Let us eat cake

Posted on 18 Oct 2011 by The Manufacturer

It might seem like having your cake and eating it too, but why can’t we rebalance and decarbonise our economy at the same time? Steve Radley, director of policy and external affairs at EEF, asks why it is that industry can either be green, or it can go for growth, but it can’t do both.

“These questions are at the heart of EEF’s latest report which began our new Green and Growth campaign. The campaign, seeks to address how we can continue to rebalance and decarbonise our economy, especially during a difficult period of economic recovery. It also looks to solve the conundrum of why these two areas are often pulling in different directions.

The Government wants manufacturing to play a bigger role in the economy; but badly designed environmental policies drive up costs for companies in the UK, which they do not face elsewhere. Well-designed climate change policies can stimulate manufacturers’ investments in innovation, jobs and supply chains. And although the UK has led the world in trying to tackle climate change, the primary reason we may hit our 2020 carbon target is because of the recession and the weak recovery. This is why cynics suggest that we can either be green, or we can grow, but we can’t do both.

This may be a natural reaction to our lack of progress, but it needn’t be like this. Our belief is that rebalancing our economy goes hand-in-hand with decarbonising it. The tensions between the two are of our own making, and are often entirely avoidable. Greater use of well-designed climate change policies – such as Climate Change Agreements and funding to upgrade port infrastructure – would stimulate manufacturers’ investments in innovation, jobs and supply chains.

But to achieve these aims, these policies need to be based on a good understanding of the challenges that manufacturers face in investing and innovating in the UK and to start addressing them. These include the significant costs and risks involved in innovation and the fact that UK manufacturers can increasingly choose from a range of locations around the world. Indeed, some of them are now reporting that their larger customers are encouraging them to invest abroad where the environment is more attractive.

Recent EEF research suggests that most manufacturers see opportunities in the green area – half of them plan to be part of low carbon-technology supply chains and four in ten plan to be producing or developing them themselves. But at the same time only one in eight companies believe that the government’s climate and environmental policies will boost their investment in the UK. This is because the current mix of measures is seen as unnecessarily adding to their costs, is over-complex and fails to create the certainty that would-be investors need.

Climate change is still a relatively new policy area and getting it right is not easy. But the consequences of getting it wrong are also potentially serious – a lack of sustainable progress in reducing carbon emissions, missed opportunities to create new industries and weaker economic growth. We need a new approach that understands the trade-offs between green and growth, is grounded in how business actually operates and reflects global economic realities.

In the coming month, we will be setting out the more detailed policies that should be part of this approach but for now, we highlight four key areas. First targets. Industry largely supports the UK’s long-term carbon targets – they provide predictability and commit the government to investing in decarbonising our economy. But the government needs to take a hard look at whether the renewables target is making decarbonisation unnecessarily expensive. Related to this, we need to see a shift from taxing emissions associated with production which risks pushing it out of the UK to encouraging innovation focussing on the emissions associated with a product’s lifecycle. Would- be investors also need greater certainty.

Although successive governments have now addressed the years of indecisions over nuclear power, the past year has seen major changes in the Carbon Reduction Commitment and in support for solar power.

Finally, the government needs to develop a more coherent mix of policies. In particular, it needs to tackle the unnecessary complexity and compliance costs associated with taxing a unit of electricity four times through the EU Emissions Treading Scheme, the Climate Change Levy, the Carbon Reduction Commitment and from 2013 the Carbon Price Floor.”

EEF will publish its final report n December but, for more information on our campaign and a copy of the interim report visit eef.org.uk