Memorandum submitted by Friends of the
Earth: England, Wales and Northern Ireland
We welcome the opportunity to give evidence
to this inquiry. Our evidence focuses on three of the questions
in the inquiry:
Impact of globalisation on the UK
Opportunities and challenges of globalisation.
Implications for businesses.
In particular we set out four key opportunities
Retaining and attracting people.
Becoming a world-leader in renewable
Resisting outdated ways of "being
We also address four key Government policy areas
Promoting innovation through regulation.
Shifting the burden of taxation.
Reform of policy appraisal.
Q1 Globalisation and its impact on the UK
1. Globalisation is a broad and hugely contested
term. In this evidence we take it to mean the continuing increase
in cross-border economic, social, cultural and technological exchange.
Given the focus of the inquiry on policies that enable the UK
economy to thrive in the context of globalisation we will focus
only on the economic impact elements of globalisation.
2. Conventionally the facets of globalisation
to consider in relation to the impact on the UK economy would
be about the functioning of the global economytrade, capital
flows, emerging economies, levels of competition, new markets
etc. But in this latest phase of globalisation it is the relationship
of the global economy to the environment within which it operates,
and upon which it relies, that has become of pressing importance
not least in relation to climate change. In our evidence we therefore
highlight two of the most important facets of the current form
of globalisation for our economies:
The continuing and significant inefficiency
with which resources are used, and intimately linked to this.
The increasingly rapid destabilisation
and removal of environmental systems upon which the UK's and indeed
every countries economy relies, as environmental limits are breached.
3. The UK and other Western countries are
profligate in their use of energy and resources. Yet as all the
world's economies grow, and as the need for absolute cuts in global
carbon emissions grows more acute, it will be essential that all
the world's economics become far more efficient in their use of
resources. For example, given predicted increases in UK GDP of
2.5% a year, and a target to cut UK carbon emissions by 60% by
2050, this means the carbon intensity of GDP needs to improve
by a factor of over 10.
4. However, globalisation is in many ways
currently making this inefficiency even worse. As an example,
the increased use of air freighting agricultural produce across
the world is having an ever growing contribution to climate change,
with its massive attendant economic costs. This increased globalisation
is happening in large part because aviation kerosene is untaxed,
making it an artificially cheap option. Use of aviation fuel has
massive economic externalities, and as a result the continued
expansion of aviation is an inefficient use of economic resources.
Breaching environmental limits
5. Our economy depends on the availability
of natural resources to provide:
the basic inputs to create goods
healthy conditions for people and
functioning ecosystems that, for
example, regulate the climate, deal with pollution or regulate
6. Wild nature should continue to provide
these benefits for millions of years, if we respect the limits
of what we can take out of the environment or put into it. If
we don't, the evidence shows that households incomes, companies
bottom lines and economic performance will suffer.
7. The biggest threat of all to these ecosystem
services upon which our economies and social well-being relies
is climate change.
8. As Prime Minister Tony Blair put it:
"What is now plain is that the emission
of greenhouse gases ... is causing global warming at a rate that
began as significant, has become alarming and is simply unsustainable
in the long-term. And by long-term I do not mean centuries ahead.
I mean within the lifetime of my children certainly; and possibly
within my own. And by unsustainable, I do not mean a phenomenon
causing problems of adjustment. I mean a challenge so far-reaching
in its impact and irreversible in its destructive power, that
it alters radically human existence."
9. Loss of biodiversity and the removal
of ecosystems also has profound economic implications. In March
2005 the Millennium Ecosystem Assessment, a joint project of a
range of UN and international scientific agencies and NGOs, concluded
that ecosystem degradation would for example result in the failure
to achieve the Millennium Development Goal of halving hunger by
2015 and would be a barrier to achieving the goals on poverty
eradication and health.
How to shape and respond to globalisation
10. The good news is that the nature of
globalisation, its speed, direction, ability to remain within
environmental limits, extent within different economic sectors
can all be shaped by Government action and policy. The Kyoto Protocol,
other multilateral environmental agreements, and the World Trade
talks are all examples where Governments collectively aims to
11. The opportunities and threats associated
with globalisation for the UK economy are therefore not simply
about responding to an independent outside force but are as much
about influencing the nature of that force.
12. In addressing those opportunities and
threats the UK Government must be explicit that its goal is to
deliver high quality economic growth, not just focus on increased
economic growth. This is because the type of economic growthits
"quality"can hinder or help progress on the Government's
social and environmental goals, and also harm or help the economy.
Types of growth which are highly-carbon
intensive will lead to massive future economic costs, both in
terms of actual economic damage from climate change, and rising
costs as the cost of carbon-based fuels increases.
Types of growth which reduce the
quality of life in UK cities will reduce the UK's capacity to
retain or attract highly mobile skilled workers in the decades
13. Both the Prime Minister
and the Chancellor have accepted that a blunt focus on the quantity
of economic growth is wrong. In his speech to the UN in April
2006 the Chancellor stated that:
"Six decades ago, the great British economist
John Maynard Keynes, speaking here in America, laid down what
he believed were the foundations of economic policythat
it was for government to ensure the twin objectives of high and
stable levels of growth and employment. So today I want to propose
a third objective on which our economies must be builtand
that is we must match growth and justice with environmental care."
14. We hope that the Select Committee will
press the Chancellor to set out how he will ensure that the Government's
economic policies in future do indeed do this.
15. The increasing globalisation of the
world's economy has raised concern about the ability of UK industry
to compete in world markets. However, a focus on quality growth
requires the notion of the competitiveness of a national economy
to be rethoughtit is no longer sufficient to treat it as
being solely about increasing GDPthe quality of growth
16. Many of the Government's prescriptions
for making the UK more competitive are undoubtedly worth pursuing
such as improving skills, innovation, education and investmentand
would help deliver quality growth.
17. However, there have also been demands
that government regulations need to be reduced in order to reduce
business costspurportedly in order to deliver a more competitive
economy. Nobody would argue against striving for "better
regulation" if this means regulation that is well-designed,
uses appropriate policy instruments, and meets its essential objectives
at least cost to industry and the public purse. But so often,
demands for better regulation are actually aimed at reducing environmental
and social standards themselvessomething that we argue
is in fact bad for the long-term competitiveness and bad for quality
growth, for five reasons:
High environmental standards in a
clear policy framework can be a powerful spur for innovation and
hence a driver of competitiveness.
Environmental regulation, including
economic instruments, has a track record in driving productivity
improvements, particularly around energy and resource efficiency,
unlike ineffective policy alternatives such as voluntary approaches.
High environmental standards are
crucial to ensuring that the UK succeeds and thrives in getting
quality economic growthrather than any-old growth with
all the risks to the future economy and environment that entails.
The UK will not succeed in a globalised
world by a short-sighted, knee-jerk reaction of lowering environmental
and social standards in a race-to-the-bottom against economies
like China: our future competitive advantage will lie in innovation,
a highly skilled workforce, and a low and efficient use of scarce
Failure to address environmental
challenges will undermine the ability to sustain growthas
environmental systems become more unpredictable and no longer
provide the environmental services the economy currently takes
for granted but does not include in its cost calculations.
18. This view of high environmental standards
and a clear policy framework is not just an environmental perspective
but an economic one as well. A recent global review of competitiveness
by Professor's Daniel Esty and Michael Porter from Yale and Harvard
Business School found that
"economic competitiveness and environmental
performance are compatible, if not mutually reinforcing. Low pollution
and efficient energy use are a sign of the highly productive use
of resources. Policies that stimulate improvements in environmental
quality, then, may actually foster improvements in competitiveness
that underpin a rising standard of living in the long run."
Q2 Opportunities and challenges
We set out here four opportunities and challenges
for the UK in responding to globalisation.
(i) Tackling short-termism
19. The UK should be taking a long-term
view of globalisationasking what sort of economy the UK
will need in future decades, and how we can best equip ourselves
for this transition. There is now overwhelming scientific consensus
on two of the main changes required in the nature of globalisation.
First, tackling the threat of catastrophic
climate change requires that emissions of carbon have to be significantly
reduced, with western economies such as our own making the most
Second, in response to the Millennium
Ecosystem Assessment alarm call over the rate at which the global
economy is drawing down the planet's natural resources which provide
essential life-support systems to everyone of us and our economies,
the efficiency with which this environmental capital is used will
need to increase at least 10-fold.
20. This is a threat to the UK economy not
just from climate destabilisation and reduction in the ability
of environmental systems to provide essential services to the
economy, but also from increasing competition for environmental
resourcesat a time when there are also non-negotiable ecological
imperatives for reducing the use of them.
21. But the opportunities for the UK economy
are even more significant. As world governments face up to these
threats the economic opportunities for enterprises in developing
low-carbon, low-resource use products and services and for Governments
in developing low-carbon, resource efficient economies are immense.
Smart approaches to globalisation will focus on getting growth
from far less natural resources. Economies dependent on less resources
will be in a better competitive position for example through being
less susceptible to swings in resource prices which are likely
to get more volatile.
22. It is not however enough for Government
to just say that green growth is good. It will not happen unless
green growth is actively promoted by Government through tax, spending
and regulatory structures. This will mean pursuing both greener
types of development option, and increasing the resource and energy
efficiency of each of these options. On this latter point we again
note the Chancellor's recent speech to the UN, where he stated:
"Of course increasing labour productivity
has always been a core goal of all successful businesses. Now
as energy costs rise and materials become more scarce, we need
to pay the same attention to resource productivity."
23. We hope that the Select Committee will
ask the Chancellor to set out how he will drive forward this new
resource productivity agenda.
(ii) Retaining and attracting people
24. The UK Government believes that high-tech
activities are the future for the UKif this is so, the
success of this strategy relies not just on retaining and attracting
businesses to the UK, but retaining and attracting people to the
UK. The highly-skilled workers delivering this GDP will also be
increasingly mobileand so the success of the UK will increasingly
depend on the UK being able to offer a high quality of life to
its citizensotherwise they will leave. This analysis suggests
that ensuring a high quality of life should be a central part
of the UK's overall response to globalisation.
25. This is another argument that a focus
on the quality of economic growth is essential. If we pursue growth
paths which damage UK quality of life, it may bring short-term
benefits, but will compromise the long-term economic outlook for
the country. There is little point pursuing a growth strategy
involving concreting over the south-east, if this means that the
south-east will become so unpleasant to live in that people move
(iii) Becoming a world-leader in renewable technologies
26. New technologies are needed to keep
a global economy thriving within environmental limits. Already
the environmental sector of the economy is of a similar size to
aerospace and growing faster. By 2010 the global market for the
sector is estimated to US$688 billion; in the UK the sector had
a turnover of £25 billion in 2004 and employs 400,000 people.
27. Renewable energy is predicted by the
International Energy Agency and others to experience massive growth
in the next 50 years. The UK has some of the world's best wave,
wind and tidal resources, and engineering experience of sea conditions.
Regulation plays a key role in the UK for realising these opportunities
as the electricity market is mature, and it is very difficult
for new entrants. Regulation and other intervention is essential
otherwise the UK will not be a leader in these new technologieswhich
would be a huge missed opportunity.
(iv) Resisting out-dated ways of "being
28. The UK will almost certainly have a
completely different make-up to its GDP profile in the decades
to come. We should stop focusing on "traditional" ways
of increasing productivity for existing types of growth, and focus
on how to encourage new future forms of growth. Two examples of
change required are:
Reduced focus on physical infrastructure.
29. Growth has been seen traditionally as
going in hand with more infrastructuremore houses, roads,
airports. But there are diminishing returns for productivity improvements
in many of these infrastructure projects, particularly on transport.
And it is far more likely that future economic growth will be
based on globalised information flows, rather than increased physical
flowsgiven the imperatives of climate change and resource
use, the overall dependence of global GDP on physical flows will
increasingly be last century's way of delivering benefits.
Seeing regulation and intervention
as a stimulus to new, quality growth, not a brake on old-growth.
30. Currently new regulations are far too
often wrongly seen in a negative light, and dismissed as a short-term
cost to the economy. For example, stronger regulations for new
houses were dismissed as putting too much on the cost of a new
home. However, this was an entirely narrow and short-sighted analysis.
Not only were the costs exaggerated, but the benefitsfrom
cheaper fuel bills to householders, increased value for the homeowner,
and reduced economic costs to the economy through less fuel use
and reduced climate change damagewere all downplayed. Regulation
will have an increasingly important role to give us strong, quality-growth
economies. This applies both at the level of individual policies
delivering efficiency, but also at the national levelsome
of the world's most competitive economies have the highest levels
of regulationfor example Denmark and Finland, who use strong
regulatory policies to drive innovation and quality growth.
Q3 Businesses: the relevance of globalisation
to the Government's policies on:
31. Globalisation has placed in sharp relief
the need for Government policies to consider the type as well
as the amount of innovation in the UK economy. This is not to
be prescriptive of the results of the innovation process, but
to be clear and firm about the environmental limits within which
our economy and the global economy operate. The opportunities
for innovation in responding to the inefficiency with which natural
resources are presently used and failure of economic policy to
properly consider the value of the environmental systems upon
which it relies, are immense. Government has a crucial role to
play in providing those who contribute to the innovation process,
most importantly the business sector, with a clear policy framework
promoting high environmental standards. Providing such a policy
framework in the UK will allow our economy to thrive in the context
32. There is a growing body of evidence
that environmental regulation stimulates innovation. This in turn
reduces the cost of compliance while delivering a range of wider
benefits. According to a recent UK study,
"Well thought out environmental policies
provide opportunities for innovation, create new markets and increase
competitiveness through greater resource efficiency and new investment
opportunities. In this sense environment policies can help achieve
the core [EU] Lisbon strategy objectives of more growth and jobs."
33. This role for Government is also identified
by progressive business. Chairman and Chief Executive Officer
of General Electric, Jeff Immelt, observes:
"Europe today is the major force for environmental
innovation. WeGeneral Electricare therefore investing
in environmentally cleaner technology because it will increase
our revenue, our value and our profits [...] Not because it is
trendy or moral, but because it will accelerate our growth and
make us more competitive."
The revised Lisbon Agenda for Europe
34. While stressing that inefficient regulations
can impose a significant burden on business, the UK's Lisbon National
Reform Programme also points out that
"Effective and well-focused regulation can
play a vital role in correcting market failures, promoting fairness
and increasing competition. Society expects government to provide
protection for the general public, consumers and employees consistent
with the best international standards, and these expectations
grow over time."
In relation to the environment, this means that
it is important to ensure that high environmental standards in
the UK and the EU are not jeopardised by the search for reductions
in regulatory burdens. It also means that the European Union and
the UK Government can see the swift development and deployment
of policies to tackle greenhouse gas emissions decisively as entirely
in keeping with the Lisbon agenda.
Design and level of business taxation
35. The nature of globalisation highlights
the need for the UK Government to take heed once again of the
large body of evidence showing that shifting business taxation
off employing people and onto pollution and waste makes sense
for the economy and stimulates innovation. This evidence has been
used by previous Governments to bring in new environmental taxes
(the Landfill Tax under the last Conservative government and the
Climate Change Levy and Aggregates Levy under recent Labour government)
along with cuts in employers NIC. Unfortunately the present Government
turned its back on shifting business taxation with its hike in
employers NIC. The Chancellor should as a matter of urgency in
the context of the threats of globalisation reinstate a green
tax-shift policy as a central part of climate policy and waste
36. A good example of the benefits of green
business taxation is the introduction in the UK in April 2001
of the Climate Change Levy. The levy provided the incentiveespecially
for high energy usersto look at energy use across their
operations. A survey of businesses completed 18 months after the
introduction of the levy,
found that it had raised awareness amongst senior managers about
the need to address energy use and greenhouse gas emissions; helped
change energy management policies; and increased the use of renewables.
Crucially the survey found that though these changes had been
considered before, it was the financial incentive brought by the
levy that provided the immediate stimulus to the improvements.
Reducing the burden of business regulation
37. Although environmental regulation has
economic as well as environmental benefits it should be designed
in a way that minimises its administrative costs on business.
It is in nobody's interest to achieve the same environmental outcomes
at a higher administrative cost. Equally the economic (and environmental)
benefits of environmental regulation such as stimulating innovation
and investment in efficiency are improved by high environmental
standards and proper enforcement.
38. In the context of globalisation, grasping
the opportunities presented by high environmental standards must
be a key element for a thriving UK economy. There is, however,
currently a problemthe drive to reduce the administrative
costs of regulation has spilled over into a deregulatory agenda
which acts a blockage for developing and deploying better regulation.
39. As Porter and Esty found in a global
survey of competitiveness lowering environmental standards and
avoiding new necessary environmental regulation may have a superficial
attraction but in make makes no economic sense as it brings no
benefit to the economy as a whole and if anything acts a drag
40. There are also significant problems
with the current processes for policy appraisal. A key component
of the better regulation agenda should be the systematic and thorough
appraisal of the likely future costs and benefits of proposed
regulations. In the UK, the system of Regulatory Impact Assessment
(RIA)introduced in 1997 primarily as a tool for assessing
economic impacts on businesswas extended in 2004 to take
in the wider consideration of environmental, alongside economic
and social, impacts. A similar, integrated system of impact assessment
had been introduced by the European Commission in 2002.
41. Good policy appraisal is essential for
better regulationbut is it vital that impact assessments
are based on reliable data and cover not only costs, but all the
benefits as well. A range of recent studies has concluded that
in most UK and EU assessments the range of impacts considered
is limited, and they downplay the environment in general and environmental
benefits in particular. Impact assessments have also tended to
focus on a limited range of economic impactsmainly short-term
costs to industrywhile ignoring the economic benefits that
can be derived from setting high environmental standards.
42. A recent study by the UK's National
Audit Office of a cross-section of RIAs has highlighted their
lack of balance. Five of the 10 RIAs examined gave "poor
quality analysis of environmental and social impacts", while
eight out of 10 exhibited "some weak elements" in this
A review by the Danish Environmental Assessment Institute of 58
European Commission impact assessments showed that over half did
not even consider environmental impacts at all.
43. Apart from limited consideration of
environmental impacts, a major weakness in UK RIAs has been the
failure to consider adequately the economic benefits created by
environmental protection measures. In particular, not one RIA
has ever included an assessment of the impact of an environmental
regulation on boosting the UK's environmental technology industry.
44. Other economic benefits of well-designed
environmental regulations are also often ignored:
Improved health. One significant
study by the UK's Environment Department concluded that a 0.75
µg/m3 reduction in airborne particles from additional measures
would lead to a gain of between 278,000 to 508,000 life years
for the UK population over the years 2010-10, together with significant
savings in health care costs.
Improved amenity. A study
for the UK's Environment Department on the impact of the EU's
Water Framework Directive concluded that in England and Wales
alone amenity benefits could total as much as £1.9 billion.
Maximum total benefits amounted to £6.1 billion.
Economic benefits to third parties.
Higher environmental standards can reduce the costs of damage
to economically important ecosystems, agriculture, forestry and
building materials (like stone, rubber and painted surfaces).
One UK Government report on the impact of VOC emissions estimated
their costs ranged from £170-£354 million a year.
45. As well as downplaying the economic
benefits of environmental regulations, RIAs are often based on
exaggerated estimates of costs to business, based on scare stories
emanating from industry lobby groups. The Hampton Reviewa
review for HM Treasury on reducing administrative burdensreported
that a firm with over 50 employees would only spend two hours
per employee per month on government regulation and paperworkand
only a small proportion of this is likely to be in respect of
environmental regulation. At EU level, more than 30 additional
impact assessments of the Commission's REACH proposal on the registration
of chemicals were undertaken by industry representatives. The
Commission's Vice-President for Industry and Enterprise, Gunter
Verheugen, concluded that most of their cost estimates were unreliable.
46. So, impact assessments as currently
conducted in the UK and the EU give an incomplete picture of all
relevant impacts, and undermine a key principle of better regulationthat
policy-making should be evidence-based. In particular, assessments
should take account of all the economic benefits that flow from
high environmental standards, not least the boost they can give
to competitiveness through increased resource productivity and
eco-innovation. Scare stories on the costs of regulation should
be checked against independent ex post studies of the actual
costs and benefits of implementing higher environmental standards.
47. We hope that the Committee will recommend
an overhaul of current processes for policy appraisal.
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