The coalition Government’s emergency Budget began to stabilise the public finances and lay the foundations for economic recovery. The next step is to ensure that what emerges from recession is a different kind of economy: rebalanced away from excessive reliance on household debt, property markets and banking, with prosperity spread more evenly across the country, supported by modernised and efficient infrastructure - all of which will support long-term, sustainable growth.
However, one of this Government’s crucial challenges is to ensure that this growth does not occur at the expense of the environment, but rather for its benefit. The balance must tip away from reliance on fossil fuels for power, heat and manufacturing. We aim to construct a low-carbon economy that will meet our ambitious climate-change targets, deliver energy security and contribute to economic recovery.
If we do this right, there is a real chance of a win-win: investment in the short term that stimulates demand and generates jobs, and at the same time prepares the ground for the long-term development of a low-carbon economy. With the global market for low-carbon goods forecast to grow by around 4 per cent a year up to 2015, this is a major export and employment opportunity.
More than 900,000 people in Britain already work in this sector, so we are not short of expertise. Indeed, the UK is already a leader in key sectors such as offshore wind power. With an estimated £200bn needed by 2020 to replace our ageing power stations with secure low-carbon energy, as well as the investment needed to make a reality of high-speed rail and electric cars, the opportunities are enormous.
We do not underestimate the extent to which, with modest Government support, the private sector is already pursuing low-carbon market opportunities. Toyota, for example, has just launched the Auris Hybrid, the first full hybrid produced in Europe, in Burnaston, Derby. The Nissan Leaf electric car will be produced in Sunderland, where staff are being hired to work in the new battery plant. And RWE Innogy and their partners have announced a €2bn (£1.65bn) investment in the Gwynt y Mor offshore wind farm off North Wales, while Dong Energy’s new Gunfleet Sands offshore wind farm is now helping to power Britain.
Thanks to the huge budget deficit however, we will need a new approach if significantly greater investment is to take place. We cannot afford to dole out unlimited subsidies. Even if such an approach had been shown to work - which, given the UK’s patchy record in picking winners, is far from the case - we lack the financial room to stimulate investment directly. The bulk of investment in sustainable low-carbon growth will need to come from the private sector. To make this happen, we aim to establish a long-term framework of incentives, and a policy framework to mobilise private-sector capital. The emergency Budget gave an early indication of several of the key steps.
First, we need to make sure that the parameters within which the market operates send the right price signals. The current framework clearly isn’t working. The current carbon price, for example, provides a very limp incentive to green investment. That’s why the Budget announced plans to consult on reforms to the Climate Change Levy to provide more certainty and support to the carbon price; and that’s also why the Government is committed to arguing for an increase in the EU emissions reduction target from the current 20 per cent by 2020 to 30 per cent. Further reforms of the energy market to promote low-carbon generation will follow in the Energy Bill.
Getting the market framework right is necessary, but by itself not sufficient. What resources we have should be used where we can make a real difference - such as in supporting infant technologies and encouraging research. These should bridge the gap in areas that are crucial in the long term but, because they are relatively new technologies, still look somewhat risky in the short term. Our announcement today of £10m in grants to companies working on next-generation offshore wind technology is a perfect example.
With these exceptions, however, the Government cannot directly fund the major investments the country needs - which is why our plans for a Green Investment Bank, also flagged up in the Budget, are so significant. Of course, there is much to be decided about how this might work. Bob Wigley’s comprehensive review of the issue, published last week, sets out one possible model - a commercially independent bank given clear overarching goals for green investment in new technologies and infrastructure. Innovative green financial products could give an opportunity for individuals, as well as institutional investors, to take a stake in the infrastructure to support the new green economy.
We will study this - and other options - carefully, and detailed proposals will be published following the Spending Review. Close attention will be paid to the principles of effectiveness, affordability and transparency. But no one should doubt our determination to make it work.
Green investment is not only about multi-billion-pound initiatives. Relatively small energy-efficiency measures can not only reduce carbon emissions but also help homes and businesses save money. Our Green Deal programme will ensure householders and businesses can pay back the up-front costs through lower energy bills, with extra help provided for low-income groups and hard-to-insulate buildings. Although individual measures such as these are small, together they provide another major opportunity for growth and employment.
The coalition’s commitment is clear: to implement a full programme of measures to fulfil our joint ambitions for a low-carbon, eco-friendly economy. Over the next few years, we aim to put in place a framework that will provide the private sector with the confidence needed to invest billions of pounds here in Britain in the face of global competition. Investment in low-carbon technologies and infrastructure, from electric vehicles to new renewables to home insulation, will underpin economic growth for long-term prosperity and climate security. As prosperity is locked in for the long term, carbon must be permanently locked out.
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