Businesses have not always acted
according to economic theory
116. Time and again throughout our inquiry, we
heard witnesses argue that there was a gap between economic theory
and the actions of businesses in the real world. According to
economic theory, businesses should already have been focusing
far more on the rational goal of reducing their costs by increasing
their energy efficiency. The theoretical basis for introducing
the Levy was that it would harness this rational interest. Yet
we heard repeatedly that on its own this was not enough to capture
the interest and innovation of the majority of firms; they require
an extra stimulus to create new organisational structures and
cultures, focused on energy efficiency. This has obvious implications
for climate change policy, not just covering the business sector,
but all sectors of society: it says that the Government cannot
rely simply on increasing the cost of carbon to achieve incremental
reductions in emissions. If even large energy intensive companies
require additional policy measures—not
just 'sticks', but 'carrots' and 'tambourines' in the words of
Andrew Warren—then this must be even more true for small
businesses, public bodies, and domestic households. We recommend
the Government report on how it is applying this lesson in other
policies, across the whole of the UK Climate Change Programme.
