The problem, of course, is Ministers are concerned the budget for this programme of auctions has already been spent. Firstly, they need to recognise this is simply not the case. As Green Alliance's Dustin Benton makes plain, there is headroom in the Levy Control Framework (LCF) budget that allows for the programme to continue.
Secondly, they need to recognise that if the budget is tight it makes much more sense in the long run to free up some more LCF budget by extending it into the 2020s than bear the long term costs that would come with tearing up the current plans and triggering another investment hiatus - not least because capacity pressure means that if we stop building new clean energy capacity we are going to have to find some other capacity from somewhere.
As one industry insider observes, "messing with electricity market reform now will just create another round of gluts and cliff edges for developers", which would be a strange move from a government that prides itself on efficient markets.
Once the future of the LCF and contract auctions are assured it is essential to look at ways of ensuring billpayers' money that is more wisely spent than it has been in the past. That means embracing Policy Exchange's calls for more focus on mature and lower cost clean energy technologies (ideally including onshore wind) and drawing on IPPR's recommendations for state to share some more of the early stage project risk. It may also mean re-opening the debate about how to make green levies less regressive by securing more of the required investment from general taxation, rather than billpayers.
3. Simplify the policy landscape and clear the in-tray
This is easier said than done, but there are far too many policy loose ends from the last parliament that are undermining investor confidence, pushing up the cost of capital, and delaying much needed new infrastructure.
Most notably, Carbon Capture and Storage (CCS) demonstration funding needs to be awarded this summer, particularly given CCS is apparently critical to the Prime Minister's decarbonisation vision. Similarly, the nuclear saga needs to be brought to an end one way or another, and if that means Ministers deciding they cannot justify a subsidy contract of £90/MWh plus at a time when they are preaching cost effective decarbonisation, then so be it.
Beyond that decisions need to be made on the future of the RHI and the level of support offered through the feed-in tariff (tough calls may be necessary in both these areas, but it should be possible to cut subsidies while allowing the sectors to continue to grow). Additionally, the opportunity offered by a review of carbon tax policies needs to be seized to deliver a simpler and more effective carbon pricing regime for businesses - after all, pricing externalities remains one of the most cost effective ways of harnessing the market to cut emissions.
Finally, the fifth carbon budget needs finalising, which should be easy - the government supports the Climate Change Act, so take the Committee on Climate Change's recommendations for a new target and rubberstamp them.
4. Make sure Green Investment Bank 'privatisation' bolsters green investment
The government has proven pretty successful in spinning the proposed privatisation of the Green Investment Bank (GIB) as a necessary move that will free the bank to go from strength to strength, and there is little doubt it will remain an effective and important institution regardless of its ownership status. But equally there are valid concerns about whether full privatisation is strictly necessary or desirable, unless, that is, your only consideration is state-shrinking ideological purity.
Green investment urgently needs to be mobilised at the lowest possible cost and there is little doubt a GIB with a large, preferably majority, government stake helps do that. It can back emerging technologies, reduce the cost of capital, and foster confidence across the sector that the government has skin in the game in the way a private bank never will, and all while turning a profit for the taxpayer.
Given the Chancellor has once again quietly delayed his deficit reduction goals why not relax the arbitrary block on the GIB borrowing at ultra-low rates and let it raise funds that way. There is a strong argument that we should not borrow excessively and make future generations pick up the bill, but what if you are borrowing to help protect future generations?
Sell off a stake by all means, but the government must retain control over one of the few genuine green success stories of the last parliament, particularly given the GIB has such a big role to play in both the energy efficiency and clean energy generation components of this new plan.
5. Change the narrative
It is hardly surprising some Conservative MPs are hostile to the concept of clean energy when it is only ever discussed as a cost, rather than an investment. The entire debate should not be restricted to a narrow story about subsidies, important as they are. This is a story about innovation and technology and security and, of course, climate change. If it weren't for climate change, we could just go on burning coal, but climate change is a real and present threat, so we can't.
As a famous Conservative prime minister was fond of saying, there is no alternative. We need clean energy and in the absence of a carbon price that makes fossil fuel generators pay for the full cost of their pollution that means alternative policy mechanisms such as subsidies and standards. Subsidies were justified when the banks threatened to take down the economic system, they are justified now our industrial economy threatens to take down the climate system.
Ministers need to make it clear the current policy regime is not about subsidising rentier renewables companies, it is about driving investment in the resilient clean energy infrastructure we desperately need. Policies should be reformed, but they cannot be torched.
What the government should be enabling is an investment programme for a modern, competitive, and healthy economy. It is the means of delivering the power that will drive the Northern Powerhouse.
The energy delivered from this investment programme will continue to get cheaper and in an ideal world there would be a less regressive means of funding it, but it is already very cost effective when you consider all of the long term costs and understand the implications of an alternative investment programme based on fossil fuels. Significantly less than a £1 a day per household to build a modern clean energy system that we have no choice but to build is actually very good value, Ministers should not be afraid to say so. Make sensible reforms to current subsidies and it will become better value still.
The government is more than happy to use taxpayer's money and bold policy reforms to enable infrastructure it deems to be in the national interest, be it roads, airports, high speed rail or fracking. The Prime Minister needs to make it explicit clean energy is in the national interest and there is no alternative to driving investment in this most exciting of sectors.
Equally, Ministers cannot expect to be taken seriously if they keep saying they care about climate change and want to play a leading role in Paris at the same time as attacking clean technologies as nothing but a cost. By accident or design (and let's be honest, it is probably the latter) Ministers are currently fuelling the impression they want to roll back and generally weaken the UK's green ambition. If they are serious about mobilising much needed investment and creating a competitive modern economy the Chancellor and the Prime Minister need to use some of their currently overflowing political capital to underline their commitment to decarbonisation and more clearly explain how their green economic strategy will deliver it at as low a cost as possible. Currently, incoherence and contradiction reins supreme, but it cannot continue indefinitely (assuming, of course, a demoralised and near mute opposition and punch drunk green business community eventually gets their acts together).
Delivering these five proposals will not be easy, but they would be in line with the Conservative's manifesto commitment and their wider economic priorities. They would ensure emissions targets are met and investment in the UK's clean tech sector continues to grow. And most of all they would cut the overall cost of decarbonisation by focusing on the most cost effective technologies and delivering the policy and political stability the sector is currently being denied.
It is time the green economy was given some good news from a government that purports to regard it as essential to the UK's future.
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