House of Commons - Low carbon technologies in a green economy

Low carbon technologies in a green economy - Energy and Climate Change Contents

2 THE GREEN ECONOMY

GREEN FISCAL STIMULUS

8. There have been numerous calls for a green stimulus or New Deal, internationally and in the UK:

Ban Ki-Moon, the UN Secretary-General, called for a Green New Deal in his speech to the UN Framework Convention on Climate Change Conference in Poznan in December 2008;
President Obama launched a green fiscal stimulus which intended to double the production of renewable energy in three years, retrofit three-quarters of all government buildings, weather-proof two million homes, and create nearly half a million jobs;
In July 2008 the Green New Deal Group (including Andrew Simms of the New Economics Foundation) called for a Green New Deal to tackle the "triple crunch" of a credit-fuelled financial crisis, accelerating climate change and soaring energy prices;
In a policy brief produced in February 2009, Professor Lord Stern of Brentford and others called for a green fiscal stimulus as "an effective boost to the economy, increasing labour demand in a timely fashion, while at the same time building the foundations for sound, sustainable and strong growth in the future."[9]

9. A report by HSBC in February 2009 showed that President Obama's 2009 stimulus package delivers about 12% on 'green' initiatives, the Asia Pacific region led by China achieves 23%, France and Germany average 15%, and the UK - based on the 2008 pre-budget report - delivered only 7%.[10]

10. Following this, in the April 2009 budget the Chancellor announced:

£435 million of extra support to develop energy efficiency measures for homes, businesses and public buildings;
£525 million of new financial support over the next two years for offshore wind, funded through the renewables obligation;
the possibility of renewable and other energy projects in the UK standing to benefit from up to £4 billion of new capital from the European Investment Bank;
a new funding mechanism to finance at least two, and up to four Carbon Capture and Storage projects (a firm commitment to support four projects was subsequently given in December 2009); and
£405 million of new funding to encourage low-carbon energy and advanced green manufacturing.

11. A reassessment of economic recovery plans was carried out by HSBC in November 2009. Taking into account the April 2009 budget, the proportion of 'green' initiatives in the UK stimulus package increased from 7% to 15%. Whilst this increase is welcomed, it still places the UK behind the South Korea, Australia, China, and France.[11]

Table 1. International green stimulus packages

COUNTRY TOTAL STIMULUS FUND
USDBN^$
TOTAL STIMULUS FUND AS A % OF GDP FUND PERIOD
YEARS
GREEN STIMULUS FUND
USDBN^$
GREEN FUND AS A % OF TOTAL STIMULUS FUND GREEN STIMULUS FUND AS A % OF GDP

South Korea 76.1 3.6% 2009-2012 59.9 79% 2.8%

Australia 17.1 2.9% 2009-2013 6.8 40% 1.2%

China 586.1 3.1% 2009-2010 200.8 34% 1.1%

France 33.7 0.7% 2009-2010 6.1 18% 0.13%

Japan 154 2.4% 2009 onwards 23.6 15% 0.36%

United Kingdom 34.9 1.6% 2009-2011 5.2 15% 0.24%

Germany 104.8 1.6% 2009-2010 13.8 13% 0.21%

United States 787 2.0% 10 years 94.1 12% 0.24%

Source: HSBC Bank plc, Taking Stock of the Green Stimulus, November 2009, p 2 and own calculations

12. When questioned about the UK's green stimulus and how we compare internationally, the Parliamentary Under-Secretary of State for Energy and Climate Change, Mr David Kidney MP, told us "when we are compared with other countries beware of not being compared on an even basis in this country of what we are doing compared with what they account for in their country."[12] He gave the example of the Carbon Emissions Reduction Target (CERT) obligation as a Government policy that results in green investment but which is not included in analyses of green stimulus. CERT is the obligation on energy companies to make savings on the amount of CO₂ emitted by households, which amounts to energy supplier investment of around £3 billion for the three years, 2008-2011.

13. The Government's green stimulus over the past year amounts to approximately £1.4 billion. Disappointment with the level of funds committed to green initiatives was expressed almost universally by the witnesses during our inquiry:

Greenpeace called for annual investment of over £10 billion;[13]
The Environmental Industries Commission called for £10 billion;[14]
The Energy Savings Trust agreed with Lord Stern's figure of approximately £11 billion;[15] and
The Sustainable Development Commission called for Government to commit up to £30 billion a year for the next 3 years on its green recovery, over and above the £50 billion for low carbon investment from the Comprehensive Spending Review 2007. This would represent around 50% of a total recovery package, amounting to 4% of the UK's annual GDP.[16]

The Sustainable Development Commission also told us:

Before the most recent budget, the total current commitment on green measures here in the UK amounted to 0.1% of annual GDP spread over three years. Even with the additional 2009 budget support this rises to a little over 0.2% spread over three years, still small compared to many other countries. For example, South Korea's green recovery package is 30 times larger, at 3% of GDP over the same time frame. Without a commitment on this scale, there is every likelihood that the Government's low-carbon, sustainable measures will be totally overwhelmed by "mainstream" (i.e. high-carbon and unsustainable) measures.[17]

14. Professor Lord Stern of Brentford and colleagues from the Grantham Institute on Climate Change and the Environment and the Centre for Climate Change Economics and Policy called for at least 20% of the economic stimulus packages now being put forward to be deployed on 'green' initiatives. They also suggested that for the G20 countries, a stimulus amounting to around 2% of GDP would be appropriate.[18]

15. We welcome the Government's green stimulus package put forward in the April 2009 budget and subsequent green initiatives announced in the December 2009 pre-budget report. Building on this, we recommend that the Government progressively increase the proportion of green initiatives in future fiscal packages to a level of 20%, as recommended by the Grantham Institute on Climate Change and the Environment and the Centre for Climate Change Economics and Policy. The Government should also enhance the proportion of public money spent on greening the economy.

GOVERNMENT PRIORITIES

16. In July 2009, the Government published four reports outlining its low carbon policies and priorities: The UK Low Carbon Transition Plan, The UK Renewable Energy Strategy, The UK Low Carbon Industrial Strategy and Low Carbon Transport: A Greener Future. These describe the Government's strategy for meeting its legally-binding target of a 34% cut in emissions on 1990 levels by 2020, and 15% of the UK's energy from renewable sources by 2020. They also set out some of the first investments from the £405 million for low carbon industries and transport announced at Budget 2009.

17. DECC's written evidence to us indicates that the Government recognises the importance of investment in low carbon technologies:

It is clear that in order to meet our longer term climate change goals, deliver our carbon budgets, and create a low carbon resource efficient economy, we need to create the right conditions for effective low carbon economic development and technological innovation. To do this we propose to focus our approach on key sectors and technologies where the UK has the potential to take a global lead because of our natural resources, skills base and other advantages. These include:

1. Carbon capture and storage (CCS)

2. Offshore wind generation

3. Marine energy

4. Nuclear energy

5. Low carbon vehicles[19]

18. The case for prioritisation of technologies is also put forward by the Carbon Trust in a recent report Focus for success:

The UK needs to make smart investments in LCT [low carbon technology] innovation by accelerating the move towards greater technology prioritisation and away from explicit technology neutrality […] However in a resource constrained environment, large-scale, short-term costs and longer-term and uncertain economic benefits mean that the UK can only have a global impact in a limited number of LCTs.[20]

19. The Carbon Trust told us that it will not be possible to take a global leadership position with all low carbon technology development. It makes sense to prioritise UK investment in technologies that will help the UK reach its carbon targets and those that will not be developed elsewhere. For example, the UK has "the largest resource base for marine; others will not be prioritising it the same way that we could."[21] From an economic benefit perspective, the UK needs to think about where it has real comparative advantage. "There are 50 different technology families out there. If we try to support all of them we will not support any of them very well potentially."[22]

20. We raised with our witnesses the idea of the Government picking specific winning technologies. The Carbon Trust were in favour of the Government prioritising technology families. They told us that "Moving to a technology focussed policy stimulates competition within a technology family […] It stimulates competition between device types."[23] For example, there are many different device types that can be used in the marine energy sector. Prioritisation of marine energy by the Government should stimulate competition between technologies that can best utilise the UK's abundant marine resources.

THE LOW CARBON SECTOR AND GREEN JOBS

21. In March 2009, the Government-commissioned report Low Carbon and Environmental Goods and Services: an industry analysis was published.[24] This report established a definition for the low carbon and environmental goods and services (LCEGS) sector, covering the whole environmental supply chain, from research and development, through manufacturing into distribution, retail, installation and maintenance services. The global market value within the LCEGS sector was £3,046 billion in 2007/8, of which the UK share was 3.5%, or £106.7 billion. In the UK there are 881,000 jobs within the LCEGS sector—often referred to as "green" jobs.