Is there a valid economic case for ‘going green’ in an ‘age of austerity’?

15/02/2012 22:33:21

The Centre for Policy Studies invites us to join the economic debate for 'going green'. None of the pledges made by the Coalition upon coming to power in May 2010 were more striking than the following two: To tackle the nation's finances and bring the budget under control To be the "greenest government ever".

 

The argument has raged amongst Conservatives about whether green jobs are the future of the economy and a path to economic prosperity, or the misguided policy of those following a bad science that damages Britain's hopes for financial recovery and heaps cost and misery on the bills of energy company customers all over the UK.

In the 2nd of the CPS' new Debate series, they offer the chance for two leading voices from either side of the argument - Tim Yeo MP and Lord Lawson - to set out their case. 

Is there a valid economic case for ‘going green’ in an ‘age of austerity’? The Centre for Policy Studies says: "We want to know your thoughts!"

Read the debate and then get involved in the comments section on their website here. The Centre for Policy Studies is also getting a bit more with it and running a poll on their Facebook page and highlighting the best responses on their  Twitter feed.

 

Yes 

Tim Yeo MP

Tim Yeo has been MP for South Suffolk since 1983. He was a member of the Thatcher and Major Governments and the Shadow Cabinet from 1998 until 2005. He was Chair of the Environmental Audit Committee from 2005 to 2010 and was elected Chair of the Energy and Climate Change Committee in 2010.

The economic imperative for “going green” was explained in the Stern Review in 2006: the cost of inaction on climate change will far outweigh the cost of shifting to a low-carbon economy. It is our responsibility to look beyond short-term interests and to make the case for long-term economic and environmental sense.

If “austerity” is used to justify not investing in green technology today the result will be higher costs and a less competitive economy tomorrow.

Convincing a stalwart sceptic about the risks of dangerous climate change in 800 words is challenging, so let’s start with what should be common ground: the UK needs a huge amount of investment in energy infrastructure in the next decade without which growth will be impossible. Our growth strategy must deliver reliable and affordable energy to consumers.

At a time of continued economic difficulty it’s tempting to abandon decarbonisation in favour of more coal, oil and gas consumption. These fuels will continue to contribute to our energy mix for the foreseeable future, but to delay Britain’s investment in low-carbon technology just when other countries are starting to accelerate theirs verges on the Luddite.  Whether or not you agree with it, the international consensus—significantly most evident in the business community—is now committed to emissions reduction. In the next decade much of the most rapid growth will be in low-carbon markets. Furthermore despite discoveries such as shale gas, the price of fossil fuels will continue to rise. Even setting aside the environmental costs of inaction on greenhouse gas emissions and the high financial cost of the greater adaptation measures that would then be needed, investing in the low-carbon transition could save money and create opportunities.

In the short term the capital costs of low-carbon electricity generation are higher than those of conventional fossil fuel plant and will be borne by consumers. However in the medium term, if Britain does not take the low-carbon route, consumers would be exposed to the costs and uncertainties of a high-carbon future. Continued reliance on gas power exposes the UK to the short-term price volatility and energy security risks that have often hit consumers with punishing price increases. As the Committee on Climate Change has recently pointed out energy price increases are mostly caused by higher world prices, not by the cost of green policies. Against a background of rising world population and resumed economic growth there is only one way fossil fuel prices will move. By contrast the cost of many low-carbon technologies is falling, as the dramatic reduction of the cost of solar photovoltaic technology has illustrated.

The key is to set transparent, stable policies so that consumers and businesses can manage the transition to a low-carbon economy. Arguing against green investment only increases political uncertainty. As Chair of the Energy and Climate Change Committee I speak frequently with  directors of the most energy-intensive industries in Europe and their message is clear: almost all of them are ready to go green if we can deliver the right framework and many are eager to help  make the UK a world leader in low-carbon technologies.

In other words, we need to ensure that our businesses are competitive in the low-carbon world that is likely to prevail in the 2020s and thereafter. How nations adapt to carbon constraints will define their ability to compete. Every EU business considers its carbon liabilities and the governments of every EU country should do the same. South Korea and China are already investing billions of Euros to reinforce their infant low-carbon industries. Low-carbon investment grew to $243 billion last year, amounting to annual growth of 29% since 2004. The UK market for low-carbon technologies is the sixth largest in the world and DECC expects its green policies to create 250,000 jobs. Offshore wind and CCS technologies have huge export potential. Promotion of polluting industries could save money in the short term, but would lump us with heavy carbon liabilities for the future.

The world is unlikely to continue spending six times more on subsidies for fossil fuel consumption than for renewables for much longer. The latest International Energy Agency Outlook confirms that delaying investment in low carbon energy in this decade means that more than four times as much will have to be spent after 2020.

Green growth will avert climate disaster and create opportunity. Politicians must consider not just the short-term interests of the vocal few, but look to the long-term well-being of the UK and the world. We need to think not only about GDP this year and the competitiveness of entrenched industries, but about broader conceptions of economic success and the wealth of future generations. If we can do this in a way that puts us ahead of the curve in emerging industries, then we can reap economic rewards in the pursuit of long-term sustainability.

 

No 

Lord Lawson

Lord Lawson was Chancellor of the Exchequer from June 1983 to October 1989 under Prime Minister Margaret Thatcher. He is Chairman of the Board of Trustees of the Global Warming Policy Foundation and author of the book 'An Appeal to Reason: A Cool Look at Global Warming". 

It is sad that fashionable obsession can lead an intelligent man like Tim Yeo into such a farrago of factual error and economic illiteracy. The reason why there is no economic case for ‘going green’ is simple. It is that green energy is hugely more expensive than carbon-based energy, it always has been and is likely to remain so for the foreseeable future. 

That, and no other reason, is why the world relies on carbon-based energy – coal, oil and, increasingly, gas.

And that is why to ‘go green’ requires either a heavy tax on carbon-based energy, to make it less competitive, or a massive subsidy for wind power and other forms of green energy, to make them more competitive – and probably both. Either way, these represent a huge economic cost and a burden on the consumer that bears especially hard in an age of austerity, but which would be unjustifiable at any time.

In his better moments Tim Yeo half-recognises this. Introducing, as its Chairman, the most recent Report of the House of Commons Energy and Climate Change Committee, he is quoted as saying “Taking action on our own will have no overall effect on emissions other than to outsource them…the price of carbon has to be increased at an EU level to kick-start investment in clean energy”.

I have news for Tim Yeo. There is a world outside the EU, including the fastest growing major economies on the planet, such as China and India. Unilateral EU action (which in any case looks increasingly unlikely in future) would also simply outsource industry - and thus emissions - from Europe to China (which is busily building a new coal-fired power station every five days) and the rest of the emerging world, which have not the slightest intention of burdening themselves with the massive economic cost of ‘going green’.

One of Tim’s more remarkable assertions is that “to delay Britain’s investment in low-carbon technology just when other countries are starting to accelerate theirs verges on the Luddite”. The trend is in fact in the reverse direction. Not only is the emerging world firmly committed to carbon-fuelled growth, but even in slower-growing Europe ‘green’ subsidies are being phased out. Spain, which went for wind power (in particular) in a big way, has decided to cut back drastically all its ‘green’ energy subsidies. In recent months, similar cuts have been announced in Italy, Greece and the Czech Republic. And Germany, Europe’s largest economy, is doing much the same. Meanwhile, in the United States, the solar power industry, once their renewable of choice, is mired in scandal and in a state of collapse.

I regret, incidentally, the use of ‘Luddite’ as a generalized term of economic abuse, since it does in fact have a precise meaning. It refers to the movement in the early days of the industrial revolution to destroy machines in order to protect jobs. It precise analogue today is the attempt by the Tim Yeos of this world to persuade the government to move from comparatively cheap carbon-based energy to much more expensive green energy in order to create ‘green jobs’.

This also underlines the fundamental point that even if the whole world were to be converted to costly ‘green energy’ – which is not going to happen – there would still be a heavy economic cost, not to mention the human cost in those countries where a slower rate of economic development means unnecessary poverty, disease, malnutrition and premature death for hundreds of millions of people. 

Tim, of course, confidently tells us that this is merely a temporary burden that will soon pass, since “despite the discovery of shale gas, the price of fossil fuels will continue to rise”, presumably making green energy thoroughly economic. I wonder how he knows this. As a former Energy Secretary, some 30 years ago, I have watched fossil fuel prices rise and fall as confident predictions regularly bite the dust. What we do know is that in the US, which at the present time is leading the way, the shale gas revolution has caused the price of gas to plummet, and this is bound to spread to the rest of the world before too long. 

One last point. The one essential resource for onshore wind power – the UK’s (or at least the unlamented Mr Huhne’s) green energy of choice - is large tracts of land. I am constantly surprised that politicians who like to think of themselves as progressive support such a massively perverse scheme of income redistribution: a scheme that takes money from the pockets of the people and pays it out in subsidies to wealthy landowners.