Push and pull is needed to green our economy

advancedmanufact-intextThis post is by Angela Francis, chief advisor on economics and economic development at WWF and GIPC commissioner. The post was first published on Business Green.

Innovation has been a big part of the government’s efforts to shift the dial on the UK’s woeful productivity performance over the past ten years. It will invest £80 billion in R&D by 2027 to catalyse further private sector investment, with the target is to bring overall R&D levels up to 2.4 per cent of GDP (from 1.7 per cent in 2016). But spending on research is not the end government is seeking.

It wants to see that investment translates into new ideas, products and processes that increase profits, reduce costs or increase competitiveness.  All things which would contribute to raising a firm’s productivity.

Working out how to translate UK research excellence into innovative businesses which deploy and commercialise new ideas has been a nut government has been trying to crack for years. The newly formed UK Research and Innovation (UKRI) is part of the solution, enabling research councils to work across disciplines and make strategic judgements about which research projects, of those aimed at supporting commercialisation, really have viable routes to market.

There is a policy gap
Of course, with most green innovation, routes to market are determined by policy. What is or is not commercially viable is shaped by the extent to which dirty systems pay for their environmental impacts or, the other way around, whether green alternatives are rewarded for the environmental benefits they provide. So, whilst UKRI can help to ensure we are being as effective as possible in pushing good new ideas into the world there is still a gap in ensuring policy is creating the corresponding pull for those ideas to be taken up.

And green innovation is one place we can’t afford to let policy gaps get in the way of good ideas. We need rapid uptake of new products and processes to avert climate change and restore nature. The UK – with the Climate Change Act, the Committee on Climate Change, the commitment to achieve net zero emissions by 2050 and the recently published environment bill – has the necessary legislative and institutional framework to give companies the certainty to invest reducing the environmental impact of their business.

It needs all departments on board
The challenge is getting all the arms of government to mobilise and create real opportunities for viable businesses that contribute to restoring nature and decarbonising our economy. The standard of new homes, retrofitting existing buildings, improving public transport, the way we farm and use land, and the type of infrastructure we invest in are the responsibility of the housing, transport and environment departments, as well as the Treasury, rather than the Department for Business, Energy and Industrial Strategy. The incentives those departments set for the businesses they work with, and the way they deploy their budgets, is crucial.

Getting this right could establish the UK as an eco-innovation hub.  A place that attracts investors interested in taking green technologies or systems from invention to deployment, commercialisation and growth.

The Green Innovation Policy Commission, a newly launched initiative, will identify how close we are to achieving that. Bringing together leading UK businesses and senior academics from UCL, this new commission will take a business perspective to better understand whether the incentives for innovation – whether they are motivated by regulatory compliance, securing a competitive edge, profit, accessing new markets or responding to environmental changes – are being supported by government policy, the innovation system and financial institutions.

There are two areas where the government could already take action to show it is serious about pulling green innovation into the economy.

Policies to spur business action and early investment
First, it should change the criteria for government projects and providers to include environmental performance and impact across all departments. This will encourage those companies who are already building low carbon, nature restoration and resource efficiency into their activities to go further and it would persuade others to act. A simple first step would be to ask for information on environmental impact in all government contracts, while a more ambitious move would be for government to commit to only invest in and procure goods and services that can demonstrate they are contributing to the UK’s decarbonisation or nature restoration.

Second, it must overcome the concern that, by investing in green technology early, government loses out on potential benefits as technology advances, by using big public sector contracts, or the assembly of private contractors, to drive rapid improvement in technology or systems. Advances in heat pumps, grid storage systems or construction materials don’t happen without demanding clients pushing the boundaries of what is possible. Forward commitment contracts should be used for large scale procurement, commissioning 3-5 years ahead via competitions, to allow producers to innovate and invest in the technological leaps we need.

These two policies alone would give the UK a credible claim that it is delivering on its green innovation ambitions, pushing and pulling us towards a green economy.

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