How a green economy can promote growth

 

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This blog was first published by the Environmental Journal.

The UK’s economy grew by 1.7 per cent in 2017, buoyed up by the first synchronised bout of global growth since the financial crisis. Favourable global economic conditions have raised the UK’s economic output, and, although the UK is the slowest growing economy in the G7, relative economic stability has blunted some of the debate over why people feel the economy is no longer working for them.

Underlying concerns about why the economy hasn’t raised real household incomes have not been resolved, including a persistent trade deficit, the hollowing out of the labour market and a decade of low productivity growth. Except there is one part of the economy that is working for people: the green economy.

In 2016, the last year for which there is data, it grew at five per cent. It has maintained similar rates of growth since the financial crisis. And it has done so while major underlying technologies have become subsidy free: offshore wind’s cost fell from around £150/MWh in 2013 to below £60/MWh in 2017. It is a vindication of a strand of the UK’s low carbon industrial strategy in which all three major parties had a hand: Labour’s Ed Miliband and Lord Mandelson began it, Vince Cable and Ed Davey of the Liberal Democrats supported the offshore wind industry as it matured and Conservatives Amber Rudd and Claire Perry guaranteed that the government will continue buying it through the 2020s.

A green economy provides good quality jobs
Family incomes, industrial success and economy-wide growth are not the same thing, but the former cannot grow without the latter two. And, again, offshore wind provides a good example of how growth and industry can underpin good quality jobs: there are around 10,000 direct jobs in offshore wind in the UK today, and this figure will likely double by 2032. The vast majority of these are skilled manual labour, technical professionals and management jobs, which tend to support high wages, high working standards and long tenure.

More broadly, clean growth appears to be working to decouple economic growth from environmental impact. The UK’s emissions – even on a consumption basis, which accounts for emissions generated overseas to make the products that the UK consumes – have fallen since 1990, while headline economic growth has risen. So long as the UK can continue this trend, it should be able to meet its 2050 carbon targets while continuing to grow in headline GDP terms.

Three ways clean growth helps the economy
In my chapter for the Fabian Society’s new Raising the Bar report, I suggest three ways clean growth creates the conditions for good quality jobs and rising family incomes.

First, the green economy can help to address the UK’s persistent productivity gap. The average UK manufacturer spends five times as much on resource costs as on labour, so there is much more scope to raise productivity via resource efficiency than by cutting labour costs.

Second, the global economy is going green and the UK will need to grow its exports if it is to maintain growing incomes. The UK has a £5 billion trade deficit in the automotive sector but a head start in the technology that is likely to dominate the future of cars and vans: electric vehicles. Nissan’s Sunderland plant is the largest EV manufacturing plant in Europe. The fact that there are now substantial waiting times for buyers of electric vehicles suggests a lack of supply.

Taken together, these factors – the UK’s trade deficit in conventional vehicles, its head-start in EVs and robust demand – shows that the UK should not hesitate to reorient its manufacturing base toward electric vehicles. This would be best achieved by moving the UK’s 2040 conventional vehicles ban forward to 2030 and by adopting a zero emissions vehicles mandate, modelled on equivalent policies in California and China.

Third, green jobs, particularly those in circular economy activities, are likely to support good family incomes. For instance, workers in circular economy jobs are less likely to be underemployed, with fewer than six per cent of people in circular industries suffering inadequate hours, compared to an average of nearly ten per cent across other employees in the UK.

A green economy will create good quality growth. Governed well, it can raise family incomes and support a fairer society. But it can only do so if it maintains the wide consensus that has allowed it to grow through administrations led by Labour, Liberal Democrat and Conservative ministers.

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