Memorandum submitted by the Environmental Industries Commission (PBR08014)

 

EIC's GREEN JOBS GROWTH STRATEGY: INVESTING

FOR THE FUTURE

 

POLICY RECOMMENDATIONS FOR PROMOTING BRITAIN'S

ENVIRONMENTAL INDUSTRY

 

 

INTRODUCTION

 

1. EIC

 

The Environmental Industries Commission (EIC) represents over 300 environmental technology and services (ETS) companies in the UK (making it Europe's largest ETS lobbying group).

 

 

2. The Environmental Industry

 

Definitions of the "environmental industry" (and "green jobs") vary, but it is clear there are three key sectors - distinct but interlinked.

 

(i) The Environmental Technology and Services Industry

 

The main sectors are

 

· Water Pollution Control;

· Air Pollution Control;

· Waste Treatment Technologies and Recycling;

· Environmental Consultancy;

· Environmental Monitoring and Testing; and

· Contaminated Land Remediation.

 

Smaller sub-sectors cover Marine Pollution Control; Noise and Vibration Control; etc.

 

The UK's Environmental Technology and Services Industry has an annual turnover of £23 billion.

 

(ii) The Carbon Management Industry

 

The main sectors are:

 

· Energy Management (inc Energy Efficiency);

· Sustainable Building Technologies;

· Carbon Finance (inc Carbon Trading); and

· Energy Storage Technologies.

Smaller sub-sectors include CCS; Energy Storage; etc.

 

The UK's Carbon Management Industry has an annual turnover of £33 billion.

 

(iii) The Renewable Energy Industry

 

The main sectors are:

 

· Wind;

· CHP;

· Biomass (inc Biogas);

· Wave and Tidal;

· Solar; and

· Alternative Fuels (inc Biofuels).

 

Smaller sub-sectors cover Geothermal; Hydro; etc

 

The UK's Renewable Energy Industry has an annual turnover of £50 billion.

 

Overall, the UK's environmental industry exports some £10 billion.

 

And total employment in the UK's environmental industry now exceeds 800,000 jobs.

 

 

 

BACKGROUND: The Challenges - The Double Whammy

 

 

1. Economic Troubles (Toxic Financial Time Bombs)

 

The world's financial institutions are nursing losses of $2,800,000,000,000 ($2.8 trillion) according to the Bank of England's Financial Stability Report October 2008.

 

The situation has been described as "possibly the largest financial crisis of its kind in human history" by the Deputy Governor of The Bank of England , and as "a financial storm that comes along once every 100 years" by Japan's Prime Minister, Taro Aso.

 

Recession is upon us, with unemployment and corporate failures mounting rapidly.

 

 

2. Environmental Troubles (Toxic Ecological Time Bombs)

 

Yet the UK and the world face an equally serious challenge from growing pollution and excessive use of natural resources.

 

Humans are using 30% more resources than the Earth can replenish - an ecological debt of $4,000,000,000,000 ($4 trillion) a year, according to the recent (October 2008) Living Planet Report from WWF.

The latest science on global warming suggests the problem is much worse than generally accepted. Emissions of CO2 are rising by 3% a year (the Garnaut Report, Australia, October 2008), but the IPPC's worst case scenario assumes 2.5%

 

These growing environmental problems have substantial financial impacts too.

 

Failure to act on climate change will be equivalent to losing at least 5% of global GDP each year, now and forever (and this could rise to 20% of GDP or more) predicts the Stern Review of the Economics of Climate Change.

 

The Economic Opportunity

 

1. A "Green New Deal"

 

Politicians around the world have become increasingly aware that environmental protection yields significant economic benefits as well as ecological gains.

 

A substantial new industry has arisen: the UK's environmental industry, which has a turnover of £106 billion (2007/8) and employs 800,000 workers.

 

Europe's environmental industry boasts 3.4 million jobs - with 1.8 million people employed in Germany's environmental protection industry alone.

 

The global market for environmental solutions is already worth £3,046 billion pa (2007/8).

 

2. The Good News for the Jobless

 

Economists are now beginning to explore the job creation potential of specific environmental policy initiatives. The example of making our housing stock energy efficient (to cut bills and CO2 emissions) is illuminating.

 

In the US, The Apollo Institute estimates that every $1million invested in energy efficiency projects creates 21.5 jobs (compared to 11.5 in new natural gas generation).

 

In Germany, $5.2 billion of public subsidy leveraging private investment led to the energy efficiency retrofitting of 340,000 apartments, creating or saving 140,000 jobs.

 

3. The Good News for Mainstream Industry

 

The traditional (but now "out-dated") view in economic ministries has been that environmental protection policies are solely a cost burden on the rest of industry and act as a drag on growth - and so constitute an unaffordable luxury at a time of recession.

 

In fact, much pollution is the result of inefficiency in manufacturing processes and across commerce generally.

 

 

It has been calculated that in the UK, for example, the total value of potential resource efficiency savings to British businesses ranges between £5.6 billion to £7.4 billion. pa.

As the Chief Executive of one of the world's largest retailers recently said "the choice is not "green or grow". That is a false choice. You can do both - and you must do both. Reducing emissions does not merely fight climate change, it also cuts costs." (Sir Terry Leahy, Tesco, September 2008).

 

And of course, many companies in mainstream industry are developing environmental solutions and then selling them on - thereby creating new revenue streams.

 

Unfortunately, many "polluting" industries have regularly failed to seize such efficiencies and complain to politicians about the short-term costs of pollution control. These are often exaggerated, leading the House of Commons Environmental Audit Committee to label them as "scaremongering" (Pre-Budget 2004 and Budget 2005: Tax, Appraisal, and the Environment, May 2005).

 

Policy debate needs to focus on the facts, not scaremongering by self-interested parties.

 

The EU's climate change policies will cost less than 0.5% GDP or €3 a week for everyone according to Commission President Jose Manuel Barroso. Similarly, the CBI's Climate Change TaskForce expects the cost of meeting the UK Government's climate change targets will require an investment of just £100 a year per household (under 1 per cent of GDP) by 2030.

 

Will Britain Seize the Opportunity In The Face of Growing Competition?

 

It is encouraging that some leading political figures realise that environmental protection policies should not be put on the backburner as they can be a major part of the solution to our financial and economic crisis.

 

Gordon Brown, UK Prime Minister, is to be commended when saying that: "some people say that these difficult economic times should or will reduce the Government's commitment to building a low carbon economy. They should not and will not."

 

But we urgently need actions to follow through on these words of political intent. Or Britain will miss out and allow our international competitors to seize these huge environmental markets. First mover advantage rules.

 

As the environment is a "market failure" (as Lord Stern so forcefully highlighted), this new green economic opportunity is totally dependent on Governments intervening - and acting ahead of our international competitors.

 

The USA is once again a major competitive threat for Europe's environmental industries.

 

In the 1990s, the US Government under Clinton and Gore prioritised the environmental industry for Government support through: The result was world leadership in the global environmental marketplace - and a $ 9billion trade surplus.

 

Despite George Bush's luddite attitude to climate change, some progress has been made on the ground. The USA is, for example, the world leader in wind energy generation - thanks to a federal production tax credit and investment tax credit, combined with local fiscal incentives (ranging from cash grants to sales tax exemptions).

 

And now the USA has a President who talks of a "planet in peril", and who has a raft of detailed policy proposals to help return the USA to world leadership.

 

President Obama's environmental policies include, inter alia:

 

· A pledge to invest £150 billion to create 5 million new green collar jobs by 2020.

 

· A plan to convert manufacturing centres into Clean Technology Leaders through a federal investment programme to help them modernise - including support for car companies to retool to create new fuel-efficient cars.

 

· A Green Jobs Corps for 'disconnect youth' to improve energy conservation and efficiency of homes and buildings in local communities.

 

· Investment in Basic Research by doubling federal science and research funding for clean energy projects.

 

· Creation of a Clean Technologies Deployment Venture Capital Fund to boost technology development.

 

· A Grant Program for Early Adopters in implementing new building codes that prioritise energy efficiency.

.

In addition, various US States are now developing green jobs programmes, including New York, Virginia, Maryland and New Hampshire. The New York Times reports that every Washington Senator and Congressman are talking about green jobs.

 

The USA is not our only competitor

 

Germany, in November 2008, adopted an environmental technology "master plan" aimed at making it a world leader in eco-innovation and boost exports (particularly of water, climate protection and resource efficiency technologies). The plan includes significant increases in government expenditure on R&D.

 

Germany's January 2009 50 billion euro economic stimulus package includes 14 billion euros for "sustainable" public works, including improving the energy efficiency of public buildings.

 

The Korean Government in January 2009, announced a $38 billion (over 4 years) "Green New Deal" to create 960,000 jobs.

 

The Japanese Government has also announced its intention to expand the "green business market" and create 1 million new jobs, thereby "taking care of both the environment and the economy."

 

 

 

 

UK Policy on Green Jobs - The 2008 Pre-Budget Report Et Al

 

"Britain must be part of the high-tech manufacturing of the future, and one very important area of that is around green industries...some of our competitors have been better at this than us...America does a huge amount to support some of these new industries" (Ed Miliband MP, Secretary of State, December 2008).

 

The Government has not been inactive.

 

In September 2008 the Government launched a "refreshed" Manufacturing Strategy that highlighted "seizing the opportunities of the low carbon economy" and "supporting hundreds of thousands of green collar jobs". It promised, a "Low Carbon Industrial Strategy" - this is eagerly awaited by EIC and the industry.

 

The December 2008 Pre-Budget Report's £20+ billion fiscal stimulus, talked of a "green stimulus" with, primarily, some £535 million of accelerated capital spending environmentally-targeted (improving energy efficiency in council homes and schools, for example).

 

But it is NOT enough. It is time for Britain to get serious about ensuring its environmental industry wins the lions share of the global markets.

 

The holes in UK policy are manifold.

 

"Unlike the US, the UK has no comprehensive, integrated strategy for the creation of green technology...no coherent, determined national initiative" (Lord Chris Smith, Chair, The Environment Agency).

 

Why does BERR have no "Environmental Industry Strategy"? - yet it has a "Defence Industrial Strategy" and one for "creative industries" (whose Minister, Stephen Carter, recently said "the credit crunch makes a digital strategy more critical").

 

[BERR "Sector Strategies cover key industry needs such as R&D; skills; knowledge transfer; investment; and regulatory policy].

 

The result: the environmental industry is largely ignored in the corridors of power and lacks a strategic framework for Government support.

 

Why is there no "coordinating unit" to maximise the activities of the different (relevant) government departments?

 

The result: the various UK policies and support mechanisms are uncoordinated and fragmented.

 

Why have the resources (and staffing) of the environmental industry's sponsoring unit in Whitehall been constantly cut back?

 

 

 

The result: traditional/old European industries have a loud voice in the corridors of power in Brussels and the environmental industry has been largely ignored (the recent positive rhetoric has yet to yield any hard government action).

 

Why has funding of UK Trade and Investment's support for environmental exporters cut by 21% in 2007/8, to under £1 million?

 

The result: as the majority of UK environmental companies are SMEs they lack the ability to expand into (rapidly growing) overseas markets.

 

Why does the Treasury levy over £600 million in green taxes, but only give back 2% in green tax breaks?

 

The result: businesses and consumers still largely avoid green purchases (unless directly required to by regulation).

 

The following EIC recommendations tackle these and other problems and set out how the Government can make Britain's environmental industry a global success story.

 

 

 

EIC "GREEN ECONOMY STRATEGY"

RECOMMENDATIONS

 

Recommendation One: A Fiscal Stimulus for Green Jobs (in the Budget 2009)

 

· A £10 billion "Green Jobs Investment Fund" with:

 

Ø £6 billion for an infrastructure fund to build 50,000 new (low-carbon) social houses (on brownfield sites) in 2009/10 [creating/protecting in the region of 160,000 jobs]

Ø £1.5 billion for extra investment in energy efficiency retrofitting of low-income family homes [creating in the region of 145,000 jobs]

Ø £1 billion of extra investment on energy efficiency retrofitting of schools and hospitals [creating in the region of 21,500 jobs]

 

· Extend the existing limited investment tax breaks/incentives for commercial purchasers to all environmental technologies (and increase from 100% to 150% for the most innovative) to increase the use of state-of-the-art cleaner technologies across the British industry.

 

· Provide funding for:

 

Ø Cleaning up brownfield sites (for new homes);

Ø Retrofitting public sector vehicles (notably buses) with air pollution controls;

Ø R&D/Innovation (see 3 below); and

Ø Exporting (see 3 below).

 

 

 

 

· Reverse the recent budget cuts in government support programmes for:

 

Ø Resource efficiency in British companies;

Ø Environmental exporters; and

Ø (Environmental and Resource Efficiency) Knowledge Transfer Networks.

 

Recommendation Two: Government Support Policies

 

The British Government should:

 

· Use public procurement to trigger the development of domestic environmental markets in advance of future new regulation (eg by rapidly implementing and expanding the Forward Commitment Procurement model across all government departments).

 

· Increase support for "green jobs" training (e.g. by urgently launching the National Skills Council for Environmental Industries and ensuring all Skills Councils immediately develop green jobs' skills ).

 

· Establish an Environmental Technology Verification Programme (with sites for testing) for all key technologies (e.g. Low Emission Zone anti-pollution vehicle technologies).

 

· Increase funding for environmental R&D to a level that is in line with major international competitors (particularly Germany and Japan).

 

· Provide export support at a level matching our international competitors (e.g. by supporting demonstration projects of environmental technologies in overseas countries).

 

 

Recommendation Three: A Formal BERR "Environmental Industry Growth Strategy"

 

The British Government should establish:

 

· A fully-resourced Sponsoring Unit for the UK's environmental industry.

 

· An "Environmental Technology Industry Forum" to coordinate the range of policies on:

 

Ø Environmental Industry Support

Ø Environmental Regulation

Ø Technology Diffusion

Ø Innovation

Ø Investment

Ø Skills training

Ø Export support.

 

 

Recommendation Four: Long-Term Regulatory Targets to Support Investment and Innovation

 

The British Government should solve particular regulatory problems, for example:

 

· Carbon Management: Tighten the new Carbon Reduction Commitment by reducing the threshold from 6,000 Mwh of electricity use pa to 1,000 Mwh.

· Energy Efficiency: Use IPPC Directive implementation to require large industrial sites to implement medium - and long-term energy efficiency plans.

· Sustainable Buildings: Establish mandatory refurbishment standards for both homes and non-domestic buildings (and ensure enforcement).

· Air Pollution: Use the current revision of the IPPC Directive to set minimum emission limits.

· Water Pollution: Ensure the UK meets the requirements of the Water Framework Directive (through adequate investment approved in the next Periodic Review).

· Transport Pollution: Introduce a national framework for Low Emission Zones.

· Contaminated Land: Raise the target for new houses to be built on brownfield sites from 60 to 80%.

· Waste: Establish a price for embedded carbon (across the lifecycle of all materials).

· Renewable Energy: Incentivise individual companies to employ their own inhouse renewables (as part of the process of lowering their carbon footprint).

 

These EIC policy recommendations can make the UK's environmental industries a new engine of growth that can create hundreds of thousands of jobs.

 

However, these policies require a sea change in political attitudes - to steer future investment (both public and private) away from financial speculation and into green technologies and green collar jobs.

 

Many countries around the world now understand this. The German Environment Ministry has calculated that its Meseberg (Climate Change) Programme and its 2 billion Euros of subsidies will benefit the German economy by:

 

· Boosting GDP by 20 billion Euros a year (between 2010 and 2030).

· Creating some 200,000 jobs.

· Generating 17 billion Euros of exports of German climate protection technologies.

· Lowering the national debt by 180 billion Euros (by 2030).

 

A real "win, win" situation.

 

January 2009