Posts Tagged ‘CCC’

In our last post we talked about the possible reasoning behind George Osborne failing to commit to stringent climate change targets and how this is affecting firms who want to invest in low-carbon technologies, and how this in turn will affect the UK economy.  In this post we talk about the long-term impacts of this failure to commit – the increasing costs of climate change.

George Osborne’s perspective is surely a case of short term political thinking trumping the strategic planning required when considering the impacts of long term environmental change. Without investment in low carbon technologies, their costs will remain high and Osborne can continue to claim that lower carbon targets will be a burden on business. Only by investing in research and development will the costs of low carbon technologies be reduced as we learn more about them and discover new and cheaper ways to implement them.

The time taken for cost reductions in low carbon technologies due to higher research spending on their development is unclear, but as the Stern review[1] (a 2006 review of the economic costs of climate change) illustrates, we are on a path to increasing costs of climate change given a business as usual situation. Therefore, although the Chancellor may not be imposing any additional costs on businesses in the short term, the longer the government fails to promote the low carbon renewable technology cause, the higher the costs of climate change become in the future as its impacts increase.

A likely retort from climate change sceptics is that the academic literature is unclear on the best timing and extent of investment in climate change mitigation and some such as Nordhaus[2] recommend waiting before committing the kind of large scale investments Stern’s review advocates. However, this essentially means waiting until the costs of climate change become large enough to justify the investments in low carbon technologies. The question then becomes are we willing to take that risk given the potentially irreversible consequences of inaction?

George  Osborne’s reluctance to commit to low carbon targets seemingly stems from his desire to keep business on board and his view that there’s a choice between ‘environment’ and the ‘economy’ played out in policy terms through either ‘going green’ or ‘gaining growth’. Therefore perhaps the most convincing argument for the government to implement the CCC’s policy recommendation is the demand from UK businesses for greater government commitment on carbon. In a letter co-ordinated by the Aldersgate Group, over 50 businesses including ASDA, Sky and Anglian Water[3], call for the inclusion of such a decarbonisation target in the Energy Bill. Furthermore, John Cridland Director General of the CBI, has also recently voiced his support for greater government commitment to the green economy recognising the benefits that can be had to business and the economy in the long term[4].

Business leaders, politicians (including Mr Davey, the Lib Dem Energy Secretary) and the public seem to be increasingly excited about the potential for ‘green growth’ and prepared for the short term cost of a transition to a low carbon economy. Given what we know about the need to act swiftly in response to climate change, wouldn’t it be a shame if we were unable to reach our greenhouse gas emissions targets because of a failure on the part of the government, not the market, to recognise the long term benefits of early action on climate change.

[1] Stern, N (2006) The Economics of Climate Change.

[2] Nordhaus, W. (2007) A Review of the Stern Review on the Economics of Climate Change

[4] Cridland, J. (2012) Business needs to look at decarbonising their products and services

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The UK economy stands to lose hundreds of millions of pounds of investment in gas-powered plants and offshore wind farms unless the government can provide guarantees about its future carbon policy plans, a leading article in The Times warned on Monday[1]. Seven ’global electricity and nuclear technology’ firms have written collectively to the Energy Secretary Ed Davey and to the Chancellor George Osborne, voicing their concerns over a lack of commitment to the delivery of climate change targets and a watering down of energy policy targets’.  The letter was one of two letters from ‘UK plc’ yesterday asking George Osborne to commit to these targets, the other coming from the Aldersgate Group – a coalition of companies committed to moving towards a green economy[2].

Their concerns come as yet further disagreements within the coalition emerge, this time over whether to pursue the policy recommendations of the Committee on Climate Change (CCC). The CCC recommends that 50g of CO2 should be generated per kilowatt of electricity compared to the current 400GCO2/kW (a 87.5% reduction), something that the Chancellor views as undesirable because of the higher energy cost burdens it imposes on UK businesses. The Chancellor’s argument runs that the higher costs of low carbon technologies would be passed on by energy firms to ‘UK plc’ thereby stifling economic growth as the potential for expansion in employment and productivity in these firms would be reduced.

The reason the CCC was set up was to try and avoid the 5 year political cycle, yet if the government ignores its advice then surely they become a toothless body subject to the whim of politics and their function becomes less of a comfort to those who worry about these sorts of things.

Unfortunately, as a result of George Osborne’s’ lack of commitment to a low carbon economy, energy firms remain reluctant to commit capital investment in such technologies, being unsure of the comparative advantage that it will deliver in the future. In a future where we are committed to lower carbon energy generation, it is likely that there would be higher taxes on carbon intensive energy generation, so investment in low carbon technologies now is a good idea. However without this commitment to lower CO2 targets, energy firms have no incentive to invest in such technologies and will continue to invest in cheaper higher carbon technologies, lest they risk losing out to their competitors.

So in order for a low carbon renewable technology economy to really take off, the government must commit in the long term to stringent targets for CO2 set out by the CCC. Only then will we see the required investment in low carbon technologies and significant advances in employment levels and productivity in the emerging low carbon or ‘green’ economy. And only then will we begin to have any chance of meeting our climate change targets and avoid the large costs associated with a failure to act (see next post).

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