When will the Prime Minister rein in his fossil-addicted Chancellor?

There are now so many divisions around the Cabinet table that it is hardly surprising that the rift between the Prime Minister and the Chancellor over the green economy is rarely commented upon. But the rift is real, it is undermining any hopes of the UK delivering a sustainable economic recovery, and, if yesterday's evidence is anything to by, it is getting wider.

David Cameron has done a good job of concealing his differences with George Osborne on a wide range of environmental issues, having spent much of his first two and half years in office ducking any public debate on his fondness for huskies and wind turbines. But when push has come to shove he has blocked the Chancellor's more blatant assaults on the green economy, defying his closest ally to accept the Committee on Climate Change's carbon budget recommendations and brokering the uneasy truce between DECC and the Treasury in a manner that protected support for renewables.

Then last month the Prime Minister went further still, declaring unequivocally that "it is the countries that prioritise green energy that will secure the biggest share of jobs and growth in a global low-carbon sector set to be worth $4trn by 2015". Number 10 may have successfully tried to manage the speech out of the news cycle, but BusinessGreen recorded the Prime Minister's words and has the transcript. It is a paean to the green economy that is brutally dismissive of the anti-green arguments put forward by the Chancellor. "Far from being a drag on growth," Cameron said, "making our energy sources more sustainable, our energy consumption more efficient and our economy more resilient to energy price shocks – those things are a vital part of the growth and wealth that we need."

The contrast with the 'Top Gear' budget delivered yesterday by the Chancellor could not be more stark. As is often the case with an Osborne budget, the detail was not quite as hostile to the green economy as the rhetoric. As Ben Warren at Ernst & Young observed, the Budget was "devoid of any new gifts [for the green economy] from the Chancellor, [but] nothing was taken away either". The UK's renewable energy regime and energy-efficiency policies escaped unscathed, while there was the promise of progress on nuclear power, electric cars and CCS. You can even make a case that the tax breaks for shale gas development will help the UK decarbonise if any new gas replaces coal and is accompanied by the rollout of effective CCS technologies (although it is informative that the Chancellor does not feel the need to present this argument).

The real problem again lies with the Chancellor's rhetoric. The brief passage on energy and the environment was carefully structured to talk up fossil fuels, and, through the sin of omission, talk down renewables, energy efficiency and other forms of clean technology.

The key line was Osborne's declaration that "creating a low-carbon economy should be done in a way that creates jobs rather than costing them". This was dog whistle politics at its most crass. No one can disagree with the sentiment, but the Chancellor is clearly signalling to those who think green levies and subsidies simply undermine economic activity in other parts of the economy that he agrees with them. "We will decarbonise," he is saying, "but we will do it with fossil fuels."

Anyone left in any doubt about the Chancellor's intentions then had it rammed down their throat by the projects he chose to highlight and those he chose to ignore. It would have cost Osborne nothing to make some conciliatory noises towards the green economy yesterday. Yes, he promised new nuclear was on the way, confirmed funding for CCS plants and announced more support for ultra-low carbon cars. But with just one more short sentence he could also have argued that the government's Energy Bill and infrastructure plans were enabling new offshore wind farms, supporting the conversion of the Drax power plant to biomass and driving investment in energy efficiency through the Green Deal. Utter one simple sentence and everyone goes home happy. Shale gas fans would have got their tax breaks and the low-carbon sector would have been reassured that it remains part of the government's economic recovery plan, even if the Treasury still refuses to deliver the truly transformational push that is needed. Instead, Osborne snubbed the green economy; snubbed it and then taunted it with his unabashed love for fossil fuels.

Of course, the fact that the budget did not actively reverse the government's progressive green policies means senior figures within the government can continue to insist there is no split between the Chancellor and the Prime Minister. But can you imagine Osborne declaring that "together we can make Britain a global showcase for green innovation and energy efficiency", as the Prime Minister did last month?

Before anyone complains about poor little environmentalists getting their feelings hurt by the Chancellor, it is worth noting that Osborne's rhetoric matters. He might not have changed any meaningful energy or environmental policies, but through his praise for a fossil fuel-focused future and the pointed omission of other clean energy technologies he again made it clear where his priorities lie. He defied the Prime Minister and talked up a fossil fuel-heavy energy strategy that is in contradiction to the wider government's more balanced approach. Osborne has decided to position the 2015 election as an almighty battle for the future of the UK's green economy and he has made it crystal clear that he stands on the side of torched environmental rules, fracked landscapes and broken carbon budgets.

The problem, as was made evident during the long and debilitating row over the Energy Bill, is that there is a real world impact to this political posturing. The cost of capital for renewables and shale gas projects alike will be higher than it needs to be because no one can be sure whether the next election will see an emboldened Osborne tear up the mooted decarbonisation target and slash post-2020 support for clean energy, or whether it will see a victorious Ed Miliband, Nick Clegg or David Cameron redouble efforts to make the UK a genuine clean tech hub. This political risk drives up policy uncertainty, drives up capital costs and drives investors into the arms of French, German, Indian and Chinese governments that appear much more serious about building a modern decarbonised economy.

In addition, Osborne's anti-green brutalism has two further implications, both of which are bad for our government, bad for our democracy, bad for our energy security and bad for our planet.

First, it demonstrates how little authority the Prime Minister now has. His modernisation agenda has been crushed under the weight of backbench climate denial and fracking rigs. He is left trying to hide his pro-green speeches from the media, quietly talking up his commitment to the green economy while the Chancellor noisily talks it down. It will benefit no one, inside government or outside, if this rift is allowed to widen further. Rightly or wrongly Cameron may have hitched his wagon to Osborne's austerity agenda, but when it comes to the green economy he should rein his Chancellor in.

Second, it reveals again how the Chancellor can pursue his own energy strategy, using his own facts, without ever having to explain either in public. We still do not know how the Chancellor plans to marry new shale gas drilling with the UK's binding carbon targets; we do not know why he thinks those warning that shale gas in Europe will not prove 'low cost' are wrong; we do not know whether he genuinely supports renewables or whether he was forced to authorise support for the sector by the Lib Dems; we do not know what his plan B is if shale gas and CCS do not work; we are not even clear on why he is so opposed to a decarbonisation target in the Energy Bill. All we get are snide one-liners in budgets, polluter-friendly party conference speeches and rumoured whispers among anti-green backbenchers and journalists that the Chancellor is with them.

This is no way to manage the future of the UK's energy infrastructure, just as it is no way to respond to the existential threat of climate change. The Chancellor may have a compelling argument as to how 'clean' fossil fuels are the best way for the UK to decarbonise – in the interest of democracy, if nothing else, he should share it.

Without this explanation, Osborne's perverse refusal to even acknowledge the value of green growth looks ever more like partisan politics at its most pathetic and self-defeating. The government's policies have the potential to enable green growth; they are helping to drive investment in all forms of low-carbon technology – wind, marine energy, biomass, solar, electric cars, energy efficiency and, yes, CCS, nuclear and natural gas. They are also weaning the UK off volatile fossil fuels and through energy-efficiency improvements they hold out the promise of lower energy bills for businesses and consumers. But, just as with the rest of the economy, the Chancellor's ideological intransigence and evidence-free commitment to his favoured sectors is making every aspect of the green economic recovery harder to achieve than it needs to be.

Osborne is single-handedly undermining the encouraging work of his more enlightened colleagues. He is also placing a giant road-block in the way of the debate ministers should be having about the next wave of ambitious climate change policies that will be required to meet our emissions goals: the beefed up energy-efficiency drive; the deployment of smart grids; the revolution in distributed energy; the development of a circular economy; the emergence of livable, healthy low-carbon communities; the new metrics to gauge sustainable economic success – all the policies we need to build a truly green economy are being put on ice by the Treasury's crippling orthodoxy.

The rift at the top of government on these issues is getting wider and the sooner the Prime Minister either reins in his Chancellor or replaces him with someone who shares his commitment to creating a modern low-carbon economy that is equipped for the 'global race' the better. It is probably worth noting at this point that a widely respected Conservative member of the Cabinet declared last year that "the low-carbon economy is at the leading edge of a structural shift now taking place globally... we need to stay abreast of this, given our need for an export-led recovery and for inward investment in modern infrastructure and advanced manufacturing". His name? William Hague.

Further reading

Budget 2013: all the latest

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• 21 March 2013

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• 21 March 2013

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• Topics
• Politics
• Policy
• George Osborne
• David Cameron
• Budget 2013
• Low Carbon Economy
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