This post is by Karen Ellis, chief economist at WWF. It was first published by Business Green.
Last week there were attacks by the government, and others, on green groups including ourselves, claiming that we are anti-growth and seek to undermine this country’s prosperity. But, in fact, it’s just the reverse: the proposals WWF has made – in line with those of countless businesses, financial institutions, academics, and reviews commissioned by the government itself – reflect our conviction that we desperately need to stimulate growth in the modern industries that will enable us to turn the UK’s economy around and make us resilient to the kind of energy and food crises that are currently bankrupting businesses and pushing family budgets to breaking point.
Our ambition is to catalyse the investment, innovation, technology and skills development that will ensure the UK prospers in the global economy, one that is on course to reach net zero, achieve a stable climate, and restore nature on this beautiful planet on which we all depend. We want the UK to succeed, and we want all countries to succeed, because this transition, although it will be tough, is the best thing we can do for our economy and our wellbeing, and those of future generations. Indeed, the science shows this is the only way we will be able to achieve ongoing economic prosperity.
There is now a chorus of voices from the business, finance and wider economic policy community (not to mention green groups) setting out what is needed to achieve this pro-growth transition: a stable policy framework, clear long term strategies setting out the direction of travel for the UK, and supportive, investment enabling regulation to create the sense of certainty business needs in order to invest.
Getting rid of ‘red tape’ doesn’t stimulate investment and growth
But what we are seeing instead is a shift back towards last century economics: the outdated, discredited idea, disconnected from the realities of the UK economy in 2022, that blanket deregulation and tax cuts will by themselves stimulate investment and growth.
There is little evidence this strategy will work. The UK has conducted several reviews of ‘red tape’ in the last ten years, while growth has continued to stagnate, as the government itself points out. Now the Retained EU Law Bill will give the government the ability to remove regulation, much of it environmental regulation to protect our rivers, beaches and air quality (while poor air quality is already responsible for more than 35,000 deaths in the UK annually), without a single vote in parliament.
Environmental regulations are not holding our economy back. OECD analysis shows environmental regulation has no detrimental effect on productivity overall, and actually boosts the performance of more advanced companies speeding the transition of the economy towards more environment friendly production. Indeed, the business community has been vocal in its calls for more environmental action from government. The World Economic Forum’s annual survey of business leaders, which asks them about the biggest risks they face to their business, consistently ranks climate change – and the failure of governments to address it – at the top. And a recent YouGov poll commissioned by the University of Cambridge Institute for Sustainability Leadership (CISL) found eight in ten leaders of large businesses across five continents believe regulation is needed for their net zero ambitions and for economy-wide decarbonisation.
There are many in the government who do recognise this. The UK’s announcement at COP26 last year that it would be the “world’s first net zero financial centre” was historic and world leading, positioning the UK’s powerful finance sector to better manage the enormous risks of a carbon bubble, and to take advantage of new opportunities in global financial markets arising from the transition. But recent reversals of the government’s previous efforts to support private sector investment in the low carbon economy, along with new support for high carbon industries, is creating uncertainty and confusion, and undermining the smart green investments that businesses have already made.
Investment zones can undermine business confidence to go for green tech
The introduction of investment zones is a case in point. They have not always proved to be an effective way to promote growth, with evaluations highlighting significant risk of displacement, ie just encouraging businesses to relocate from outside the zone to inside to take advantage of the tax benefits. And they further undermine general business confidence to invest in greener production technology when they rely on handing out licences to pollute in specific areas that jeopardise the health and wellbeing of local communities.
Instead, key policy building blocks to enable a pro-growth and resilience building transition to a net zero economy would be:
- A requirement for net zero transition plans by all large businesses by the end of 2023, as promised by the government.
- A Net Zero Investment Plan, setting out how government will incentivise investment in future growth industries.
- A clear mandate for financial regulators to deliver a net zero aligned financial sector.
- Stopping support for fossil fuel industries which will soon become obsolete, and redeploying that capital and those skillsets in the growth industries of the future.
Stimulating the growth industries of the future in this way would benefit our economy in both the long and the short term. A report by eminent economists Stiglitz, Stern and Hepburn showed that renewable energy generates more jobs in the short run, which boosts spending and increases short run GDP multipliers, and highlighted evidence that “every $1m in spending generates 7.5 full-time jobs in renewables infrastructure, 7.7 in energy efficiency, but only 2.7 in fossil fuels”.
Why is green economy investment being ignored?
Questions are rightly being asked about whether the government’s growth plan is stoking inflation and adding to cost of living pressures by increasing mortgage rates, but not enough questions are being asked about whether it will actually deliver any growth, and why the options to grow new businesses and jobs through investment in green technologies and greening the economy – in ways that also save people money and reduce our dependence on gas – are being ignored.
WWF sits on the Treasury’s Transition Plan Taskforce (TPT) and works with many businesses, from Aviva to Tesco, to support the transition. We also work with farmers who are innovating and investing in greener food production, whilst striving to ensure they are not undercut by trade deals with countries with lower environmental and animal welfare standards. And we work in communities in the UK and all over the world to ensure that combatting climate change and conserving nature delivers benefits to people in terms of improved incomes and greater resilience, such as reduced risk of flooding and droughts.
We are doing the hard yards of making this transition work for business and communities, with colleagues from across business, finance and government who understand that the transition to a net zero and nature positive economy will stimulate growth and jobs in the industries of the future. And we know we could do a whole lot more with the right policy framework. There is a route out of this economic crisis, and if the government is really listening it will find the environment sector is a big source of solutions that will generate growth, benefit households, and increase the resilience of our economy.