CO-CREATE THE GREEN ECONOMY

James MeadwayNew Economics Foundation

THE GREEN ECONOMY

• Absolute necessity to move away from a high-carbon, high-impact world– Despite arguments that these are luxuries for

when times are better– In practice, failure to change impact of economy

on the environment will create immense costs• Critical question: how to make this transition

occur?

THE COSTS OF GROWTH• Economic growth depends on throughput of

energy and resources• Implies additional cost to each additional unit of

output produced…• …this cost may not be registered in GDP– And therefore in individual company revenues– May often appear as a benefit

• But nonetheless can have directly economic consequences– Stern Review, 2006: loss to GDP from climate change

CARBON COSTS

• The presence of these costs is a constraint on economic activity

• Carbon output is the most pressing, given overwhelming scientific case for anthropogenic climate change

• Each $1 of GDP produced carries a carbon cost – its carbon intensity– 1979: global carbon intensity: 1kg/$GDP– 2010: 700g/$GDP

CARBON CONSTRAINTS

• This cost becomes a major constraint if we expect two things– Rising population to 9bn by mid-century– A concern with equality, with living standards averaging

that of Western Europe (GDP/capita)• Implication: GDP has to increase hugely• But we also think that there is a limit to the amount

of carbon the atmosphere can safely absorb– Want to limit average warming to two degrees by 2100

• This is a planetary limit

TIGHT CONSTRAINTS

• Improvements in efficiency• 1979: 1kg/$GDP globally• 2010: 700g/$GDP

• However, to observe planetary limits, given rising population and a concern with inequality, we need 3g/$GDP carbon by 2050 (Jackson 2009)

• Not remotely plausible with existing technology…• …not plausible with any future technology

• No technological fix exists, therefore change how economy operates

• A “low-growth” scenario– Ideally with high welfare

REGIONAL INEQUALITIES

In output/head terms, UK has worst regional inequalities of any EU member

GOOD LOW GROWTH SCENARIO

BARRIERS TO THE TRANSITION

• If the costs of inaction are widely accepted…– …not universally…

• …why does the transition fail to occur?– Recent increases in carbon emissions

• Economic theory can provide a guide

PATH DEPENDENCY

• Current technologies and industries are costly to change– Infrastructure costs– Costs of education– Sunk costs of existing investment– Institutions

• Produces situation of path-dependency– Future growth follows existing course

CARBON LOCK-IN

• Arthur (1994): increasing returns to scale in existing technologies– Economies of scale– Learning effects (adaptive expectations)– Network economies (a single phone is useless…)

• Combined with institutional lock-in• Produces lock-in to high-carbon technology

(Foxon 2002; 2005)

BREAKING PATH DEPENDENCY

• Carbon lock-in arrives when the current mix of institutions favours high-carbon technologies

• Depends on a mix of institutional structure and individual behaviour

• Changing it therefore requires a mixture of approaches– Private: behavioural change?– Public: government action?– Co-operative, social: new institutions?

• Move from big picture to local actions

OWNERSHIP AND INCENTIVES

• Property rights matter– Determine ownership of resources– Therefore who receives benefits

• Institutions affect how property rights distributed– Private property may not be best at dealing with public

problems• For economic transitions, shift in property rights

necessary alongside shift in resources– Historic examples: Industrial Revolution 1760s, Japan

1960s, Finland 1990s

INNOVATION AND DIFFUSION

• Innovation is not just the process of invention– Invention: creating new-to-the-world ideas

• Diffusion of ideas matters– Diffusion: the use of ideas and products

throughout society• Diffusion is biggest challenge in green

transition– Changing behaviour and spreading low-carbon

technology

DANISH WIND-POWER

• World’s leading exporter of wind turbines– 50% of global market

• 20% of domestic electricity source from wind– And exports surplus power abroad

• Technology is well-known, reasonably reliable• Problem is diffusion of the technology– Need many units– Often sited in aesthetically appealing locations

DANISH WIND POWER STRATEGY

• Strategy launched by government in 1970s to respond to concerns about oil dependence– Not climate change

• Four elements from government:– Comprehensive R&D programme– Turbine certification to maintain quality– Initial capital subsidy– Mandatory pricing for electricity suppliers

• However also allow “wind guilds”

THE WIND GUILDS

• Local co-operatives whose members buy shares in turbines

• Small equity investment allows share in profits• Encourages diffusion of windpower,

overcoming local opposition• Today, over 100,000 Danish households are

members of a wind guild

BAYWIND, UK

• Windpower farm in Cumbria• Co-operatively owned, producing 2.5MW– Saving c.4,200 tonnes/CO2 per annum– Industrial and Provident Society legal structure– First in UK

• Established in 1996, first turbine operational in 1997• Further share issues enabled purchase of further

plants• Now has two sites, 1,300 members

OTHER CO-OPERATIVES

• Further wind co-ops established in UK– Westmill Wind Farm, Devon– 2000 members

• Baywind establish Energy4All to promote co-operative ownership– Currently 4 projects in England, 1 in Scotland

MICRO-HYDRO

• Small-scale generation from hydro power– Comparatively cheap, reliable technology– £130,000 typical cost for 100kW generator (enough for c.50

houses), very long lifespan• Some potential in UK

– DEFRA estimate 1,692 sites in England Wales, for 248 MW– 7,000 sites in Scotland, for 1,260MW– Implies doubling current national hydro capacity (1.9%-4%)

• Applications for schemes up from 33 in 2008 to 149 in 2011– But issues reported with approvals in England and Wales

BARRIERS TO DIFFUSON IN THE UK

• Very low research expenditure– R&D spend across utilities fell by 37% in real terms over 20

years– Attributed by Performance and Innovation Unit to

“increased competition [shortening] the time horizons for R&D expenditure”

• At same time, energy industries massively concentrated– “Big Six” supply 99% of electricity market

• Tendency for renewables to remain in hands of large suppliers

BREAKING BARRIERS

• Small-scale technology works best when managed on local basis

• Co-operative ownership provides immediate return to locality– Overcomes cash barriers to investment– Overcomes hostility to loss of public good

• Potential for regeneration through community ownership– Great potential in Wales

• Financing is a problem– Legal forms, eg Industrial and Provident Societies, already exist

POLICIES?

• At national government level– Increase R&D spend– Maintain/improve subsidies for renewables

• At regional level– Support for regional banks• Sparkassen in Germany, recent proposals for Wales

– Providing cheap, long-term investment credit• At local level– Use of wider forms of asset ownership