Green Economy

Written evidence submitted by the Aldersgate Group

Aldersgate Group (AG)

The AG is an alliance of leaders from business, politics and society that drives action for a sustainable economy. The views expressed in this document can only be attributed to the AG and not individual members.

Summary

· A flat lining UK economy, rising unemployment and dramatic falls in the FTSE have led to renewed calls to accelerate the shift to a green economy.

· How each nation addresses the challenges of a resource constrained world will increasingly determine its future economic competitiveness. Economies must be transformed to provide rising prosperity to citizens, strengthening new growth sectors and modernising traditional sectors.

· An effective transition to a sustainable economy will lead to economic value and investment being more secure and less vulnerable to resource price shocks and market speculation. This will boost the economic recovery, create jobs, increase resource security and help make Britain more globally competitive, as well as meeting other government objectives of local regeneration and enhancing high-tech manufacturing.

· This does not need to be achieved through a major injection of public spending but will require more active government intervention to stimulate private sector investment in the short-term that will maximise returns in the long-term.

· The Government should implement a comprehensive green growth strategy that will mobilise private capital at scale to invest in green infrastructure and employ a low carbon army to design and develop low carbon systems and retrofit the UK’s homes and businesses.

· The UK is losing momentum in the green economy race and there is only a small window of opportunity to assert leadership in the years ahead.

(a) Outcomes and Monitoring Progress

· The AG welcomes the broad definition and outcomes of the Government’s vision for a green economy, set out in Enabling the Transition to a Green Economy (ETGE) but this should be developed with reference to increasing natural capital, the impact on employment and the social aspects of sustainable development.

· Measurable benchmarks should be consistent with this broad scope rather than the narrow target of increasing low carbon investment in the Plan for Growth.

· The number of green jobs should not be a green economy indicator as it is complex to define and the ambition is for all jobs to be green.

(b) Barriers

· There are a number of market or system failures that are holding back the transition to a green economy, including prices, finance, taxation, skills, innovation, procurement and planning.

· These must be addressed by more accurately pricing environmental externalities, an ambitious Green Investment Bank with the power to borrow as soon as possible, a significant shift towards green taxation, the implementation of a comprehensive skills strategy, maintaining public expenditure on R&D, greening public procurement and further reform of the planning system.

(c) A New Approach

· Three priorities for the implementation of a new approach that will be required to deliver a green economy are:

(i) Implementing fully environmental costs and benefits into decision making;

(ii) Enduring political and regulatory interventions to drive jobs and growth;

(iii) Streamlining domestic carbon prices and programmes to provide clearer signals and reduce complexity.

(d) Enabling the Transition to a Green Economy (ETGE)

· ETGE provides a coherent vision for a green economy.

· However, there are no new policy announcements despite the fact that this will be essential to turn the vision into reality.

· ETGE has been somewhat undermined by a lack of clarity on what it is trying to achieve. It is a useful source of information but will not boost confidence in policy certainty, which is dependent on actions rather than raising awareness of policy.

· Communications should be improved, such as the development of a modern, multi-media website with the latest developments on the green economy and job creation.

· The ultimate test of ETGE is whether its vision for a green economy is driven right from the top of Government with radical new policies to ensure that British businesses pull ahead of international competitors.

(e) Priority Areas and Sectors

· The highest priority for action is the implementation of robust environmental policy across the whole economy. The Government’s vision for a green economy needs to be reflected in all policies across Whitehall with greater recognition of the role of regulation to drive new markets and stimulate innovation.

· The lack of an explicit greening element to the sectoral growth reviews (including advanced manufacturing, ICT, construction and tourism) in the Plan for Growth demonstrates a lack of a joined-up approach.

(f) The Role of Consumers, Businesses, NGOs and International Bodies

· A key responsibility for Government and business is to help consumers make more informed decisions.

· To enable this, there has to be greater transparency and accountability of the environmental impact of an organisation, product and/or service, including the introduction of mandatory carbon reporting.

(g) Best Practice from Abroad

· The UK is losing ground in the green economy race and policy uncertainty is damaging investor confidence.

· It is important to monitor developments abroad to learn from the experience of others and adopt successful green economy strategies. Best practice examples can be found in China, India, United States, South Korea, Germany and elsewhere.

(h) Delivering Globally

· The UK should seek to enhance its strategic exchange programmes with key partners and make sustainable growth a central element of bilateral relations.

· The UK must show leadership at RIO+20 which must ensure greater progress towards a green economy at the global level and governance arrangements are put in place for sustainable development.


AG Response

1. A flat lining UK economy, rising unemployment and dramatic falls in the FTSE have led to renewed calls to accelerate the shift to a green economy. An effective transition will lead to economic value and investment being more secure and less vulnerable to resource price shocks and market speculation. This will boost the economic recovery, create jobs, increase resource security and help make Britain more globally competitive, as well as meeting other government objectives of local regeneration and enhancing high-tech manufacturing. This does not need to be achieved through a major injection of public spending but will require more active government intervention. The Government should implement a comprehensive green growth strategy that will mobilise private capital at scale to invest in green infrastructure and employ a low carbon army to design and develop low carbon systems and retrofit the UK’s homes and businesses.

2. On the 1st March 2011, the AG launched a report entitled "Greening the Economy: A strategy for growth, jobs and success" which sets out what a comprehensive green growth strategy should encompass. The UK is losing momentum in the green economy race and there is only a small window of opportunity to assert leadership in the years ahead. A strong regulatory and fiscal framework will be vital for success, combined with a concerted push to get behind those sectors that have competitive advantages.

Background

3. Greening the Economy argues that how each nation addresses the challenges of a resource constrained world will increasingly determine its future economic competitiveness. Economies must be transformed to provide rising prosperity to citizens, strengthening new growth sectors and modernising traditional sectors. UK policy should focus on three core elements: building a globally competitive green economy, stimulating export growth and attracting inward investment from foreign based firms.

4. Policies to enable the transition to a sustainable economy will generally require investment in the short term to maximise returns in the long term. Not only is the scale of the task enormous and the timetable challenging, but the pressure on public finance is considerable. Nonetheless early mover advantage is essential to drive success and a number of interventions have the potential to raise significant funds for the public purse.

5. The world is engaged in a green economy race and acting early will ensure that the UK is well positioned to attract global investment, stimulating job creation and export growth. While the UK’s economy has strong green foundations on which to build, it is rapidly losing ground to developing nations and other competitors. This trend is directly related to aggressive regulatory and fiscal policy packages that other countries are putting into place, not least China’s new Five Year Plan that seeks to underpin a ‘clean revolution’ in its economic development and India’s National Action Plan on Climate Change that is projected to stimulate US$1 trillion of investment over the next decade.

6. To lay the foundations for a more resource efficient and competitive economy, the UK needs an intelligent and dynamic policy framework that corrects market failures. Otherwise green investments will flow to more attractive markets or develop at too slow a pace. The most effective policies will provide as much certainty as possible by being:

· Credible. Legal, enforceable, fully deliverable and supported by an overarching vision.

· Consistent. Providing confidence that a policy direction will be maintained, implementing progressive, and avoiding retrospective, changes.

· Bankable. Risk and reward levels are attractive over clear investment timeframes, with no shocks to damage early investors.

(a) Outcomes and Monitoring Progress

7. The Government’s vision for a green economy, set out in Enabling the Transition to a Green Economy (ETGE), is that it "will maximise value and growth across the whole economy, while managing natural assets sustainably" [1] . This will entail decoupling growth and environmental impacts while maintaining the global competitiveness of UK industry. It envisages using natural resources more efficiently through optimal production processes and waste minimisation; increasing energy and resource security; and exploiting comparative advantages for UK industry.

8. The AG has consistently promoted policies aimed at "the whole economy". Building a more competitive economy is not just a question of establishing a flourishing low carbon and environmental goods and services (LCEGS) sector. It is also concerned with modernising the entire economy and transforming conventional business models. As such, the AG welcomes ETGE’s broad definition and outcomes. However, the Government should go further. There is no explicit reference to the commitment made in the Natural Environment White Paper to "put natural capital at the centre of economic thinking economic thinking and at the heart of the way we measure economic progress nationally" [2] . There is also no mention of the impact on employment and skills, despite the requirement for a green economy to facilitate a smooth and just reallocation of jobs.

9. The Government’s vision for a green economy in ETGE does not include any reference to the social aspects of sustainable development. This is not consistent with emerging international perspectives, particularly from developing countries. The AG recommends that the concept for a green economy in ETGE is more consistent with Defra’s definition for a "sustainable economy" which is "building a strong, stable and sustainable economy which provides prosperity and opportunities for all, and in which environmental and social costs fall on those who impose them (polluter pays), and efficient resource use is incentivised."

10. There is no reference in ETGE to the appropriate tools and indicators to monitor progress towards a green economy. However, a measurable benchmark in the Plan for Growth which was published alongside the 2011 Budget, is "increased investment in low carbon technologies" to meet the Government’s ambitions to encourage investment and exports as a route to a more balanced economy. This narrow indicator does not capture the Government’s broad definition for a green economy that is set out in ETGE. In terms of low carbon technologies, the target of "increased investment" is lacking in ambition. Almost every country in the G20 increased its investment in clean energy in 2010 and this trend is forecast to continue over the next decade. It is welcome that the Government is also committed "to benchmark the UK against the top countries in the world" as this is a relative measure rather than an absolute target. It should also seek to go ‘beyond carbon’ by encompassing the whole environmental sector.

11. The AG would support a broad set of indicators to benchmark a green economy, as set out by the OECD in Towards Green Growth:

"Indicators that measure the ‘green economy’ need to be interpreted carefully. Judged simply by the size of industries involved in the production of environmental goods and services, today’s ‘green economy’ is relatively small. However, economic opportunities, entrepreneurship and innovation in conjunction with green growth can arise in all sectors so an assessment based on green industries understates the economic importance of environmentally-related activities…

Monitoring progress towards green growth should draw on groups of indicators which describe and track changes in: (i) productivity in the use of environmental assets and natural resources; (ii) the natural asset base; (iii) the environmental dimensions of quality of life; (iv) policy responses and economic opportunities." [3]

12. As indicators are developed to measure progress towards a green economy, the AG would not support including the number of "green jobs" as a benchmark. There are political advantages in claiming that, for example, the UK can expect 100,000 new green jobs by 2015 [4] , but the previous government classification for a "green job" was ill-defined and unhelpfully broad [5] . In any event the whole notion of "new green jobs" fails to take account of the fact that the Government’s ambition is to transform the whole economy so that, over time, almost every occupation could be described as "green". The AG believes that there is little advantage in arguing whether a particular job is "green"; the aim should be to accomplish a transition that brings widespread economic and social benefits.

(b) Barriers

13. There are a number of market or system failures that are holding back the transition to a green economy. The Government must examine fully the barriers to growth and set out what it will do to address these in a way that is credible, consistent and bankable. While each sector will face its own particular set of barriers that need to be addressed, the most common barriers across the economy are as follows:

· Prices;

· Finance;

· Taxation;

· Skills;

· Innovation;

· Procurement; and

· Planning

Pricing Externalities

14. Current prices are a long way off providing a sufficient incentive for investments at the pace and scale required to meet environmental challenges. This can most clearly be illustrated by the inadequacy of current policy to create a sufficiently stable, high and credible carbon price, primarily through the EU ETS. There should be a continued push to reform the EU ETS such that it can provide a stable, and predictable price at an appropriate level, thereby making a UK-only carbon price support mechanism redundant.

15. In the absence of effective reform at the European level, the AG supports the government objective to introduce a carbon floor price to provide more stability to domestic carbon prices. Further consideration needs to be given to provide greater investor certainty in the trajectory of the floor price, especially as it rises to 2020 and beyond. One option would be to distance the price from government control by giving the Committee on Climate Change the power to set the floor price, according to progress towards meeting the statutory carbon budgets, in a similar way to the process by which the Monetary Policy Committee sets interest rates. Another mechanism would be if the carbon floor price commitment was embedded with a contractual obligation [6] . As a result of the increase in energy bills, some of the revenues from the carbon floor price should be directed to alleviate fuel poverty and/or increase take up of the Green Deal. Measures to avoid windfall profits for low carbon projects that pre-date this measure should also be considered [7] .

16. There is also significant scope for carbon prices to be streamlined across the regulatory framework to reduce complexity and perverse incentives (see point 34).

17. The current policy framework to drive carbon prices may be developing (with much more focus required in terms of lifecycle emissions), but we have only started to scratch the surface in terms of accurately pricing other resources. In a world where the efficiency of resource use matters more and more, this is critical. The AG’s Beyond Carbon report notes that there are significant political and economic difficulties in pricing externalities even when we think we understand them, but that there are also many externalities which are poorly understood. A major international research effort on the economics of ecosystems and biodiversity (TEEB) draws attention to the long-term costs and benefits of ecological systems but we are a long way from being able to calculate or allocate the external costs accurately.

Finance

18. The shift to a green economy generally involves higher upfront capital costs and lower operating costs. Following the credit crunch, capital and private equity investment in environmental sectors has fallen dramatically and long-term finance remains scarce. The funding gap between business-as-usual and what is required to meet environmental targets is becoming ever more stark, with Ernst & Young estimating that the UK funding gap for low carbon technologies alone to 2025 is approximately £330–£360 billion [8] .

19. To address this immense financing challenge, the UK must seek to reduce risks and mobilise finance at scale from institutional investors. The government commitment to create a Green Investment Bank (GIB) is welcome and the institution must be designed to make a transformational impact. In the global green economy race, there will be competitive advantage for the countries that are able to cut the costs of capital. For example, KfW in Germany has a long track record with many decades’ head start. It provided €19.8bn of investment in environment technologies in 2009 – up 12.5% on the previous year [9] .

20. The Government published an Update on Design of the GIB in May with significant developments regarding the institution’s structure, mandate, operational independence and priority sectors. However, for the institution to address the significant financing gaps for green technologies effectively and be at the heart of the Government’s growth strategy, it must have the ability to raise funds from capital markets as soon as possible. A fully independent, accountable and enduring institution must be established in statute in 2012-3 with a clear low carbon investment mandate.

Taxation

21. A strong driver for the transition to a sustainable economy is a green tax shift, reducing taxes on income and increasing taxes on pollution. An extensive research project by the Green Fiscal Commission demonstrates that this will be vital to put the UK on a sustainable trajectory; help develop the new industries that will provide competitive advantage for the UK in the future; and contribute to restoring UK fiscal stability after the recession [10] .

22. Greening the Economy recommended that the 2011 Budget should be the first to set out a clear framework for a far-reaching green tax shift. While this was not undertaken, the Chancellor did reaffirm that "green taxes will increase as a proportion of our total tax revenues, as we promised." However, greater ambition is required. For example, the Liberal Democrats’ 2010 party conference passed a motion calling for the share of receipts to reach 10% by 2014-5 and the Green Fiscal Commission recommends a target of 15-20% by 2020.

Skills

23. A crucial component of the transition a green economy is the development of new skills. This includes skills in rapidly growing environmental markets (with requirements for those with a good core education and knowledge in science, technology, engineering and maths), building on existing skills and developing the ‘new’ skills that will be required in all sectors and businesses (such as project management and communication skills). Strong evidence suggests that the UK does not have the necessary skills to make the transition at the pace required, or the training arrangements in place to fill the gap.

24. The measures for "building the right skills" in ETGE, including a ‘skills for a green economy’ grouping of Sector Skills Councils, are welcome. However, there is no explicit strategy to prioritise the skill needs to drive the transition to a green economy. The Government cannot rely on the market to respond to environmental targets at the required scale and urgency, and it is vital that all major environmental policies, such as the Green Deal and renewable incentives, are accompanied by a corresponding skills strategy. An extensive research project by the International Labour Office and Cedefop urges Europe’s policy-makers to ensure that their support for skills and training matches the focus and ambition of their strategies for promoting investment in green innovation and infrastructure. It finds that France is the most advanced in this respect with the publication of a mobilisation plan for green jobs [11] . Government funding for up to 1,000 Green Deal apprenticeships in March is a positive development but this programme needs to be expanded in order to meet the Government ambitions for 100,000 new jobs in home refurbishment by 2015.

Innovation

25. The competitive advantage of the UK in the green economy will depend on companies commercialising innovative goods and services and adopting novel resource efficient practices. Greening the Economy recommended, in line with Committee on Climate Change, that current levels of public expenditure for RD&D in environmental sectors should be regarded as a minimum and any cuts would be detrimental to the achievement of the UK’s green ambitions. No significant budget cuts were announced in the 2011 Budget. However, the AG is concerned that the impact of the grant reduction for the Carbon Trust (such as 40% for 2011/12) will constrain its support for low carbon technology development and R&D.

Procurement

26. One of the most direct ways that Government could stimulate demand for more sustainable goods and services is by exemplary action as the UK’s largest purchaser. It is therefore welcome that the Plan for Growth states that the Government will seek to leverage "the £236 billion public procurement power to help drive new markets in green products and services". However, there is a significant disconnect between this objective and a policy environment where the short-term, lowest cost solution dominates. Further clarification is required on how the Government seeks to achieve its aim. To date, greening public procurement has been a relatively low priority. Practices such as Forward Commitment Procurement (FCP) need to become mainstream and objectives in this area will only be achievable if civil servants have the relevant skills and in-house expertise by providing more extensive training, real opportunities in terms of career progression and strengthening links between the public and private sectors through secondments.

27. There also needs to be a change in mindset away from setting minimum sustainability standards that leads to incremental change, towards stimulating innovation in new goods and services. This will include greater emphasis on environmental and social measures and making these the basis for competition amongst suppliers – alongside price and quality – rather than a process which encourages a ‘lowest common denominator’ approach. The Government should also challenge suppliers in certain areas to come up with closed loop solutions by a defined year.

Planning

28. In the 2011 Budget, the Chancellor announced that the Government will "introduce a new presumption in favour of sustainable development, so that the default answer to development is yes". The presumption is not, however, linked to an appropriate vision of sustainable development that seeks to integrate environmental, social and economic objectives. Instead, in a radical departure from existing planning policy, the need to support economic growth is given clear primacy over social and economic objectives, as the purpose of the planning system. If the planning system is to continue operating in the wider interests of the public, it must not allow short-term economic growth to be at the long-term expense of the environment, society and ultimately the economy itself.

29. The draft National Planning Policy Framework (NPPF) states that the purpose of the planning system is to "contribute to the achievement of sustainable development". This is weaker than the previous commitment, set out in PPS1, which insisted that "development plans should ensure that sustainable development is pursued in an integrated manner, in line with the principles for sustainable development set out in the UK [Sustainable Development] Strategy." The draft NPPF makes no mention of these principles and does not recognise the need to respect environmental limits [12] .

30. The NPPF must also do more to ensure the delivery of low-carbon and renewable energy infrastructure. Despite a continuing emphasis in the draft NPPF on the need to plan positively for the economy and housing, the language used for low-carbon and renewable energy provision is comparatively weak. Either the NPPF needs to contain spatially explicit and prescriptive policies that local authorities must adhere to, or local authorities must be required to allocate sites for low-carbon and renewable energy infrastructure - based on robust evidence of potential capacity. Such evidence studies should be carried out jointly between neighbouring authorities and should follow the DECC methodology for renewable and low carbon capacity assessment.

(c) A New Approach

31. Three priorities for the implementation of a new approach that will be required to deliver a green economy are:

(i) Implementing fully environmental costs and benefits into decision making;

(ii) Enduring political and regulatory interventions to drive jobs and growth;

(iii) Streamlining domestic carbon prices and programmes to provide clearer signals and reduce complexity.

(i) Full environmental costs and benefits

32. One of the biggest challenges in greening the economy is incorporating fully environmental costs and benefits into mainstream political and economic decision making. There must also be a realisation that pricing alone remains a blunt instrument and good resource management requires a combination of price, regulation and information to drive behaviour change. After these factors have been incorporated, there is rarely a tension between economic growth and the green economy.

33. The limitations of current economic modelling is reflected in a recent paper written for LSE by Lord Stern and others on the basic economics of low carbon growth in the UK. It states that:

"It is important to understand what the full, dynamic economic costs, benefits and risks (including those of alternative paths) of the transition to low-carbon growth are likely to be for the UK. This means recognising the shortcomings and limitations of some of the existing economic analyses based on narrow general equilibrium modelling, or on models that take a limited view of the nature of innovation and learning, and which do not account appropriately for the range of benefits and costs associated with low-carbon investment. Such analyses and models, which are sometimes used within government departments, are not an adequate basis for decision-making.

In particular, much of the more simplistic general equilibrium modelling does not usually reflect four fundamental aspects of the policy problem. These are: the value of emission reductions; the potential for efficiencies in energy and other areas to cut costs; the scope for learning and innovation; and the value of energy security. They also fail to model the complex dynamics associated with inertia and path-dependency whereby policy choices made early on have the potential to lock in infrastructure, steer technological innovation and change perspectives in a way that can radically alter the state of the economy being modelled." [13]

(ii) Enduring political and regulatory interventions to drive jobs and growth

34. The transition to a green economy will require government intervention. At the heart of economic policy must be the recognition that environmental damage is a market failure and prices need to be corrected to provide the right signals and ensure they reflect the true cost to society. Effective regulation has a vital role to play in correcting market failures and driving innovation, providing the foundations for long-term economic growth, jobs and competitiveness. This is despite the fact that the Coalition Government is committed to reducing the cost and volume of regulation on the economy and has introduced a number of measures to achieve this, such as the introduction of a "one-in, one-out" rule.

35. To secure the growth and jobs of the future, the UK requires a systematic and transparent prioritisation of support for specific sectors with competitive advantages. A recent report by Demos demonstrates that none of the recent technological revolutions happened without the leading role of the state. It finds that:

"The role of the government, in the most successful economies, has gone way beyond creating the right infrastructure and setting the rules. It is a leading agent in achieving the type of innovative breakthroughs that allow companies, and economies, to grow, not just by creating the ‘conditions’ that enable innovation. Rather the state can proactively create strategy around a new high growth area before the potential is understood by the business community…

From the development of aviation, nuclear energy, computers, the internet, the biotechnology revolution, nanotechnology and even now in green technology, it is, and has been, the state not the private sector that has kick-started and developed the engine of growth, because of its willingness to take risk in areas where the private sector has been too risk-averse. In a policy environment where the frontiers of the state are now being deliberately rolled back, that process needs more than ever to be understood so that it can successfully be replicated. Otherwise we miss an opportunity to build greater prosperity in the future." [14]

(iii) Streamlining carbon legislation

36. A key recommendation from the OECD’s 2011 Economic Survey of the UK is that "domestic carbon pricing policies need to be harmonised and streamlined in terms of programmes and prices." This is vital for the Government to meet its commitment in ETGE "to ensure that the system of environmental regulation is effective, proportionate, coherent, clear and implemented in a way that minimises burdens on businesses, in line with the principles of better regulation".

37. The climate change and energy policy landscape includes what are effectively two taxes charged on the energy used in business, the CRC and Climate Change Levy (CCL), and the Government recently consulted on the introduction of mandatory carbon reporting (which the AG supports). There is significant scope to streamline these regulations whilst maintaining revenues for HM Treasury and driving further carbon reductions. The Government should seek to harmonise carbon and energy reporting obligations in a single, mandatory reporting framework (that could be used to compile an annual public league table), which is transparent and consistent with international reporting requirements. This case has been supported recently by the CBI, Corporate Leaders Group on Climate Change and Policy Exchange.

(d) Enabling the Transition to a Green Economy (ETGE)

38. The AG’s Greening the Economy report sets out the policy and institutional framework required to create the right conditions for the green economy to thrive. A strong regulatory and fiscal framework will be vital for success, combined with a concerted push to get behind those sectors that have competitive advantages.

39. ETGE is a step in the right direction and provides a clear vision for a green economy. The suite of reports provides a suitable foundation on which the Government can rebuild a tarnished image of striving towards being the greenest ever. The content is broad and coherent and explains why acting early would be good for business, good for the economy and good for the planet. As the title suggest, the emphasis is on "government and business working together" and it was informed by open and frank dialogue with the business community.

40. The AG’s Greening the Economy report demonstrates that policy development is required across the board for a comprehensive green growth strategy to be a success, including robust regulation, fiscal measures, enabling innovation, building new skills and greening public procurement. It is encouraging that all these areas are reflected in ETGE and this provides a suitable framework for further action. However, it does not go far enough. Above all, there are no new policy announcements despite the fact that this will be essential to turn the vision into reality.

41. To some extent, ETGE has been undermined by a lack of clarity on what it is trying to achieve. If its main objective is to provide greater intelligibility to business on the green economy and environmental policy landscape, it can be seen as a useful source of information, with the policy timetable being particularly helpful. However, it should be noted that the Carbon Plan also provides some of this clarity (for carbon related issues only). If its main objective is to inspire businesses and help drive collaboration, there needs to be considerable development in its communication strategy. It is welcome that the bulk of ETGE is published online but a more modern, functional, multi-media platform with live updates on the latest developments on the green economy and job creation would be preferable to a somewhat stale and generic government website.

42. ETGE should be regarded as a failure if its main objective is to increase policy certainty and drive investment in the green economy. To enable green growth, actions speak louder than words. What matters is the effectiveness and ambition of environmental policies rather than raising awareness about them. Much more can be done to increase policy certainty, such as designing policies that transcend the political cycle (for example, through contractual obligations). As set out in Greening the Economy, business confidence is severely undermined by sudden or retrospective changes to policies (such as recent adjustments to the CRC recycling mechanism and Feed-in Tariff levels). This is reinforced by the CBI which states that "while some changes are necessary to ensure the right investment signals, this must be balanced against the uncertainty caused by continual adjustments to the policy mechanisms. The latter can be seriously damaging to confidence across the investment chain, making access to finance difficult in some circumstances." [15]

43. It was disappointing that ETGE was launched with no media activity and there was no endorsement from No.10 or HM Treasury. This is despite the fact that joined-up government is a prerequisite for success and ETGE addresses "the whole economy". For example, if procurement and business initiatives are to succeed, the Government must set market signals in all that it does and not just from the departments who are directly tasked with green policy making. The ultimate test of ETGE is whether its vision for a green economy becomes mainstream and there is shared responsibility for action by all departments. It must be driven right from the top of Government with radical new policies to ensure that British businesses pull ahead of international competitors.

(e) Priority Areas and Dynamic Sectors

44. The highest priority for action is the implementation of robust environmental policy across the whole economy. The Government’s vision for a green economy needs to be reflected in all policies across Whitehall with greater recognition of the role of regulation to drive new markets and stimulate innovation. There is an increasing disparity between long-term environmental ambitions and the policies and programmes required to meet them, leading to the Committee on Climate Change, for example, to repeatedly call for a "step change" [16] to address the gap. Furthermore, a number of major policy announcements, such as the Plan for Growth and introduction of enterprise zones, could incorporate a major greening element without significantly changing the overall policy direction or costs.

45. The most effective way to stimulate green investment is on a sectoral basis due to the large number of specific barriers and solutions that each sector faces. This will be crucial to deliver the Prime Minister’s vision for a new economic dynamism that seeks to create the right framework for business investment. It will drive growth in those industries where Britain enjoys competitive advantages, making it easier for new companies and innovation to flourish.

46. The lack of an explicit greening element to the sectoral growth reviews in the Plan for Growth demonstrates a lack of a joined-up approach to accelerate the transition to a sustainable economy. For example, the Government could have provided incentives to promote innovation for green technologies in advanced manufacturing, strong policy frameworks to drive demand for green ICT in the digital and creative industries, adopt a number of recommendations from the IGT report by Paul Morrell to drive opportunities in low carbon construction and instigate measures to incentivise eco-tourism (the fastest-growing area of the tourism industry with an estimated increase of global spending of 20% annually [17] ). The Government should address how each of the growth sectors can address environmental challenges to drive UK competitive advantage and ensure that future sectoral growth reviews adopt a greening element from the outset.

47. The Government must also ensure that future growth reviews focus both on sectors that must play a leading role in the transition to a sustainable economy (such as automotive, aerospace, the built environment and farming) and the LCEGS sector (such as offshore wind, CCS, wave and tidal technologies and water treatment). It is therefore welcome that ETGE published three case studies highlighting how the chemicals, food and drink and automotive sectors are responding to the issues of moving to a green economy. This needs to be developed into an action plan to drive green growth in these sectors and be broadened to include additional sectors. In the LCEGS sector, demand-side policy must be matched by the development of the supply side. For offshore wind, this includes the explicit development of UK-based engineering and construction capacity. A failure to do this effectively over the past decade has meant that only 10–20% of the investment for recent UK offshore wind projects (such as the London Array and Thanet) has gone to British based firms. It is envisaged that benefits for UK firms will be increased through a recent package of measures, such as the commitment for public investment in port infrastructure in the 2010 Spending Review, that has been rewarded by a number of turbine manufacturers committing to a UK presence (such as Siemens, Mitsubishi and GE).

(f) The Role of Consumers, Businesses, NGOs and International Bodies

48. The Ministerial foreword to ETGE notes "that a green economy will only be achieved through working together – through concerted action across Government, but also through Government working together with businesses and with civil society". There is a shared responsibility to take action. The potential role for business is set out on page 11 and includes investing in greener products, services and production processes; becoming increasingly resource efficient and building resource risks into future business planning; exploring business models which reduce use of resources and carbon emissions; and help articulate demand of future skill needs.

49. A key responsibility for Government and business is to help consumers make more informed decisions. To enable this, there has to be greater transparency and accountability of the environmental impact of an organisation, product and/or service. Regulation has an important role to play, such as the introduction of mandatory carbon reporting that will help create a level playing field and ensure companies report their carbon emissions in their annual report, open to stakeholder and media scrutiny. There must also be greater accountability of lifecycle emissions at the national, company and product level. Analysis by the Carbon Trust demonstrates that the UK is a significant net importer of emissions embodied in trade, and this drives a 34% difference between production and consumption views of UK emissions "responsibility" [18] .

(g) Best Practice from Abroad

50. Green growth is directly related to aggressive regulatory and fiscal policy packages that countries are putting into place around the world. The market in 2011 is fiercely competitive as businesses strive to achieve first mover advantages. In the words of Barack Obama; "nobody in this race is standing still". The UK must ensure it has the right policy framework in place to deliver growth, innovation and decent jobs in the markets of the future.

51. HSBC predicts that the share of the three largest industrialised low carbon markets (EU, USA and Japan) will fall from 60% in 2009 to 53% in 2020, while the share of the three leading major emerging markets (China, India and Brazil) will grow from 25% to 34%. Its research also suggests that the market will primarily be driven by energy efficiency themes, notably low carbon vehicles such as plug-in hybrid and full electric vehicles that will surpass low carbon power as the major investment opportunity [19] .

52. The UK is losing ground in the green economy race and policy uncertainty is damaging investor confidence. A report published by the Pew Charitable Trusts finds that clean technology investment plummeted in the UK in 2010 relative to competitors. After achieving a fifth-place ranking in 2009, it finds that the UK dropped out of the top ten in 2010 due to "a high level of uncertainty about the direction of clean energy policymaking in the country." [20] Similarly, a report by UNEP on global trends in renewable investments finds that investment in the UK fell by 73% to $2.9 billion due to "policy uncertainty" and changes to the feed-in tariff for PV [21] .

53. It is important to monitor developments abroad to learn from the experience of others and adopt successful green economy strategies. However, the challenges and opportunities will vary depending on the context of each individual nation.

54. China. Driven by significant public spending, R&D investment, ambitious targets (such as the pledge to lower carbon intensity by 40-45% from 2005 levels by 2020 under the Cancún Agreements of December 2010) and strong incentives and regulatory levers, China has transformed itself over the past two decades to a major manufacturer of a number of low carbon technologies [22] . The new Five Year Plan (2011-15) seeks to underpin a ‘clean revolution’ in China’s economic development over the next decade. By speeding up the cultivation and development of emerging strategic industries (including energy saving and environmental protection) [23] , it aims to restructure China’s economy and reshape its industry, improving R&D in science and technology, and establishing a resource efficient and environmentally friendly society [24] . Ernst & Young’s analysis of the relative attractiveness of countries for renewable energy investments demonstrates that "a new world order is emerging in the cleantech sector with China now the clear leader in the global renewables market" [25] . The research finds that manufacturers in the West need to be particularly innovative if they are to preserve their share of the market, and are likely to need a greater proportion of Asian product to remain cost competitive.

55. United States. A mixed policy framework (for instance, with no federal carbon policy and a patchwork of state renewable energy standards,) means that the United States has a comparatively weak clean energy sector given the relative size of its overall economy. However, with significant natural and intellectual resources and a strong culture of entrepreneurship, a strengthened policy framework could enable the United States to regain a leadership role in the coming years [26] . Around $100 billion of the US’s economic recovery package was earmarked for investment in environmental technologies, including advanced batteries, plug-in cars, and a smart grid. In the next few years, it aims to make 40% of the world’s advanced batteries (currently 2% market share) and 10% of the world’s solar panels (currently 5% market share) [27] .

56. India. It is estimated that low carbon initiatives in India could result in investments of over US$1 trillion over the next decade through the implementation of the National Action Plan on Climate Change. This package aims to promote energy efficiency (including targets for energy efficiency in large energy-consuming industries and the introduction of a trading system for energy-savings certificates), investments in renewable technologies (particularly wind and solar), sustainable buildings, water efficiency, sustaining the Himalayan ecosystem and reforestation. It has been estimated that the Government’s plans to increase industrial and village-level biofuel production has the potential to create ten million jobs across the country [28] .

57. South Korea. The five-year ‘green growth’ strategy contains policy goals and targets to tackle climate change and enhance energy security, create new engines of growth through investment in environmental sectors, and develop ecological infrastructure. The commitment to spend 2% of GDP on green investments (such as green technologies, resource and material efficiency, renewable energies, sustainable transport, green buildings, and ecosystem restoration) is a significant effort to reorient and refocus spending on the environment [29] . It aims to increase Korea’s share of clean tech exports from 2% to 8% of the world total by 2012 [30] .

58. Germany. The German Government has acknowledged the need to develop strategic industrial policy that will further both Germany’s economic interests and environmental goals. It specifically aims to strengthen strategic industries of the future, promote innovation, adapt the industrial structure of the economy to ever-scarcer resources and switch the material base of industry in important fields to renewable resources [31] . Through its leadership over the last few decades, Germany has already generated 280,000 jobs in the renewable sector and strong growth is forecast. By 2020, the environmental sector is predicted to increase to 500 billion from the current level of 220 billion and create one million new jobs [32] .

(h) Delivering Globally

59. The AG supports the government commitment in ETGE to "promote international action to develop a green economy, including through global agreements, EU strategies, and other initiatives, and working through the G20 and other forums to encourage green growth".

60. The UK should seek to enhance its strategic exchange programmes with key partners and make sustainable growth a central element of bilateral relations. The World Resources Institute, for example, demonstrates that the success of Japanese and German companies in the wind and power sectors indicates that through joint venture, licensing, or joint design, foreign technology providers can benefit from the financial resources, manufacturing capacity, and enormous market of many emerging economies [33] . As such, the Prime Minister’s commitment to promote British commerce and put international trade at the heart of the UK’s foreign and economic policy is welcome. This was recently illustrated by agreements with Chinese and Indian political and business leaders on low carbon initiatives and exchange programmes [34] . National impetus for greater innovation must also be supported at the European level [35] .

61. RIO+20 is an important opportunity to ensure greater progress towards a green economy at the global level and governance arrangements are put in place for sustainable development. The UK must show leadership and champion success stories such as the Climate Change Act, Green Investment Bank and National Ecosystem Assessment that will accelerate the transition to a green economy. The Prime Minister should attend the conference alongside finance, development and environment Ministers.

1 September 2011


[1] HM Government (August 2011) Enabling the Transition to a Green Economy: Government and business working together.

[2] HM Government (June 2011) The Natural Choice: Securing the value of nature.

[3] OECD (May 2011) Towards Green Growth.

[4] DECC (2 nd November 2010) Press Release: Huhne heralds green homes revolution.

[5] Innovas (March 2010) Low Carbon and Environmental Goods and Services: an industry analysis (update for 2008/09).

[6] Climate Change Capital (March 2011) The UK Carbon Price Floor: How to enhance its credibility with investors.

[7] AG member National Grid notes that w hilst it is desirable for investors to have the certainty which the carbon price support mechanism would provide, it should not be set substantially above the EU ETS price level in order to avoid “exporting” carbon emissions. Electricity is readily transportable and, subject to system constraints, can be traded between GB and mainland Europe on essentially an instantaneous basis based on spot market prices. This makes electricity generation even more susceptible to carbon leakage than other sectors, such as goods manufacture, which may be more restricted by difficulties associated with relocation of production.

[8] Ernst & Young (October 2010) Capitalising the Green Investment Bank: Key issues and next steps.

[9] The Climate Bonds Initiative (June 2010) Green Investment Bank: Experiences from France, Germany, Spain and a few others.

[10] Green Fiscal Commission (October 2009) The Case for Green Fiscal Reform.

[11] Aldersgate Group (November 2009) Mind the Gap: Skills for the transition to a low carbon economy.

[12] The NPPF also uses 'sustainable development' and 'sustainable economic growth' interchangeably. This will cause confuse when implementing the planning system as the two terms are not the same .

[13] Mattia Romani, Nicholas Stern and Dimitri Zenghelis (June 2011) The basic economics of low-carbon growth in the UK.

[14] Demos (June 2011) The Entrepeneurial State.

[15] CBI (April 2011) Risky business: Investing in the UK’s low-carbon infrastructure

[16] Committee on Climate Change (June 2011) Meeting Carbon Budgets: 3rd Progress Report to Parliament.

[17] Ibid.

[18] http://www.carbontrust.co.uk/policy-legislation/international-carbon-flows/global-flows/pages/uk.aspx#7

[19] HSBC (September 2010) Sizing the Climate Economy.

[20] Pew Charitable Trusts (March 2011) Whose Winning the Clean Energy Race?

[21] UNEP (June 2011) Global Trends in Renewable Energy Investment 2011

[22] World Resources Institute (October 2010) Scaling Up Low-carbon Technology Deployment :

[22] Lessons from China.

[23] The new ‘ Magic 7 ’ industries are energy-saving and environmental protection; next generation information technology; bio-technology; high- end manufacturing; new energy; new materials and clean-energy vehicles

[24] HSBC (October 2010) China’s Next 5-year Plan: What it means for equity markets.

[25] Ernst & Young (November 2010) Renewable Energy Country Attractiveness Indices.

[26] Pew Environment Group (April 2010) Who’s Winning the Clean Energy Race?

[27] The White House (26 th May 2010) Remarks by the President on the Economy.

[28] UK-India Business Climate Group (November 2010) UK—India Collaboration for a Prosperous Low Carbon Economy: Opportunities, Challenges and Recommendations

[29] UNEP (April 2010) Overview of the Republic of Korea’s National Strategy for Green Growth.

[30] HSBC (September 2010) Sizing the Climate Economy

[31] Jenny Bird and Kate Lawton (October 2009) The Future’s Green: Jobs and the UK low carbon transition.

[32] Frank-Walter Steinmeier & Sigmar Gabriel (June 2006) A Growth Strategy for Germany: N ew jobs through investments in energy and environment .

[33] World Resources Institute (October 2010) Scaling Up Low-carbon Technology Deployment:

[33] Lessons from China.

[34] Number 10 (25 th October 2010) PM’s speech on creating a “new economic dynamism”.

[35] Frank-Walter Steinmeier & Sigmar Gabriel (June 2006) A Growth Strategy for Germany: New jobs through investments in energy and environment.

Prepared 21st September 2011