greening the economy: a strategy for growth, jobs and success (aldersgate group)

8/6/2019 Greening the Economy: A strategy for growth, jobs and success (Aldersgate Group)

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Greening the Economy A strategy for growth, jobs and success

ALDERSGATEGROUP Leaders for asustainable economy


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Foreword 4Executive Summary 5Introduction 9The Green Economy Race 11Credible, Consistent and Bankable Policy 14

Greening the Whole Economy 17Dynamic Sectors 19

Addressing Barriers to Growth 22 A Plan of Action 25Conclusion 27

Contents

Author Andrew Raingold Executive Director, Aldersgate Group

ChairDr Jonathan FrostDirector, Johnson Matthey


3/28Greening the Economy A strategy or growth, jobs and success 3

Aldersgate Group The Aldersgate Group is an alliance o leaders rom business, politicsand society that drives action or a sustainable economy.

THEENVIRONMENTALI N D U S T R I E SCOMMISSION

Our Members

Individual Members

Andrew George MP Liberal Democrat

Barry Sheerman MP Labour, Chairman o Policy Connect

Caroline Lucas MP Leader o the Green Party

Dinah Nichols CB Former Director General, De ra

Emma Howard Boyd Director, Jupiter AssetManagement

Ian Liddell-Grainger MP Conservative

Jason McCartney MP Conservative

John Edmonds Former President, TUC

Sir John Harman Former Chair,Environment Agency

Lord John Prescott Former Deputy Prime Minister

Jonathon Porritt CBE Founder, Forum or the Future

Sir Ken Collins Former MEP and Chairman, SEPA

Lord Larry Whitty Former General Secretary o theLabour Party

Martin Horwood MP Liberal Democrat

Michael Meacher MP Labour, Former De ra Minister

Pamela Castle OBE Former Chair, EnvironmentalLaw Foundation

Professor Paul Ekins Director, Green FiscalCommission

Peter Aldous MP Conservative, Member o Environmental Audit Committee

Peter Ainsworth Former Shadow Secretaryo State or De ra

Peter Jones OBE Former Director, BIFFA

Lord Robin Teverson Liberal Democrat Spokesman orEnergy and Climate Change

Lord Ron Oxburgh Former Non-Executive Chairmano Royal Dutch Shell

Roy Tindle Chair, London 21 SustainabilityNetwork

Tim Yeo MPConservative, Chairman o theEnergy and Climate Change SelectCommittee

While members support this publication and provided extensive input, individual recommendations cannot beattributed to any single member and the Aldersgate Group takes ull responsibility or the views expressed.


4/28www.aldersgategroup.org.uk4

Foreword There is an increasing recognition that our current economy is unsustainableand, urthermore, competitive advantage can be gained by companies and countriesi they meet the growing appetite or more sustainable goods and services.

The economy is no more than the aggregatee ect o the decisions made every day bycompanies, individuals and societys agentsin government about what next they will do,where they will go and what they will buy.

This report discusses those measures thatcan in luence these decisions and perhapsnot surprisingly inds public policy and itsmani estations in regulation, incentives and

iscal measures are critical.

Arguably the decisions which will havethe most in luence on the uture are thosemade by companies on innovative low cost,sustainable products and services whichwill allow uture generations to make di erentand better, choices.

The dilemma o the moment, given the

desperate state o public inances, is howcan we a ord those measures required tosupport the transition to a green economy?

This dilemma is an illusion that can beshattered by recognising the true cost o whatwe currently do and the report highlights this.

However, the act remains that innovativenew products and services are required tomeet both our sustainability and cost goals.We must support their provision by UKcompanies to achieve national competitiveadvantage. The tools to do this are not wellunderstood and perhaps because o thisdi iculty their deployment is hal hearted.

Support or innovation rom supply sidegroups such as the Technology StrategyBoard is o ten well managed but at asigni icantly smaller scale than our competitorcountries and the long term consequenceso this are unlikely to be good. The reportemphasises that investment in R&D and

skills is essential or our uture prosperity.

To my mind it is the demand side o innovation support and particularly the useo public procurement that provides thebiggest under utilised opportunity orthe public sector to drive innovation orsustainability while reducing uture costs.

Public procurement is naturally the ocus o many short term cost reductions or value

or money initiatives but as the report pointsout, tools such as Forward CommitmentProcurement can bring new technologiesand services into the market at low risk andlow near term cost. This is an area where wecan get ahead o our competitors in othercountries with huge uture bene its.

The uture green economy o ers tremendousopportunity or productive investment andsustainable growth it should be the clear,central ocus o government policy.

Dr Jonathan FrostDirector, Johnson Matthey Fuel CellsGreen Growth Chair, Aldersgate Group



Executive Summary This report sets out the case or a comprehensive greengrowth strategy that goes beyond reducing the budget defcitto drive a dynamic economic recovery.

The UK is losing momentum in the greeneconomy race and there is only a smallwindow o opportunity to assert leadershipin the years ahead. A strong regulatoryand iscal ramework will be vital or success,combined with a concerted push to getbehind those sectors that have competitiveadvantages.

The green economy raceHow each nation addresses the challengeso a resource constrained world willincreasingly determine its uture economiccompetitiveness. Economies must betrans ormed to provide rising prosperity tocitizens, strengthening new growth sectorsand modernising traditional sectors. UK policyshould ocus on three core elements: buildinga globally competitive green economy,stimulating export growth and attractinginward investment rom oreign based irms.

Policies to enable the transition to asustainable economy will generally requireinvestment in the short term to maximisereturns in the long term. Not only is thescale o the task enormous and the timetablechallenging, but the pressure on public

inance is considerable. Nonetheless earlymover advantage is essential to drive successand only bold action will maximise investmentand stimulate innovation. At the sametime, a number o interventions have thepotential to raise signi icant unds or thepublic purse. The 2011 Budget must bethe irst to set out a clear ramework or a

ar-reaching and progressive green taxshi t, an important commitment in theCoalition Agreement.

The world is engaged in a green economyrace and acting early will ensure that the UK

is well positioned to attract global investment,stimulating job creation and export growth.While the UKs economy has strong green

oundations on which to build, it is rapidlylosing ground to developing nations and othercompetitors. This trend is directly relatedto aggressive regulatory and iscal policypackages that countries are putting intoplace, not least Chinas new Five Year Planthat seeks to underpin a clean revolutionin its economic development and IndiasNational Action Plan on Climate Changethat is projected to stimulate US$1 trillion o investment over the next decade.

1 United Nations (24 th May 2009)Ban Ki-moons speech at World BusinessSummit on Climate Change.

What the ence sitters and the sceptics ail tounderstand is that climate change undamentally changes the 21 st century balance sheet...Investing now in green solutions is cheaper

and ultimately more proftable than spending more, later, in a catch-up race or global competitiveness. 1 U.N. Secretary-General Ban Ki-moon

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The Governments plan to restore the publicinances should include a green growth

strategy which seeks to raise output andboost employment. I the regulatory and iscalinterventions are designed correctly, thiswould not only help reduce the budget de icitbut meet a number o other governmentobjectives, such as delivering a morebalanced economy, stimulating regionalgrowth and contributing to a Big Society.

Greening the whole economy To lay the oundations or a more resourcee icient and competitive economy, the UKneeds an intelligent and dynamic policy

ramework that corrects market ailures.Otherwise green investments will low to moreattractive markets or develop at too slow apace. The most e ective policies will provide

as much certainty as possible by being:

Credible. Legal, en orceable, ullydeliverable and supported by anoverarching vision.

Consistent. Providing con idence thata policy direction will be maintained,implementing progressive, and avoidingretrospective, changes.

Bankable. Risk and reward levelsare attractive over clear investmenttime rames, with no shocks to damageearly investors.

For example, the government target orzero carbon homes by 2016 meetsthis criteria by providing an ambitioustimetable or the progressive tighteningo building regulations, not backtrackingon commitments and inspiring su icientcon idence to stimulate early investment.

This has released latent innovation in asector which will now deliver more longterm value in the UKs new housing stock.

To ensure success, the Governmentsregulatory and iscal ramework shouldadopt a broad approach. The entireeconomy must be made more sustainablewith greater prioritisation given to energye iciency and technological innovations

or improving the processes o establishedindustries. This must:

Ensure that prices re lectenvironmental realities; Adopt a regulatory approach thatprioritises long-term value;

Embed sustainability acrosspublic policy;

Incorporate a li ecycleapproach; Address climate and resourcerisks; and Enable a socially justtransition.Dynamic sectors

The most e ective way to stimulate greeninvestment is on a sectoral basis due to thelarge number o speci ic barriers and solutionsthat each sector aces. This will be crucial todeliver the Prime Ministers vision or a neweconomic dynamism that seeks to create theright ramework or business investment.It will drive growth in those industries whereBritain enjoys competitive advantages,making it easier or new companies andinnovation to lourish.

Executive Summary



To secure the growth and jobs o the uture,the UK requires a systematic and transparentprioritisation o support or speci ic sectors.

The ull range o areas where the UK hascompetitive strengths and national needmust be examined. This must extend beyondtraditional environmental technologies tosectors that must play a leading role inthe transition to a sustainable economy,including automotive, aerospace, in ormationtechnology, the built environment, armingand the water industries.

In each priority area, the Government mustprovide long-term policy rameworks witha di erent combination o market pull andsupply push interventions. This approach,

or example, has helped to drive Germanysrenewable energy sector, make Silicon Valleya centre or technological innovation and buildSouth Koreas high tech manu acturing basevirtually rom scratch. This requires identi yingtechnology amilies that would stimulatecompetition across the range o companiesand products in each market. Any supportshould be time-limited (this will build upscale at speed in the short term and ensurecompetitiveness in the long term).

Addressing market failures There are a number o market or system

ailures that are holding back the transition

to a more sustainable economy. TheGovernment must ully examine the barriers togrowth, both in dynamic sectors and acrossthe economy more widely, setting out howit will address these barriers in a way that iscredible, consistent and bankable.

Finance. With long-term inance scarceand signi icant unding gaps projected orgreen technologies, the UK must seek toreduce risks and mobilise inance at scale

rom institutional investors. For example,the Green Investment Bank must seek tomake a trans ormational impact and playa signi icant role in supporting the greeningo industry and manu acturing.

Fiscal Policy. The government commitmentor the phased reduction o Corporation Tax

will help to increase UK tax competitivenessbut more can be done speci ically toincentivise the shi t to a more sustainableeconomy and provide manu acturers with thecon idence to make green investments in theUK. Taxes must be structured to incentiviseand reward the best as well as penalising theworst environmental per ormers.

Skills. Strong evidence suggests that the UKdoes not have the necessary skills to makethe transition to a green economy at thepace required, or the training arrangementsin place to ill the gap. The Government mustbuild on its national skills strategy to ensurethat its support or skills and training matchesthe ocus and ambition o its strategies orpromoting investment in green innovation andin rastructure, as demonstrated by Francesmobilisation plan or green jobs.

Executive Summary



Innovation. Government support orresearch, development and deployment(RD&D) is crucial to provide a long-term

ocus, drive private sector growth andcreate lasting jobs. Current public expenditure

or RD&D on the environment should beregarded as a minimum and any cuts wouldcontradict and undermine the Governmentsambition to be the greenest ever.

Public procurement. The 166 billion annualpublic procurement budget represents amajor opportunity to ensure the ull analysiso li ecycle costs are considered, acceleratingthe growth o environmental markets andsaving taxpayers money. Despite its vastpotential to drive change, re orming publicprocurement practices remains a relatively lowpriority or Government and practices such asForward Commitment Procurement should be

mainstreamed. Goods and services procuredrom other countries must be assessed

against the same high standards to which weaspire in order to maintain a level playing ield.

Planning. The UK planning systemhas historically been a major barrier toinvestments in green technologies.

The Government must ensure that itsre orm o the planning system meets itsobjectives to deliver a more streamlinedsystem and signi icantly improves the timeit takes to provide consent to projects,particularly or major in rastructure projectswith environmental gain.

A plan of action The litmus test o whether the Governmentmeets its ambition to be the greenest everwill be its ability to deliver on the ground. Nowthat a large number o targets and policy

rameworks are in place, there must be a shi tin ocus rom rhetoric to results-driven action.

The transition to a sustainable economywill involve massive changes in businessactivity and every job in the UK will needto change to some extent. Building onexisting knowledge and expertise will lay the

oundations to deliver a more competitiveeconomy. This should ocus on improvededucation (particularly STEM subjects),building on existing skill sets and developingthe sustainability knowledge o employeesacross the economy, as well as advancing theexpertise o the civil service and ensuring a

more joined up approach by Government.

In terms o implementation, the new LocalEnterprise Partnerships (LEPs) must play aleading co-ordination and implementation roleand the green economy should be a centralelement o the UKs bilateral relations, buildingon the recent strategic partnerships withChina and India.

ConclusionResource e iciency must be at the hearto a green growth strategy.

A undamental aspect o this should be aresolute energy e iciency drive or industryand buildings, as this o ten representsthe most cost-e ective investmentopportunity and is commonly overlooked.But it cannot stop there.

Critical resource challenges beyond carbonneed to be addressed urgently, particularly inlight o the re-emergence o steep rises inworld commodity prices and resourcesecurity concerns.

Competitiveness in a sustainable economymust be a key priority or all governmentdepartments. Mainstream policies on tax,

regulation, education, skills and employmentmust stimulate a green revolution, rather thantinkering at the sides with measures aimedspeci ically at green sectors.

The private sector will reward consistent andholistic policy with the investment neededto drive to the maximum pace the industrialtransition to a low carbon and resourcee icient economy.

Executive Summary



IntroductionHow each nation addresses the challenges o aresource constrained world will increasingly determineits uture economic competitiveness.

Global actions to reduce carbon emissionscoupled with a growing demand orcommodities such as energy and rawmaterials will make resource e iciencya major actor or industrial location andcommercial success. Economies must betrans ormed to ensure rising prosperity orcitizens, strengthening new growth sectorsand modernising traditional sectors. UK policyshould ocus on three core elements: buildinga globally competitive green economy,stimulating export growth and attracting

inward investment rom oreign based irms.

The transition to a sustainable economywill create winners and losers, resulting inchanges in production costs, consumerdemands and trade patterns. Countries thatare relatively less resource intensive or areearly movers will gain a relative advantageas the world shi ts to a more sustainablepath and resource pressures intensi y.

The challenge or each individual nation isto put in place a strong policy rameworkthat stimulates low carbon and sustainablegrowth, creating enduring economic valuethrough environmental technology, products,services and e iciency.

To lay the oundations or success, theGovernment requires a comprehensivegreen growth strategy that goes beyondreducing the budget de icit and drivesa dynamic economic recovery. A strongregulatory and iscal ramework will be vital,combined with a concerted push to getbehind those sectors that have competitiveadvantages and addressing barriers togrowth. I these interventions are designedcorrectly, they would represent the moste ective approach or reducing the budgetde icit by raising output and employment,as well as meeting a number o othergovernment objectives, such as delivering amore balanced economy, stimulating regionalgrowth and contributing to a Big Society.

Policies to enable the transition to asustainable economy will generally require

investment in the short term to maximisereturns in the long term. Not only is the scaleo the task enormous and the timetablechallenging, but the pressure on public

inance is considerable. Nonetheless earlymover advantage is essential to drive successand only bold action will maximise investmentand stimulate innovation.

At the same time, a number o interventionshave the potential to raise signi icant

unds or the public inances and the 2011Budget must set out a clear ramework ora comprehensive and progressive greentax shi t, an important commitment in theCoalition Agreement.

2 The Climate Institute & E3G (September 2009)G20 Low Carbon Competitiveness

The global economic recovery presents an ideal opportunity or countries to shi t towards low carbon growth. Countries which dont seizethis opportunity will undermine their uturecompetitiveness and prosperity. 2

Lord Nicholas Stern

TAX TAX



The Aldersgate Group is encouraged to seethat concern about resource e iciency isentering political and economic thinking, aswe have long advocated. Some o our recentinquiries have identi ied key elements o this energy, metals, water, and ood but alsonoted the underlying challenge, which is themanagement o our impact on living systemsas well as on the stock o natural resources.

The transition that we discuss in thisreport will have to be in ormed by a betterunderstanding o these more undamentalimpacts, and this will orm an importantelement o our work over the coming period.

This report examines the required policyramework in the UK to ensure a competitive

and vibrant green economy, removing barriersto growth and stimulating jobs and innovation.It was in ormed through roundtablediscussion with Aldersgate Group membersand external stakeholders, including leadingrepresentatives rom industry, government,academia, trade unions and NGOs.

While the transition to a green economywill require leadership rom business,government and society, our report is

ocused on policy.

Those rom the private sector insist that i they are to invest in the economictrans ormation, they need to be sure thetransition will be carried through withdetermination, and that an appropriatetimetable o regulation and capacity buildingwill be set and adhered to.

Introduction



The Green Economy Race A strong policy ramework is essential to establish an internationalleadership role or UK businesses in the economy o the uture 3 .

The world is engaged in a green economyrace and acting early will ensure that the UKis well positioned to win share in emergingmarkets and build competitiveness throughadopting more resource e icient practices.

In a global market, companies have arange o competing opportunities and willchose to invest in the countries that canprovide the most attractive returns at least

risk. Increasingly, companies have globalsupply chains with greater scope to sourcecomponents and set up production acilitiesaround the world. In terms o manu acturing,the UK is unlikely to be cost competitive

with emerging economies in many sectorsand so must ensure that it builds on its vastexperience and skills or higher value-addedmanu acturing activities. The Governmentmust do all that it can to provide the mostcompetitive business environment, buildingon domestic strengths and incentivisinggrowth in the markets with the best potentialin the long-term.

The green economy in the UKIn many sectors, the UK has strong green

oundations on which to build. It currently hasaround 3.5% market share o the 3.2 trillionglobal environmental goods and servicessector with a positive net trade position o 4.5bn. By 2015, the UK market could beworth as much as 150 billion and employover 1.2 million people 5 . This will provide a

core source o expertise or trans ormingthe whole economy and both costs andimports will increase i this market developstoo slowly. The UK also per orms well onclimate competitiveness indices 6 that typicallyre lect comparatively strong policy driversand business engagement on environmentalissues but a relatively weak industrial andmanu acturing base ( or example, in manyrenewable technologies).

Share of global environment goodsand services sector

While the industrialised world has been themainstay o the green economy over thepast decade 7 , the UK and EU are losingmomentum to competitors. Many developingcountries are winning market share and

increasing their carbon productivity, drivenby the high proportion o green spending instimulus packages and a strong turnaround

rom the global recession.

Ernst & Youngs analysis o the relativeattractiveness o countries or renewableenergy investments demonstrates that anew world order is emerging in the cleantechsector with China now the clear leader in theglobal renewables market 8 .

Around the world, rom China to Germany,our competitors are waging a historic e ort to

lead in developing new energy technologiesNobody is playing or second place. Thesecountries recognize that the nation that leadsthe clean energy economy is likely to lead the

global economy. 4 President Barack Obama

3 For speci ic interventions aimed at environmentalsectors, see Environmental Industries Commission(June 2010) 2010 Green Growth Strategy:

An Environmental Industry Policy Mani esto or the Coalition Government.

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

5 Department o Business, Innovation andSkills (December 2010) Growth Review Framework

or Advanced Manu acturing.

6 See Accountability & UNEP (2010)

The Climate Competitiveness Index 2010:National progress in the low carbon economy and Germanwatch (December 2010)The Climate Change Per ormance Index 2011.

7 HSBC (September 2010) Sizingthe Climate Economy.

8 Ernst & Young (November 2010)Renewable Energy Country Attractiveness Indices.

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United States

China

Germany

United Kingdom

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The research inds that manu acturers in theWest need to be particularly innovative i theyare to preserve their share o the market, andare likely to need a greater proportion o Asianproduct to remain cost competitive.

HSBC 9 predicts that the share o the threelargest industrialised low carbon markets(EU, USA and Japan) will all rom 60% in2009 to 53% in 2020, while the share o thethree leading major emerging markets (China,India and Brazil) will grow rom 25% to 34%.Its research also suggests that the marketwill primarily be driven by energy e iciencythemes, notably low carbon vehicles such asplug-in hybrid and ull electric vehicles, thatwill surpass low carbon power as the majorinvestment opportunity.

Green growth is directly related to aggressive

regulatory and iscal policy packages thatcountries are putting into place around theworld. While economic value can eventuallybecome widely shared and collaborative,the market in 2010 is iercely competitiveas businesses strive to achieve irst moveradvantages 10 . In the words o Barack Obama;nobody in this race is standing still 11 .

The UK must ensure it has the right policyramework in place to deliver growth,

innovation and decent jobs in the marketso the uture.

9 HSBC (September 2010)Sizing the Climate Economy.

10 Accountability & UNEP (2010) The ClimateCompetitiveness Index 2010: National progress

in the low carbon economy.

11 The While House (26 th May 2010) Remarks by the President on the Economy.

12 World Resources Institute (October 2010)Scaling Up Low-carbon Technology Deployment:Lessons rom China.

13 The new Magic 7 industries are energy savingand environmental protection; next generationin ormation technology; bio-technology; high endmanu acturing; new energy; new materials and clean

energy vehicles.14 HSBC (October 2010) Chinas Next 5-year Plan:What it means or equity markets.

15 Pew Environment Group (April 2010)

Whos Winning the Clean Energy Race?16 The White House (26th May 2010)Remarks by the President on the Economy.

A snapshot of policies from around

The Green Economy Race

China Driven by signi icant public spending,R&D investment, ambitious targets(such as a 20 per cent energy intensityimprovement target and 10 per centrenewable energy target or 2010)and strong incentives and regulatorylevers, China has trans ormed itsel over the past two decades to amajor manu acturer o a number o low carbon technologies 12 . The newFive Year Plan (201115) seeks tounderpin a clean revolution in Chinaseconomic development over the nextdecade. By speeding up the cultivationand development o emerging strategicindustries (including energy savingand environmental protection) 13 , itaims to restructure Chinas economyand reshape its industry, improvingR&D in science and technology, andestablishing a resource e icient andenvironmentally riendly society14 .

United States A mixed policy ramework ( or instance,with no ederal carbon policy and apatchwork o state renewable energystandards,) means that the UnitedStates has a comparatively weakclean energy sector given the relativesize o its overall economy. However,with signi icant natural and intellectualresources and a strong culture o entrepreneurship, a strengthened policy

ramework could enable the UnitedStates to regain a leadership role in thecoming years 15 . Around $100 billion o the USs economic recovery packagewas earmarked or investment inenvironmental technologies, includingadvanced batteries, plug-in cars, and asmart grid. In the next ew years, it aimsto make 40% o the worlds advancedbatteries (currently 2% market share) and10% o the worlds solar panels (currently5% market share) 16 .



17 UK-India Business Climate Group(November 2010) UKIndia Collaboration or aProsperous Low Carbon Economy: Opportunities,Challenges and Recommendations.

18 UNEP (April 2010)Overview o the Republic

o Koreas National Strategy or Green Growth.19 HSBC (September 2010)Sizing the Climate Economy.

20 Jenny Bird and Kate Lawton(October 2009) The Futures Green:

Jobs and the UK low carbon transition.

21 Frank-Walter Steinmeier & Sigmar Gabriel(June 2006) A Growth Strategy or Germany:New jobs through investments in energy

and environment.

the world

The Green Economy Race

India It is estimated that low carbon initiativesin India could result in investments o over US$1 trillion over the next decadethrough the implementation o theNational Action Plan on Climate Change.

This package aims to promote energye iciency (including targets or energye iciency in large energy-consumingindustries and the introduction o atrading system or energy-savingscerti icates), investments in renewabletechnologies (particularly windand solar), sustainable buildings, water

e iciency, sustaining the Himalayanecosystem and re orestation. It has beenestimated that the Governments plansto increase industrial and village-levelbio uel production has the potential tocreate ten million jobs acrossthe country 17 .

South Korea The ive-year green growth strategycontains policy goals and targets totackle climate change and enhanceenergy security, create new engineso growth through investment inenvironmental sectors, and developecological in rastructure. Thecommitment to spend 2% o GDPon green investments (such as greentechnologies, resource and materiale iciency, renewable energies,sustainable transport, green buildings,and ecosystem restoration) is asigni icant e ort to reorient and re ocusspending on the environment 18 .It aims to increase Koreas share o clean tech exports rom 2% to 8% o the world total by 2012 19 .

Germany The German Government hasacknowledged the need to developstrategic industrial policy that will urtherboth Germanys economic interests andenvironmental goals. It speci ically aimsto strengthen strategic industries o the

uture, promote innovation, adapt theindustrial structure o the economy toever-scarcer resources and switch thematerial base o industry in important

ields to renewable resources 20 . Through its leadership over the last

ew decades, Germany has alreadygenerated 280,000 jobs in the renewablesector and strong growth is orecast.By 2020, the environmental sector ispredicted to increase to 500 billion

rom the current level o 220 billion andcreate one million new jobs 21 .



Credible, Consistent and Bankable Policy The UK needs an intelligent and dynamic policy ramework to lay the

oundations or a more resource e fcient and competitive economy.

Crucial to economic success will beinnovative companies that strategicallyaddress environmental challenges such asclimate change and resource depletion ando er the products and services o the uture.

Current market prices do not re lect theull costs associated with environmental

externalities and there ore do not provideappropriate incentives or the development

o many green technologies and stimulateenergy e iciency investments. We have madea start with carbon emissions, but even herethe true costs have not been built into ourdecisions. Valuation o other environmentalservices and resources are still in its in ancy.Government intervention is required to correctthese and urther market ailures. However,the policies to drive this transition are notcost ree. There will inevitably be a trade-o between short-term costs and the potentiallyhuge but uncertain longer-term economicbene its in terms o higher growth, jobcreation and competitiveness.

The role of good regulation The Coalition Government recognises thatwell designed regulation that provideslong-term signals to businesses and tackleine iciencies has an important role inincentivising investment and innovation inenvironmental technologies 23 . However,the drive to reduce regulatory burdens riskslosing sight o how to most e ectively deliverthe outcomes that regulation is designed toachieve, and so puts at risk uture wealthand prosperity. A su iciently ambitious,clear and stable policy ramework is neededeven though it may be more challenging toimplement. What does this encompass andwhat have been the critical actors in drivingsuccess in the UK and elsewhere?

A recent report by the United Nations indsthat the rewards o greening the worlds

economies are tangible and considerable,that the means are at hand or bothgovernments and the private sector, and thatthe time to engage the challenge is now.

For governments, this would include levelingthe playing ield or greener products byphasing out antiquated subsidies, re ormingpolicies and providing new incentives,strengthening market in rastructure andmarket-based mechanisms, redirecting publicinvestment, and greening public procurement.For the private sector, this would involveunderstanding and sizing the true opportunityrepresented by green economy transitionsacross a number o key sectors, andresponding to policy re orms and pricesignals through higher levels o inancing andinvestment. 24

To lay the oundations or a more resourcee icient and competitive economy, the UKneeds an intelligent and dynamic policy

ramework that corrects market ailures.Otherwise green investments will low to more

attractive markets or develop at too slow apace. The most e ective policies will provideas much certainty as possible by being:

Credible. Legal, en orceable, ullydeliverable and supported by anoverarching vision.

Consistent. Providing con idence thata policy direction will be maintained,implementing progressive, and avoidingretrospective, changes.

Bankable. Risk and reward levelsare attractive over clear investmenttime rames, with no shocks todamage early investors.

We need to recognise the ferce urgency o now For I see in this green recovery not justthe fght against climate change, but the fght

or jobs, the fght or new industry, the fghtor lower amily energy bills and the fght or

less waste ul government. 22

Chancellor of the ExchequerGeorge Osborne

22 George Osborne (24 th November 2010)Speech at Imperial College: A sustainableGovernment; a sustainable economy.

23 BIS (December 2010) Growth ReviewFramework or Advanced Manu acturing.

24 UNEP (February 2011) Towards aGreen Economy: Pathways to SustainableDevelopmentand Poverty Eradication



Policy certainty in the UK The long-term ramework provided bythe legally binding Climate Change Actdemonstrates that the UK is a world leaderin climate change legislation. However, thepolicies that are needed to deliver carbonbudgets have generally not been su icientlycredible, consistent or bankable leadingthe Committee on Climate Change to callrepeatedly or a step change in delivery.

In the onshore wind sector, or example, alack o support has resulted in the UK losingout to countries such as Denmark, whichhas won 50% market share o the globalturbine market with annual revenues o 2.7billion. This was secured through governmentsupport measures worth 1.3 billion since1993 25 . This demonstrates that stringentenvironmental regulations which orce the

pace o adoption o renewable energygeneration can help oster rapid industrialexpansion with high export growth potential.

The UK is now scrambling to import windturbines and solar panels rom its Europeanneighbours and paying a higher price whenthe pound is weak.

The policy ramework or zero carbon homesby 2016, in contrast, has generally beenregarded as a success. It set out an ambitioustimetable or the progressive tightening o building regulations (Part L) in 2010 and2013, supported by the Code or SustainableHomes, the Planning Policy Statement onClimate Change and stamp duty relie orzero carbon homes. This timetable hasbeen developed ollowing consultation,and in partnership with business, localgovernment and green stakeholders 26 .Within a relatively short period o time anddespite overcoming a number o stumblingblocks (not least de ining zero carbon),signi icant progress has been made towardsa target that many in the industry thought

at the outset was unattainable. The policyramework was credible (a clear regulatory

timetable), consistent (no back tracking oncommitments) and bankable (generatingcon idence or investment decisions to bemade). This has helped cement UK leadershipin the design, manu acture and constructiono sustainable new homes 27 .

The Land ill Tax Escalator is another exampleo a policy that has generally been regardedas credible (increases o 8 per tonne peryear to 2013 announced in the 2010 Budgetwith a long term loor o 80 per tonne),consistent (a long-term policy that has givena sustained signal that land ill prices will beescalated until alternative technologies cancompete) and bankable (su icient time ramesto invest in alternative waste management

acilities, although extending lead times would

provide greater certainty). As a result, overallquantities o waste recorded at land ill sitesregistered or the tax year ell rom around96 million tonnes in 199798 to around72 million tonnes in 200506, a reductiono around 25% 28 .

Credible, Consistent and Bankable Policy

25 RenewableUK (2010) Mani esto 2010: Policy actions or wind, wave and tidal energy in the UK. 26 www.zerocarbonhub.org

27 It is un ortunate, given the success o this seto interventions, that the Government haswithdrawn its unding contribution to the body thathas been mainly responsible or de-risking thispolicy, the Zero Carbon Hub. The private sectormay replace some o the lost public unding, but theGovernment risks losing some o its ability to shapeindustry practice in a vital economic sector.28 www.de ra.gov.uk/environment/waste/strategy/

actsheets/land illtax.htm


16/28

A report by the World Resources Institute 29 highlights theimportant role o e ective domestic policy in stimulating lowcarbon technology in three sectors (clean coal, o shore wind andenergy e icient steel production). While the Government tookdi erent approaches or each o the three technologies examinedin this report, its building blocks or technology deploymentin rastructure include:

1. Making a deliberate, holistic plan and long-termcommitment to the localisation o a low carbon technology.

This approach is taken in all three cases.

2. Establishing direct R&D unding programmes to supportthe launch and scale-up o low carbon technology innovation.

3. Improving businesses technological absorptive capacitythrough directly unding their technology learning. Two leadingChinese clean energy companies, Goldwind and ShanxiGlower Group, are both indebted to this measure.

4. Capitalising on public-private and industry-academia synergiesto bring together multi-sector expertise.

5. Designing national-level and sector-wide laws, policies,and regulations to scale-up commercialization o lowcarbon technology, create domestic markets, and drivedown the costs.

6. Relying on international cooperation to pursuenew-to-market technology and knowledge.

The report inds that without clear and lasting signals romthe Government and a central role or government- undedR&D, the market will not automatically embrace low carbontechnology. Other countries might lack the tremendous scaleo resources or domestic investment in R&D that China canbring to bear, but Chinas experience demonstrates someclear successes rom which other countries can bene it.

A research project convened by the University o Cambridge 30

demonstrates that making steel and aluminium products, evenrom scrap, is expensive and energy intensive. It inds that

signi icant opportunities exist now or reuse o steel in constructionand or diversion o manu acturing scrap, and it may be possibleto reuse aluminium swar without melting using an emergingtechnology. In the UK, the report estimates that these strategiesused now could save about 2 Mt CO 2 pro itably and withoutsigni icant capital investment. Furthermore, i we make the rightdesign choices now, up to 75% o steel and 50% o aluminiumcould be reused without melting and with negligible emissions.

The construction sector is identi ied as a key opportunity, where30% o building and construction scrap could be reused. For

example, the reuse o steel sections or low grade purposes couldresult in an average pro it o 190 per tonne.

Similarly, the Aldersgate Groups recent analysis o resourcee iciency demonstrated that too much scrap metal is exported,such as 60% in the case o aluminium. These scrap exports areundertaken at low economic value (around 60million or steel)whilst our de icit demand or re-imported materials is at higheconomic cost (around 6 billion or steel). It inds that policies toencourage re-manu acturing and re-use rather than recycling arestill largely absent and most ocus on behavioural change ratherthan re-thinking products and production processes (particularlyacross supply chains outside the UK). 31

29 World Resources Institute (October 2010)Scaling up Low Carbon Technology Development:Lessons rom China.

30 WellMet 2050 (September 2010)Conserving Our Metal Energy: Avoiding

metal steel and aluminium scrap to save energy and carbon.

31 Aldersgate Group (February 2010)Beyond Carbon: Towards a resourcee icient uture.

Case StudyLessons rom China in scaling up lowcarbon technology development

Case StudyReuse and recycling our metal resources

Credible, Consistent and Bankable Policy



Greening the Whole Economy The role o good regulation in orcing the pace o industrial change is now

a central element o economic policy. Its key objectives are not only to reduceenvironmental impacts but to stimulate growth, exports and job creation.

The Government needs to develop a clearset o criteria or identi ying the sweet spotin terms o reducing environmental impact,building economic advantage and stimulatinggood quality job creation.

To build a more competitive economy,the governments regulatory and iscal

ramework should:

Tackle the whole economyBuilding a more competitive economy is not

just a question o establishing a lourishingenvironmental technologies sector 33 .Primarily, it is concerned with modernisingthe entire economy and trans ormingconventional business models 34 . The LowCarbon Industrial Strategy, or example, ailedadequately to address the opportunitiesassociated with energy e iciency or the

technological innovations or improvingthe processes o established industries.Relatively small wins in energy and resourceintensive industries can lead to signi icant

inancial and environmental bene its. In aworld o rising energy costs and increasinglyscarce raw materials, our internationaleconomic standing will in uture depend onmaximising resource e iciency just as muchas on boosting labour productivity.

Ensure prices reflectenvironmental realitiesCurrent prices are a long way o providing asu icient incentive or investments at the paceand scale required to meet environmentalchallenges. This can most clearly beillustrated by the inadequacy o currentpolicy to create a su iciently stable, high and

credible carbon price, primarily through theEU ETS. For this reason, the governmentcommitment to create a carbon loor price is

welcome. While this will raise concern aboutleakage o economic activity to areas withless stringent carbon regulation, a numbero studies have shown that this is only agenuine threat requiring a special responsein a small number o sectors. In reality, otherconsiderations are much more signi icant

or industrial location in the vast majority o sectors (such as wage costs, work orce skills,exchange rate luctuations and proximity tothe market) 35/36 .

Adopt a longer-term focusPricing policy alone is not su icient to driveinvestment in environmental technologies andresource e iciency. As a result, a regulatoryapproach that prioritises long-term valueis required that addresses the ull rangeo barriers and does not lock in existing

technologies or practices. This must includere orm to the policy appraisal process (suchas impact assessments), so that they ullyre lect the strategic ramework set out byGovernment. Instead o ocusing on currentlyavailable solutions and static assessmentso existing costs, they must allow or thepotential o innovation and investment todeliver better, cheaper solutions 37 .

We will accelerate the development o a lowcarbon economy and green economy so

as to gain an advantageous position in the international industrial competition. 32

Chinese Premier Wen Jiabao

32 Wen Jiabao (10 th September 2009)Speech at the World Economic Forum Annual Meeting o New Champions 2009.

33 It should be noted that the environmentalindustries have their biggest client base in therest o the UK economy and greening thewhole economy will lead to special opportunitiesto build these sectors up to world leaders andhigh export earners.

34Frank-Walter Steinmeier & Sigmar Gabriel(June 2006) A Growth Strategy or Germany:

New jobs through investments in energy and environment.

35 Carbon Trust (March 2010) TacklingCarbon Leakage: Sector-speci ic solutions or

a world o unequal carbon prices.

36 Climate Group (2009) The E ects o EUClimate Legislation on Business Competitiveness:

A survey and analysis.

37Aldersgate Group (December 2009)Green Foundations 2010: The path to

a vibrant economy, competitive advantage and sustainable prosperity.



Embed sustainability acrosspublic policy

The transition to a more sustainable worldwill trans orm the whole economy. Asprevious government analysis has shown,it will change our industrial landscape, thesupply chains o our businesses and theway we all live and work. The vast majorityo , i not all, economic activity in Britain willhave to reduce its environmental impactsigni icantly38 . Government policy anddelivery should not seek to isolate theenvironment as i it was a sector o theeconomy but ensure a joined-up approachwhere sustainability is embedded intoall policy decisions. This should includeanalysis o target outcomes and thresholds

or key resources (e.g. the quantity o theresource consumed or pollution emitted)and ensure the implementation o su icient

price, regulation, demand reduction andinnovation policies 39 .

Incorporate a lifecycle approachE ective management o resourcesnecessitates consideration o the wholeresource cycle. UK waste policy must moveaway rom a linear model and look towardsclosing the loop. In addition, physicalaccounting or the use o key resources onan economy wide basis, alongside monetaryaccounting, would help to make more

balanced and robust decisions. This wouldsystematically track the low o materialsthrough the economy with the associatedenvironmental impacts (including an analysiso embodied carbon) 40 .

Address climate and resource risks

Climate change is real, and is happeningnow. As a report rom the Environment

Agency demonstrates 41 , this will a ectpeoples lives, homes and businesses aswell as essential services and supplies suchas transport, hospitals, water supply andenergy. Companies and organisations musttake timely, proportionate steps to avoidthreats and exploit opportunities.

The Government also needs to play aleading role to build climate resilience

across the economy and identi y climatechange adaption opportunities in bothdomestic and global markets. In addition,a recent report by De ra demonstrates thechallenges o resource security and thesevere impact on business i the availabilityo certain resources is a ected by restrictedaccess or price volatility 42 . The Governmentneeds a ramework that addresses criticalresource challenges and adopts generalresource e iciency principles throughpractices such as resource pricing and li ecycle management.

Enable a socially just transition The transition to a green economy has thepotential to be a major source o wealth andemployment. As with previous structuralchanges to the economy, it will create losers

as well as winners and the Government mustintervene to provide a suitable level o socialprotection. This should include identi ying the

jobs that are at greatest risk and developingstrategies to trans orm skill sets so that theseworkers are able to compete or the new jobopportunities in cleaner technologies 43 . TheGovernment must also engage more activelywith the UK work orce so that the transitionbecomes accepted as a positive change.

38 HM Government (July 2009)The UK Low Carbon Industrial Strategy.

39 Aldersgate Group (February 2010) Beyond Carbon: Towards a resource e icient uture.

40 The Aldersgate Groups report Beyond Carbon (February 2010) recommends that therewill need to be some orm o physical accounting

or the use o key resources on an economy-widebasis and economic decisions will have to balancemeasures o these resources alongside more

amiliar monetary measures.41 Environment Agency (June 2009)Climate change: adapting or tomorrow.

42 De ra (December 2010) Review o theFuture Resource Risks Faced by UK Business

and an Assessment o Future Viability.

43 Aldersgate Group (November 2009)Mind the Gap: Skills or the transition to a

low carbon economy.

Greening the Whole Economy



Dynamic Sectors The most e ective way to stimulate green investment is on asectoral basis due to the large number o specifc barriers andsolutions that each sector aces.

This will be crucial to deliver the PrimeMinisters vision or a new economicdynamism that seeks to create the right

ramework or business investment. It willdrive growth in those industries whereBritain enjoys competitive advantages,making it easier or new companies andinnovation to lourish 45 .

As public resources are inite, the UKGovernment must identi y strategic areaso opportunity and ensure policy is targetedto where it will have the greatest e ect.It is not desirable or a ordable to lead inall areas o the green economy and theGovernment must seek to collaborateinternationally where it does not havesigni icant competitive advantages 46 .

To secure the growth and jobs o theuture, the UK requires a systematic and

transparent prioritisation o support orspeci ic sectors.

The Institute o Public Policy Research(IPPR) has shown that strategic and activegovernment intervention can help driveinnovation and stimulate growth. Germanyhas invested heavily in generating supplychains and technology to support productionin the renewable energy sector and is nowa leader in this ield. The US Governmentlevered large amounts o money into Silicon

Valley where industries are now leadersin business innovation. Since the 1980s,South Korea has developed a high-techmanu acturing base virtually rom scratch 47 .

Market pull and supply push A previous government commission thatexamined how to make the UK one o the best locations in the world to developand introduce low carbon and resource

e icient products ound that the Governmentmust provide long-term policy rameworks,

supported by market pull (creating leadmarkets which do not generally exist inthe absence o policy intervention) and supplypush (investment in the technologies andskills that will help develop competenciesin the UK) 48 .

In the leading dynamic sectors with potentialcompetitive advantages, all the relevantmarket pull and supply push solutions needto be put in place and barriers removed.

This requires identi ying technology amiliesthat would stimulate competition acrossthe range o companies and products ineach market rather than picking winnersthat would support speci ic companies ortechnologies within a sector 49 . Strategicareas o opportunity should extend beyondtraditional environmental technologies tosectors that must play a leading role in

the transition to a sustainable economy,including automotive, aerospace, in ormationtechnology, the built environment, armingand the water industries.

Any package o supportive measures shouldbe time limited. In the longer term, economieso scale will reduce technology cost andthe success ul technologies will be costcompetitive without the need or governmentintervention. While government measures arenecessary in the short term to build up scaleat speed, phasing out support will ensure thedevelopment o a vibrant private sector withglobally competitive irms.

All over the world, governments are identi yingdynamic sectors in their economy and working

strategically to strengthen them What they understand is that when youre looking or

growth opportunities you dont stick a pin in a map and drop down a research centre here or arbitrarily back an industry there. You go withthe grain o what is already working. 44

Prime Minister David Cameron

44 Number 10 (25 th October 2010) PMs speech on creating a new economic dynamism.

45 Ibid.

46 See Committee on Climate Change(July 2010) Building a Low-Carbon Economy:The UKs innovation challenge.

47 IPPR (July 2009) Building a Better Balanced Economy: Where will jobs becreated in the next economic cycle?

48 HM Government (November 2007)Commission on Environmental Markets and Economic Per ormance.

49 CBI (November 2008) Low-carbon Innovation:Developing technology or the uture.



Examples of supportivemechanisms in leading sectors

The Governments commitment to a new economic dynamism must

ensure that the most e ective market pull and supply push mechanisms arepursued in leading sectors where the UK has competitive advantages.

AutomotiveSupport or the production o low emissions automotive technology must includeboth supply push (such as support or RD&D, electrical vehicle in rastructure and

iscal incentives)50 and market pull (public procurement, incentives or consumersand tax di erentials in avour o low carbon vehicles). Government backing must becompetitive with countries such as the United States and France that provide lowinterest, long-term loans to manu acturers 51 .

Aerospace The UK has the second biggest aerospace industry in the world in terms o employment and turnover and technological improvements (particularly improving uele iciency and developing second generation bio uels) will be vital to reduce carbonemissions or the aviation industry. Aerospace is a global industry with demand drivenby international markets. Industrial location is dependent on an innovative supplychain and the most e ective government intervention tends to be support or RD&D.

Information and Communications Technology (ICT) The main barriers to the development o smart technologies are an absence o

pro itable markets. Lead markets tend to be in regions where there is strong policysupport (with a number o cities in the United States, China, South Korea, Germanyand the Netherlands showing the way). Interventions should ocus on demand pull,driven be a strong carbon price, stricter regulations on building e iciency (both newbuild and re urbishment) and a clear strategy and implementation timetable aroundthe deployment o smart grids and meters.

Construction An extensive government review into low carbon construction published in November2010 52 demonstrates that government must provide extensive leadership due tothe degree o market ailure and the scale o the challenge. It inds that it would

be counter productive to set objectives and develop capacity only to ind there areno customers. The almost universal perception in the industry is that only regulationwill create mass demand or energy e icient retro it o the domestic and non-domesticbuilding stock. A combination o the removal o barriers and the creation o incentivesis there ore critical.

50 For example, last year the Government approved a 20.7m grant or Nissan to produce its plug-in Lea car in the UK,and a 360m guarantee or Ford to develop a new generation o low emission eco-boost engines and other low CO 2 technologies in Britain.

51 Last year, the French Government granted PSA Peugeot Citron and Renault 6bn ($7.4bn) in low interest loans, on topo aid or their electric car programmes. The US Department o Energy has approved billions o dollars in low interest loans

or automakers including Nissan, Ford, and electric car start-up Tesla Motors. See John Reed (24th June 2010) The Financial Times: Car industry hopes boost to manu acturing will help.

52 HM Government (November 2010) Low Carbon Construction Innovation & Growth Team: Final report.



Develop the supply chainNot only must demand-side policy bematched by development on the supply side,but both must advance together as eachpromotes the progress o the other. A suddenand unexpected hike in standards maynot lead to job creation i industry is eitherunprepared or unable to respond e ectively.In these circumstances, new jobs may beexported while old ones dwindle. Wherethere is good in rastructure support or newstandards, employment patterns respondmuch more lexibly and the very creationo new opportunities encourages bothemployers and employees to support andencourage urther change 53 .


low carbon economy.

Dynamic Sectors

Demand side policy must be matched bythe development o the supply side. Foro shore wind, this includes the explicitdevelopment o UK-based engineeringand construction capacity. A ailure todo this e ectively over the past decadehas meant that only 1020% o theinvestment or recent UK o shore windprojects (such as the London Array and

Thanet) has gone to British based irms. Itis envisaged that bene its or UK irms willbe increased through a recent packageo measures, such as the commitment

or public investment in port in rastructurein the 2010 Spending Review, thathas been rewarded with a number o turbine manu actures committing to aUK presence (such as Siemens, Clipper,Mitsubishi and GE).

Research by Douglas Westwooddemonstrates that the size o the UKsupply chain and job creation potentialin the sector is expected to growdependent on the number o turbinemanu acturers present and their output.For example, it estimated that i threeturbine manu acturers located in thecountry, 50% o UK installed capacitywould be manu actured in the UK by2020, creating 34,000 new jobs 54 . Furtherstudies have ound that the UK would bewell positioned to generate domestic jobsin component manu acturing, such as themanu acture o towers and oundations

54 Douglas Westwood (June 2008)Supply Chain Constraints on the Deploymento Renewable Electricity Technologies

55 Global Climate Network (March 2010)Low-Carbon Jobs in an Interconnected World.

56 Carbon Trust (2008) O shore Wind Power:

Big Challenge, Big Opportunity. 57 RenewableUK (June 2010)UK O shore Wind: Building an Industry.

Case Study The supply chain or o shore wind

which could draw on existing skills andknowledge bases in the o shore oil and gassectors, as well as in the related legal and

inancial services55 . In act, the Carbon Trustestimates that the UK could accrue hal o all service jobs in the global o shore windindustry by 2020. 56

RenewableUK inds that the period to 2016will be critical in ensuring su icient productioncapacity can be brought online to meetproject requirements and avoid lengthy leadtimes and upwards cost pressures. With

the ast growth expected in the UK marketbetween 2016 and 2018, it is imperative that

actories are established well in advance. The UKs orecast growth will require theequivalent o 22 actories or just the requiredturbines, oundations and cables. Investmentdecisions on plants are required straight awayand government support will be requiredto help establish these acilities. The costo building the necessary plants ( or thesemajor components only) is estimated to bein excess o 1 billion. Given the relativelyearly peak in actory production capacity itis important that any actories established inthe UK are then able to take advantage o

urther UK development rounds and the widerEuropean export market 57 .



Addressing Barriers to Growth There are a number o market or system ailures that are holdingback the transition to a more sustainable economy.

The Government must examine ully thebarriers to growth and set out what it will doto address these in a way that is credible,consistent and bankable. While each sectorwill ace its own particular set o barriersthat need to be addressed on an individualbasis, the most common barriers across theeconomy that stakeholders identi ied are as

ollows:

Finance The shi t to a green economy generally

involves higher up ront capital costs andlower operating costs. Following thecredit crunch, capital and private equityinvestment in environmental sectors has

allen dramatically and long term inanceremains scarce. The unding gap betweenbusiness-as-usual and what is requiredto meet environmental targets is becomingever more stark, with Ernst & Youngestimating that the UK unding gap orlow carbon technologies alone to 2025is approximately 330360 billion 59 .

To address this immense inancing challenge,the UK must seek to reduce risks andmobilise inance at scale rom institutionalinvestors. The government commitment tocreate a Green Investment Bank (GIB) iswelcome and the Bank must be designed tomake a trans ormational impact. In the globalgreen economy race, there will be competitiveadvantage or the countries that are able tocut the costs o capital. For example, K W inGermany has a long track record with manydecades head start. It provided 19.8bn o investment in environment technologies in2009 up 12.5% on the previous year 60 .

The GIB could also have a signi icant role insupporting green industry and manu acturing.Helping success ul low carbon companiesaccess inance as they grow will help tomaximise economic opportunities and unlock

competitive potential or British based irms,particularly in sectors where the UK is wellplaced to be a global leader.

Fiscal policyFor many manu acturers, the tax regime isa much more signi icant driver or long-terminvestment than environmental regulation orthe projected carbon price. The governmentcommitment or the phased reduction o Corporation Tax over the current Parliamentwill help to increase UK tax competitivenessbut more can be done to incentivise theshi t to a more sustainable economy andgive manu acturers the con idence to makegreen investments in the UK. For example,tax credits have been a signi icant driverto stimulate growth in renewable energyinvestments in the United States. A signal thatCorporation Tax reductions will avour greeninvesting industries and not be allocated topoor per ormers would increase a Boardsattention on opportunities to ensure theirenterprise is progressive in changing to more

sustainable practices.

Whoever is frst to conquer green-tech markets will have an enduring export advantage and create jobs. 58

Angela Merkel, Chancellor of Germany

58 The Economist (11 th March 2010) The green machine: A second wind or German industry?

59 Ernst & Young (October 2010) Capitalising theGreen Investment Bank: Key issues and next steps.

60 The Climate Bonds Initiative (June 2010)Green Investment Bank: Experiences rom France,Germany, Spain and a ew others.



A strong driver or the transition to asustainable economy is a green tax shi t,reducing taxes on income and increasingtaxes on pollution. An extensive researchproject by the Green Fiscal Commissiondemonstrates that this will be vital to put theUK on a sustainable trajectory; help developthe new industries that will both keep it thereand provide competitive advantage or theUK in the uture; and contribute to restoringUK iscal stability a ter the recession61 . Inlight o the signi icant inancing gaps orenvironmental technologies and market

ailures in resource e iciency, revenues romprogressive and rigorous environmentalinterventions (such as the CRC EnergyE iciency Scheme, EU ETS Phase III and thecarbon loor price) should help to inance theshi t to a green economy. For example, theLand ill Communities Fund is an innovative

tax credit scheme that enables operators o land ill sites to contribute money to enrolledenvironmental bodies to carry out projectsthat meet environmental objectives and hashelped create jobs and promote sustainablewaste management 62 .

Skills A crucial component o the transition a greeneconomy is the development o new skillsin rapidly growing environmental markets(mainly building on existing skill sets) andsustainable literacy skills in all sectors andbusinesses (such as project managementand communication skills). Strong evidencesuggests that the UK does not have thenecessary skills to make the transition at thepace required, or the training arrangementsin place to ill the gap. Greater collaborationbetween government, industry and learningproviders to deliver a cohesive approach toskills and education is needed and undingshould be responsive to industry needs 63 .

While the Governments recent nationalskills strategy 64 expands the number o adultapprenticeships and supports skills needs

through a growth and innovation und,there is no explicit strategy to prioritisethe skill needs to drive the economythrough the environmental transition.

The Government cannot rely on themarket to respond to environmental targetsat the required scale and urgency, and it isvital that all major environmental policies,such as the Green Deal or o shore

wind subsidies, are accompanied witha corresponding skills strategy 65 . Anextensive research project by the InternationalLabour O ice and Cede op urges Europespolicy-makers to ensure that their support

or skills and training matches the ocus andambition o their strategies or promotinginvestment in green innovation andin rastructure. It inds that France is the mostadvanced in this respect with the publicationo a mobilisation plan or green jobs66 .

Innovation The competitive advantage o the UK inthe green economy will depend oncompanies commercialising innovativegoods and services and adopting novelresource e icient practices. Private sectorsupport (such as venture capital) or

companies in the early stages o developingnew solutions to environmental challengesis limited due to high capital intensityand signi icant risks moving rom proo o concept to scale commercialisation.

Addressing Barriers to Growth

61 Green Fiscal Commission (October 2009)The Case or Green Fiscal Re orm.

62 www.entrust.org.uk/home/lc /about

63 RenewableUK (June 2010)UK O shore Wind: Building an Industry.

64 BIS (November 20100)Skills or Sustainable Growth.


low carbon economy.

66 Cede op & International Labour O ice(September 2010) Skills or Green Jobs:European synthesis report.



Government support or research,development and deployment (RD&D) iscrucial to provide a long-term ocus, driveprivate sector growth and create lasting jobs.

The UK is currently an average spender ontotal R&D67 but investments are threatenedby the Governments de icit reductionprogramme. As a result, the Committee onClimate Change recommends that currentlevels o public expenditure or RD&D inenvironmental sectors should be regardedas a minimum and any cuts would bedetrimental to the achievement o the UKsclimate goals and the Governments objectiveto build a green economy. UK energy RD&D

unding is low by international standardsand international unding is low relative tobenchmarks proposed by the Stern Review,the International Energy Agency (IEA) andthe EU (e.g. IEA analysis suggests that a

two to ive old increase is required)68

. Inaddition, support must distinguish betweenearlier stage technologies, whose lowerdevelopment costs and higher uncertaintyargue or public support or multiple options,and later stage technologies, where clear

ocus is needed because deployment supportcosts are high 69 .

Public procurementOne o the most direct ways that Governmentcould stimulate demand or more sustainablegoods and services is by exemplary actionas the UKs largest purchaser. The 166billion annual public procurement budget 70 represents a major opportunity to ensure the

ull analysis o li ecycle costs are consideredwith the environmental costs internalised,accelerating the growth o environmentalmarkets and saving taxpayers money. Despiteits vast potential to drive change, re ormingpublic procurement practices remains arelatively low priority or Government and,

or example, was not included in the remit o the recent government spending e iciencyreview by Sir Philip Green. Goods andservices procured rom other countries mustbe assessed against the same high standardsto which we aspire in order to maintain a level

playing ield.

While there has been some progress inthe last ew years in the development o Forward Commitment Procurement (FCP),which speci ies uture per ormance levelsand cost as opposed to locking in todaystechnologies, this now needs to be scaledup to become common practice and usedin major procurement contracts. Sustainablepublic procurement will only be achievable i civil servants have the relevant skills and in-house expertise by providing more extensivetraining, real opportunities in terms o careerprogression and strengthening links betweenthe public and private sectors throughsecondments 71 .

Planning The UK planning system has historicallybeen a major barrier to investments in greentechnologies. For example, a survey o seniorexecutives in the renewable energy sectorby Taylor Wessing inds that uncertaintiesover planning and consenting processes isthe second biggest barrier that is deterringinvestors 72 . Research by RenewableUK indsthat the average onshore wind arm projectin England waits 17 months or a decisionby local planning authorities and only 25% o applications are approved 73 .

It is, there ore, welcome that the Governmentis re orming the planning system to acilitatethe timely delivery o in rastructure. It isimperative that this meets the Governmentsobjectives to introduce a more streamlinedplanning system and signi icantly improve the

time it takes to provide consent to projects. The CBI recently called on the Government totackle a ra t o planning applications awaitingapproval (including 87 energy in rastructureprojects) and to ensure the transition to itsnew Major In rastructure Unit is smooth 74 .Early clarity on the transitional arrangementswill be essential to ensure the timely deliveryo vital green in rastructure projects.

67 CBI (November 2008) Low-carbon Innovation:Developing technology or the uture.

68 Committee on Climate Change (July 2010)Building a Low-Carbon Economy: The UKs

innovation challenge.

69 Carbon Trust (July 2009) Focus or Success: A new approach to commercialising

low carbon technologies.

70 Sir Philip Green (October 2010)E iciency Review by Sir Philip Green:Key Findings and Recommendations.

71 Aldersgate Group (November 2009)Mind the Gap: Skills or the transition to a lowcarbon economy.

72 Taylor Wessing (November 2010) Bridgingthe Funding Gap: The inancing challenge or European cleantech and renewable energy.

73 RenewableUK (2010) Mani esto 2010: Policy actions or wind, wave and tidal Energy in the UK.

74 CBI (December 2010) Climate ChangePolicy Tracker 5 th Addition.

Addressing Barriers to Growth



A Plan of Action The litmus test o whether the Government meets its ambition to bethe greenest ever will be its ability to deliver on the ground.

Now that a large number o targets and policyrameworks are in place, there must be a shi t

in ocus rom rhetoric to results driven action. The government must realise Chris Huhnespledge to make things happen 76 .

Wide ranging environmental challengescannot be e ectively addressed throughsegmented government. Progress can behampered by civil service o icials all too

o ten only responding to the narrow set o interests o their unction and departmentwithout su icient incentive to consider thebroader picture. The transition to a lowcarbon and resource e icient economy

requires unprecedented cross-departmentalco-ordination. The Government should seekto re orm delivery mechanisms where easibleand ensure a more joined-up approach. Clearprioritisation rom the Prime Minister wouldhelp to increase awareness and needs tobe supported by appropriate mechanisms(such as the commitment to departmentalcarbon budgets or increasing the importanceo sustainability objectives in civil servantsannual per ormance reviews).

The transition to a sustainable economy willinvolve massive changes in business activityand every job in the UK will need to change tosome extent. Building on existing knowledgeand expertise lays the oundation to delivera more competitive economy. This should

ocus on improving education (both in STEMsubjects and sustainability more widely),

building on existing skill sets and ensuringemployees across the economy appreciatethe reasons or change and are su icientlyknowledgeable to take an active part in theprocess. The Government must also ensurethat it has the relevant skills to implementsustainable policies. This must includethe development o high-level expertise todeliver the most e ective interventions inspeci ic sectors and developing a betterunderstanding o business needs.

Localism and the Big Society The solutions to environmental challengesmust be delivered at the local level. Regionaland local level actors will need to per orm anumber o vital unctions in the success ulshi t to a more sustainable economy andmeet the aspirations o the Big Society.In terms o skills and resources, smaller,less complex environmental projects tendto have simpler supply chains providingthe added bene it o e ective utilisation,the development o UK skills and providinggreater opportunities to smaller businessesand new market entrants.

I consider that Brazil has a sacred mission to show the world that it is possible or a country to grow rapidly without destroying theenvironment. We are and will continue to

be the world champions in clean energy, a country that will always know how to grow in a healthy and balanced ashion. 75 Dilma Rousseff, President of Brazil

75 President Dilma Vana Rousse (1st January 2011) Speech by the President o Brazil, Dilma Vana Rousse , at her inauguration,www.brazil.org.uk.

76 Energy and Climate Change CommitteeOral Evidence (15 th September 2010) Work o theDepartment o Energy and Climate Change.



The Localism Bill, which will shi t powerrom central government into the hands o

individuals, communities and councils, mustprioritise sustainable growth. In particular,a suitable ramework needs to be in placeto ensure the knowledge, skills and assetso Regional Development Agencies (RDAs)are not lost with their replacement by LocalEnterprise Partnerships (LEPs).

The RDAs have played a key role in osteringprivate sector investment in green industries,such as ultra low carbon transport in thenortheast, wave and tidal power in thesouthwest and carbon capture and storagein Yorkshire. In addition, more clarity isrequired on how green low carbon clustersshould build on an areas competitiveadvantage; criteria or how bid proposals

or a 1.4 billion Regional Growth Fund

should contribute to green economicgrowth; to what degree growth hubs that

will provide access to specialist strategicadvice will have environmental expertise,and; how local planning will be re ormedto introduce a national presumption in avouro sustainable development.

Global strategic partnerships

On the international stage, the UK shouldalso seek to enhance its strategic exchangeprogrammes with key partners and makesustainable growth a central element o bilateral relations. The World ResourcesInstitute demonstrates, or example, thatthe success o Japanese and Germancompanies in the wind and power sectorsindicates that through joint venture, licensing,

or joint design, oreign technology providerscan bene it rom the inancial resources,manu acturing capacity, and enormousmarket o many emerging economies 77 .

As such, the Prime Ministers commitmentto promote British commerce and putinternational trade at the heart o the UKs

oreign and economic policy is welcome. Thiswas recently illustrated by agreements withChinese and Indian political and businessleaders on low carbon initiatives andexchange programmes 78 . National impetus

or greater innovation must also be supportedat the European level 79 .

A Plan of Action

77 World Resources Institute (October 2010)Scaling Up Low-carbon Technology Deployment:Lessons rom China.

78 Number 10 (25 th October 2010)PMs speech on creating a new economicdynamism.

79 Frank-Walter Steinmeier & Sigmar Gabriel(June 2006) A Growth Strategy or Germany:New jobs through investments in energy

and environment.



Conclusion The expert stakeholders rom business, politics and civil society whocontributed to this report insist that a green growth strategy must seekto trans orm the entire economy.

New growth sectors can be created andstrengthened, whilst modernising andincreasing competitiveness o traditionalsectors. There is a common purposehere which is a rare opportunity or thisGovernment to embrace, and so create anational momentum and consistent directionbehind our uture economic growth. A goodstarting point would be an energy e iciencydrive or industry and buildings, as thiso ten represents the most cost e ectiveinvestment opportunity, yet it is still commonly

overlooked.

A green growth strategy must also addresscritical resource challenges beyond carbonas resource e iciency and related innovationincreasingly become primary benchmarkso a success ul economy. Destabilising risesand volatility in world commodity pricesthat contributed to the global recession arebeginning to re-emerge, and security o supply is now a major strategic theme orpolicy makers. A prudent economic policywould promote low resource consumptionas a vital part o securing uture competitiveadvantage and economic resilience.

Policies must act in advance o marketsthat do not e ectively anticipate constraintsor disruptions in natural resource stocks.Increased global competition or strategicresources will also bring political risks rom anover-dependency on stressed supplies romlimited overseas sources.

Leading global companies operating in theUK are now ahead o government in theirstrategic thinking, looking to create long termshareholder value by anticipating the need

or greener technologies, lower resourcedependency and reduced carbon, water andecological ootprints. The UK already hasinternational credibility in leading policies orthe green agenda, not least with its statutorycarbon budgets. But this Government mustact now to signal to big business that it willbuild on this in the coming years with practical

support and action to deliver. This needs tobe a deep and pro ound signal, includinga new green dimension to taxation, and awillingness to tackle the causes, and not justthe symptoms o a resource pro ligate andthere ore deeply ine icient society.

The UK must be a leader o the next industrialrevolution where all wealth creation is seton a sustainable path which enhancesand does not erode the legacy or uturegenerations. In delivering on being thegreenest government ever this administrationmust also win the internationally competitiverace. Just incremental greening will notdo. A re-packaging o existing measures orreluctance or bold action excused bycurrent inancial constraints will spectacularlymiss the point.

There is a window o opportunity or thisGovernment to now signal a signi icant policyshi t. Policies must stimulate market demands

or greener solutions, provide sustainabilitysavvy work orces and deliver innovationthroughout the supply chain. In so doingthe UK could enjoy unprecedented inward

investment and export led growth in high endmanu acturing and services, as global drivers

or climate resilient technologies, resourcee icient solutions and sustainable enterprisebuild over coming years and decades.

Competitiveness in a sustainable economyshould be a key priority or all Governmentdepartments. Mainstream policies on tax,regulation, education, skills and employmentmust stimulate a green revolution, rather thantinkering at the sides with measures aimedspeci ically at green sectors. The privatesector will reward consistent and holisticpolicy with increasing investment driving atmaximum pace the industrial transition to alow carbon and resource e icient economy.

Peter YoungChairman, Aldersgate Group

Were about actively getting behind businesses. Now, what does that mean?Well, it means being clear about which

are the high-growth industries and working strategically to strengthen them. 80

Prime Minister David Cameron

80 Number 10 (6 th January 2011)Prime Ministers speech on economic growth.


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greening the economy: a strategy for growth, jobs and success (aldersgate group)

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