Unlocking Green Enterprise: A Low-Carbon Strategy for the UK Economy

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Unlocking Green Enterprise:

A Low-Carbon Strategy for the UK Economy

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The green economy will be one of the biggest global growth sectors in the 21st century. The UK economy needs to play a major part if it is to emerge from the current economic crisis. However, the UK's environmental sector trails countries like Germany and Denmark.

This study draws on international comparisons and interviews with leading experts to understand how the UK can replicate this success. For the first time, a straightforward policy programme is presented to unlock green enterprise in the UK.

Executive Summary

The UK economy is in recession. There has been a great deal of discussion about why and how this has occurred and about how to stem the worst of the current rise in unemployment. But there has, as yet, been limited debate about how the UK can restart growth. One focus must undoubtedly be the opportunities offered by the 'green economy'. The reason is simple. The green economy has grown enormously in the last decade, both across the world and in the UK, and is projected to grow even more rapidly in coming years. The Environmental Goods and Services sector alone was worth $548bn globally in 2004 and is projected to reach $800bn by 2015.

Of course, the current global slowdown may affect such projections in the short term but the long-term significance of the green economy cannot be doubted given the historical trend for the rising cost of fossil fuels and the growing political will to address carbon emissions. Of course, the economic and political implications of the green economy have only been strengthened by the fact that the world's largest economy is now governed by a president with a clear political commitment to cutting carbon emissions. The opportunities for the UK as one of the United States' closest trading partners cannot be underestimated in this regard.

The UK has certainly benefited from the growth of the green economy but we lag well behind European neighbours such as Denmark, Germany, the Netherlands and Spain. This is particularly evident when the employment records of the sectors in different economies are compared. To take just one example, Germany has managed to generate half a million jobs in its renewable energy sector alone, while the UK languishes on 7,000. The green economy as a whole employs 1.5 million people in Germany, compared to 400,000 in the UK. At a time of rising unemployment these are figures that cannot be ignored. Government clearly has a key role to play in setting the right policy framework, both for the reduction of carbon emissions and to ensure that UK businesses are best placed to take advantage of the national and global transition to a low-carbon economy. The Government has been active in addressing three key barriers to the growth of the green economy: the low price of environmental impacts; weak investment and demand for green products and services; and system failures that slow the rate of green transformation. Important policies such as the Climate Change Levy, the Carbon Reduction Commitment, the renewables obligation and reforms of the planning system, plus a host of smaller initiatives, are significant attempts to address these barriers. However, the clear message from industry figures and experts, and from the study of our more successful national competitors, is that greater ambition is needed both in terms of creating a policy framework to cut emissions and to unlock green enterprise.

Four headline policy directions are needed from Government to meet this greater ambition.

Commitment to delivery of environmental policy

The policy framework being developed through legislation such as the Climate Change Act and Energy Act and through developments in areas such as waste management policy, local authority performance evaluation and national planning policy will not in itself be sufficient. Business needs to be convinced that the current emphasis on greening the economy is something that will remain on the policy agenda for a significant period of time. Emissions targets need to be clear and firm and need to reach into a variety of sectors beyond the very high level Climate Change Act targets. Progress towards targets should be reported upon by lead departments and also monitored independently. The Government must be prepared to act swiftly when any shortfall against targets is identified, otherwise credibility will be lost.

A central role for the state

Our competitor economies recognise that the state has a central role in stimulating the green economy. This is not about 'picking winners' but having the boldness to set clear direction and incentives to kick-start a key sector. This is particularly the case with regard to the creation of adequate demand for green products and services. Five policy areas are important in this regard.

Firstly, the purchasing power of the public sector is often underestimated. Coherent and consistent inclusion of environmental criteria in procurement decisions throughout the public sector will help to transform the markets for a wide range of products and services towards greener options.

Secondly, existing financial incentives are too weak to encourage a wide uptake of green products and services. Government needs to make a greater commitment to such incentives. The Government decision to adopt the use of a feed-in tariff is an important step in the right direction in this regard if the detail of the initiative is sufficiently bold.

Thirdly, provision of green information to consumers must be stepped up, constantly reinforced and accessible to all. The roll-out of smart energy metering and innovations like the London Green Concierge Service (which provides a full year of energy efficiency improvement advice to homeowners) are key.

Fourthly, where an existing market framework does not support the development of the optimal environmental solution, Government should be willing to consider intervening to redefine the boundaries of the market. Redefining the energy market to promote competition based on something other than unit price of fuel is one possibility.

Finally, the Government must be prepared to accept that in some cases the market simply will not deliver the transformation required. In these situations, it must be prepared to introduce regulation to require environmental change and thus stimulate green growth.

Increased support for innovation and research and development

Levels of investment in technology, research and development and green innovation in the UK lag behind those in other countries. The detailed targets mentioned above must be developed on the basis of high quality analysis of the technical options so that when they are implemented, green innovators and their investors can have confidence that they will be adhered to and that they are meaningful.

The Government also needs to make far greater use of Forward Commitment Procurement schemes to stimulate innovation that will provide solutions to environmental problems. The mechanism has been used successfully in other countries such as Sweden for many years and could become a useful tool to increase the pace of technological development in areas where the UK could take the lead in international markets. In addition, public sector investment in innovation is far lower in the UK than it is in competitor countries. The Government needs to at least match, and perhaps exceed, the investment levels of countries where the green economy is already growing strongly.

Ensuring we have the necessary skills

Relying on the market to identify skills gaps and develop solutions to them is causing delays in the transition to a green economy. The Government should not be afraid to anticipate future skills needs and to intervene to ensure that these are met. It is welcome that the Secretary of State at the Department for Innovation, Universities and Skills has indicated that skills policy will progressively be moving in this direction but there is a need for more urgent action by Government to rapidly develop a strategic skills strategy to support transition to a green economy.

With a framework based on these key policies, the UK economy will begin to take advantage of the growth opportunities provided by the development of a green economy and the current economic problems will ultimately prove shorter and shallower than may otherwise have been the case.

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