House of Commons - Green Jobs and Skills - Environmental Audit Committee

Green Jobs and Skills - Environmental Audit Committee Contents

2 Current Policy

Fiscal Stimulus

10) The last Pre-Budget Report announced details of a 'green fiscal stimulus package'. This formed part of a wider economic stimulus package, "bringing forward £3 billion of capital spending from 2010-11 into 2009-10 and 2008-09 for housing, education, transport and other construction projects, supporting industries and jobs across the country".[6] The 'green' element was only worth approximately one-sixth of this total and included:

(1) £405 million to help establish the UK as a market leader in renewables technology and advanced green manufacturing in the next two years;

(2) £50 million extra for the Technology Strategy Board to expand its work with business, developing innovation and new technologies;

(3) £375 million to help households and businesses with energy and resource efficiency;

(4) an uplift in Renewable Obligation banding for offshore wind for projects closing over the next two years. Under this, renewable electricity producers will receive an increased number of renewable obligation certificates for each MWh of electricity they generate. These are sold to electricity suppliers who to meet targets to get a proportion of their electricity from renewables; and

(5) £90 million more to fund engineering and design studies for Carbon Capture and Storage (CCS).

11) In our report on the Pre-Budget Report we noted that though the £535 million capital investment was welcome, it was not enough—especially given that most of this funding was already committed, and would be offset by reduced spending in 2010-11.[7]

12) The Environmental Industries Commission (EIC) recognised that the Government has allocated a significant amount of money for delivery of its Low Carbon Industrial Strategy but they argued that its scale was significant only in relation to previous levels of funding and to traditional Treasury thinking. In their view it was inadequate when compared to the conclusions of the Stern Report, the Government's emissions targets, the recommendations of the Committee on Climate Change and the scale of low-carbon fiscal stimulus expenditure in many other countries. They believed that there was a need to recalibrate thinking in the Treasury and the Department for Business, Innovation and Skills in order to base policy-making on a realistic appraisal of the changes required.[8]

13) The US, for example, has a range of detailed policy proposals and plans to spend over $50 billion to create half a million new green jobs.[9] Germany, Japan and Korea have announced major growth plans for their domestic environmental industries. China's economic stimulus plan includes a $142 billion programme of environmental measures. The Federal Germany Environment Ministry predicts that growth in environmental technology markets will outstrip traditional economic sectors, with a 4% annual growth rate, taking turnover in Germany to €1000 billion by 2030. Employment in the renewable energy industry in Germany has increased by almost 50% between 2004 and 2006 and is predicted to reach 400,000 by 2020.[10]

14) In the UK, despite the fiscal stimulus provided in the Budget, investment in green industries has been difficult to secure. BP has cut investment in its alternative energy and other non-core business units by almost 30%, and Shell says it will make no significant new investments in wind or solar power in the near future.[11] Both are maintaining steady investment in oil and gas exploration. The recent closure of the Vestas wind turbine factory on the Isle of Wight with the loss of 600 jobs received a lot of media attention. Vestas will maintain a research a development facility on the Island with the support of the UK Government which is expected to grow providing employment for 150 staff.[12]

15) The Sustainable Development Commission suggested to us that a fiscal stimulus in the range of £30 billion was required.[13] The TUC suggested a stimulus of £25 billion, and the Environmental Industries Commission (EIC) has suggested it should be £45 billion. EIC said:

Germany is the world export leader; it exports £50 billion worth of exports to our £10 billion and that £40 billion gap in exports reinforces my underlining point that it is a big market and there are many countries racing to grab a large share of it and we need here in the UK to ensure that we are at the front of it. If governments are putting money in through grants and other investments to support their domestic environmental industries, then they are going to get a head start and it is well known in this industry, and probably in other industries as well, that if you create an early home market, you get first mover advantage.[14]

16) The 2009 Budget also announced access to a share of £4 billion of new capital from the European Investment Bank (EIB) through direct lending to energy projects and intermediated lending to banks. We have heard that this funding is not readily accessible and that the Government's estimates of its share to the UK may be optimistic. The EIC said that in 2008 the UK only received around 6% of European Investment Bank loans. When measured against the £4 billion this works out at £240 million.[15] The Government believed that EIB capital would provide £1.4 billion for renewables projects in the UK. The Government have recently announced that three UK-based banks will start offering intermediated EIB loans to onshore wind farms.[16]

17) The money offered in the UK's green fiscal stimulus is not enough to compete internationally in environmental sectors worth £3 trillion.[17] A priority to move quickly and gain a competitive advantage is essential. The Government should urgently increase the amount of money that contributes to the overall green stimulus by 'greening' more of its current spending plans and ensuring access to European Investment Bank capital; by doing so it will help create home markets and develop first mover advantage.

Low Carbon Transition Plan

18) However, if the UK is to develop competitive low-carbon industries, most of the investment will need to come from the private sector. Public spending is very likely to be reduced over the next five years to restore public finances to sustainable levels. To attract private investment the Government's transition policies must be clear and provide a sufficient degree of long-term predictability. CEMEP called for a framework that is "long, loud and legal".[18] The SDC noted that doubts within industry about future policy and financing were a major impediment to action. They called for clearer signalling of future policy and said that industry is sceptical about the Government's intentions in the short- to medium-term and is unsure that either the regulatory or fiscal regime required to drive the low-carbon transition will be established.[19]

19) The Government has sought to provide clarity about its policy framework. Its Low Carbon Transition Plan was published in July 2009 to tie together energy, transport and economic policy. It sets out the pathway for meeting the 34% cut in emissions on 1990 levels by 2020 under the carbon budgets. The Transition Plan was accompanied by a Low Carbon Industrial Strategy, which sets out interventions to support industries critical to tackling climate change; a Renewable Energy Strategy which maps out how we will deliver the UK's renewable energy target by 2020; and a Low Carbon Transport Plan, which sets out how to reduce carbon emissions from domestic transport over the next decade. Together they provide a set of high level goals for 2020 across the UK economy. These include:

(a) More than 1.2 million people will be in green jobs.

(b) 7 million homes to will have benefited from whole house energy-efficiency makeovers, and more than 1.5 million households will be supported to produce their own clean energy.

(d) The average new car will emit 40% less carbon than now.

20) In September 2009, the Government published Jobs of the Future, setting out the areas —including the low-carbon economy—where, as a result of expected growth and emerging global trends, new jobs will be created in the UK.[20]

21) The Committee on Climate Change, published their first report to Parliament on progress towards the carbon budgets in October 2009. This concluded that the transition was not happening fast enough and that a 'step change' in emissions reductions was required if we were to have any hope of meeting our carbon budgets.

22) We recognise that the Low Carbon Transition Plan attempts to provide a clear signal about the move to a low-carbon economy. The evidence we have received, however, leaves us unconvinced that the Government is providing business and industry with enough detail about the changes that need to be made in a way that would enable them to secure sufficient investment against clearly achievable business plans. The Government must provide industry with a clear and stable long-term policy framework to guide them through the low-carbon transition with enough detail to enable them to secure investment. Business needs to be confident that financial incentives and regulation designed to promote low-carbon industries will be maintained. In addition a bipartisan political approach should be sought wherever possible.

ACTIVISM AND SELECTING FOR STIMULUS

23) During the economic downturn it is essential that support is targeted at those areas of the economy that will provide the greatest advantage in terms of carbon reduction, job creation and international advantage. Policies that remove barriers and encourage investment are needed to develop industries and jobs in the low-carbon economy. This includes providing funding, encouraging markets and reducing the delays, risks and uncertainties posed by planning and other obstacles.

24) The Low Carbon Industrial Strategy identifies a number of low-carbon sectors in which the UK has the potential to take a leading global role. It sets out policies to make British industry more competitive in these sectors. A number of measures to address market failures or barriers are being used, including the first investments from the £405 million for low-carbon industries and advanced green manufacturing announced in Budget 2009. Grants totalling £6 million were awarded by DECC to wind turbine manufacturers on 16 September. The largest—£4.4 million—has gone to Clipper Wind Power to help develop 70-metre-long blades for its Britannia project, a 10MW offshore wind turbine.[21]These market interventions form part of the Government's industrial activism first advocated by Lord Mandelson in December 2008. This aims to bring together different strands of government policy to ensure low-carbon companies have access to the infrastructure, skilled workers, research and development. Government argues that policy should be activist in the sense that it recognises that government can and must complement market dynamics to get the best outcomes for the economy.[22]

25) This activism is strongest for off-shore wind energy. BWEA told us that once the permission for the next round of developments has been awarded, there will be 565MW of operating capacity in UK waters, 1,240MW under construction and 3,600MW with consents but not yet being built. BWEA also state that the UK could achieve 20,000MW capacity in 2020, which would constitute half of the total European market for offshore wind according to the predictions of the European Wind Energy Association.[23] This amount of UK capacity will require an investment of about £50 billion. A strong home market would mean UK companies are well placed to exploit export opportunities to other EU member states, as well as countries such as the US and China, which have indicated that offshore wind is an important opportunity they intend to pursue [24]

26) We agree that stimulus for wind energy is vital if the UK is to develop a strong renewable energy capacity but the Government must also recognise that other parts of the low-carbon economy must receive a proportionate level of help. The first report of the Committee on Climate Change, Building a low carbon economy, identifies a range of other sectors that need to be grown. Their report sets out a number of priorities including:

(a) Decarbonising the electricity supply sector—renewable energy (wind generation; solar power; tidal range technologies; biomass power); nuclear power; and carbon capture and storage technology.

(b) Improving energy efficiency measures at home and at work, both through changes in behaviour and investment in new technologies.

(c) Reducing transport emissions reduced through new technologies—increasing the carbon efficiency of existing vehicles; electric cars combined with the decarbonisation of electricity generation; hydrogen fuel cells; and biofuels, subject to sustainability criteria.

27) We support the Government's strategy of selecting areas of the economy for intervention but more support must be provided. The Committee on Climate Change has set out which areas of the economy need to be developed if the UK is to achieve its carbon budgets though many of these sectors are not receiving an adequate share of the Government's stimulus. The Government must remove barriers and provide both financial and non-financial incentives for the faster development of all the low-carbon sectors of the economy highlighted by the Committee on Climate Change.

WIDER FINANCIAL INCENTIVES

28) The Government's activism aims to correct market failures in targeted sectors. Most of the measures proposed in the Low Carbon Transition Plan do this by providing a positive financial incentive; either through direct funding or maintaining market prices (for example in the upgrading of Renewable Obligation banding for offshore wind for projects). Both the TUC and SDC argued that a higher and sustained carbon price would be the best incentive for industry-wide action. The EU Emissions Trading Scheme, through which carbon is traded and its price is determined, has so far been unable to provide this.

29) Some US analysis have also suggested that a combination of fiscal stimulus and high carbon prices are required. James K. Boyce, University of Massachusetts Amherst and director of the energy and environment program at the Political Economy Research Institute, has said:

Government stimulus alone isn't enough, especially over the long-term [...] They're going to need to energize investors and capital markets and that means sending strong, clear and consistent price signals to industry and market participants."[25]

30) Carbon taxes fix the price of carbon making it more predictable and less volatile than carbon prices generated through a cap and trade schemes. Dieter Helm, Professor of Energy Policy at the University of Oxford, has argued that some of the certainty from carbon taxes could combine with a cap and trade scheme.[26]

31) Increased investment in renewables and low-carbon industries depends on a stable carbon price at a sufficiently high level. The Government should take steps to ensure that a strong carbon price signal will encourage the investment needed to drive the low-carbon transition. We will deal with the issue of a strong and stable carbon price in more detail in our report on carbon markets.

6 HM Treasury, Pre-Budget Report: Facing global challenges: Supporting people through difficult times, Cm 7484, November 2008, p 7 Back

7 HM Treasury, Pre-Budget Report: Facing global challenges: Supporting people through difficult times, Cm 7484, November 2008, Table 1.2, p.10 Back

8 Ev 58 Back

9 HSBC Global Research, A Climate for Recovery: the colour of stimulus goes green, February 2009 Back

10 Federal Environment Ministry, Ecological Industrial Policy. Memorandum for a "New Deal" for the economy, environment and employment, 2006 and Federal Environment Ministry, Renewable energy: employment effects. Federal Environment Ministry, 2006 Back

11 ENDS Report 410, March 2009, p 10 Back

12 "Vestas closes blade factory on the Isle of Wight", Vestas press release 6/2009, 12 August 2009 Back

13 Ev 25 Back

14 Q176 Back

15 Q182 Back

16 "Up to £1.4 billion in new loans for onshore wind farms" DECC press release, 2009/131, 10 November 2009 Back

17 Ev 101 Back