Why government ambivalence on low carbon puts UK green business at risk
This post is by Will Andrews Tipper, head of sustainable business at Green Alliance. He is the author of our new analysis The global green race: a business review of UK competitiveness in low carbon markets, based on input from 12 global businesses.
The UK’s green businesses are worried about the future. This ought to be surprising as, on the face of it, they’ve never had it better. The UK’s low carbon and environmental sector reported sales of £128 billion in 2011-12, delivering a trade surplus for the UK economy of nearly £5 billion. The sector has dramatically out performed the mainstream economy since the onset of the financial crisis.
With demand for low carbon goods and services projected to rise and rise as more countries get serious about tackling climate and resource challenges, the UK should be in a prime position to profit.
Conditions for success no longer exist
But companies are worried because the conditions that have enabled the UK to forge ahead in the global green race no longer exist. Success to date has been built around strong domestic carbon policies, diplomatic leadership to grow global markets for green goods and services, and clear political commitments to a low carbon growth path. This has given investors the confidence to back UK low carbon businesses.
The advantage conferred by early, decisive action is being eroded by the current government’s ambivalence about this sector. In contrast with its enthusiasm for fracking, it has outlined no vision for low carbon industry. The prime minister wants jobs from new turbine factories, but hasn’t been prepared to counter the campaign against renewable energy in his own party. The chancellor wants cleantech investment, but not if it gets in the way of his vision for the UK as a gas hub. Without clarity over government intentions, investors and companies have grown wary.
New analysis from Green Alliance, developed with a dozen of our partner businesses, highlights the true extent of the global competitive risks facing the UK green economy.
UK losing ground to the competition
The UK is starting to look shaky, just at the point when other countries have become more serious about low carbon economic growth. Traditional hi-tech leaders like Germany and Japan have been joined by more newly established global leaders, such as China and South Korea, in aggressively pursuing comprehensive strategies to establish or expand their green business strength.
The scale of ambition is striking. Japan’s revitalisation programme aims to create a 50 trillion yen market (£330 billion) for environmental goods and services and 1.4 million new jobs by 2020. South Korea’s 2009 Five Year Plan for Green Growth targets new economic activity worth 20 per cent of GDP, creating 1.8 million new green jobs. The South Korean government is committed to spending two per cent of GDP annually to implement the plan, worth US$19.6 billion (£12.6 billion) in 2012.
Equally impressive are the national programmes to develop the low carbon technologies of the future. Germany’s High Tech Strategy 2020 Action Plan sets 10-15 year innovation objectives for a range of priority low carbon sectors, supported by an €8.4 billion (£7.3 billion) public research budget up to 2015. China’s latest Five Year Plan prioritises technology commercialisation across a range of emerging low carbon strategic emerging industries (SEIs) including alternative fuel cars, energy conservation, environmental protection and alternative energy, with the Chinese government playing a strong role in mobilising development finance.
Continued Westminster infighting is damaging investment prospects
The contrast with the UK is striking. Open conflict on green policy within government, with the chancellor threatening to unpick the UK’s carbon budgets, is creating unnecessary investor uncertainty and deterring low carbon investment. The effectiveness of low carbon policy initiatives such as the Energy Efficiency Mission and the Green Deal is being undermined by the absence of clear implementation plans, reinforcing the impression of a government that is not interested in the green economy.
While the UK does have some strong technology and sectoral policies, there is no long term strategy to overcome its poor commercialisation track record in new technologies, and existing low carbon innovation funding is spread thinly between too many technologies and institutions.
Although the UK mobilised £5.4 billion of clean energy investment in 2012, the lack of a post-2020 policy framework will slow down the development of UK supply chains for key energy technologies.
Rediscovering our global edge
With the right policy and political support in place, the picture could be very different. UK businesses remain well-placed to lead the charge in the global green race.
Our review of the UK’s relative strengths in this sector highlights three clear actions the government should be taking to restore UK competitiveness:
- Increase policy certainty by convincing investors that the government is fully committed to low carbon
- Enable faster commercialisation of the clean energy technologies in which the UK has a competitive advantage
- Support new international market development for low carbon goods and services, and open up new trade with more countries
Government commitment and support has been crucial in building up our green business strength. Clear signals from the top that this commitment remains will be essential to convince low carbon companies and investors that the UK remains the right place to do business.