The green economy – or maybe the kaleidoscope economy

Laura Sandys MP

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Moving to a low-carbon economy is deemed an expensive pursuit - retribution for a profligate past. But it is not a zero-sum game; not a loss to the economy, but a gain for industrial growth. And the alternative - relying on fossil fuels - is the really expensive option!

There are few terms in today’s industrial dictionary that are so loose, so ill-defined, as the term “The Green Economy”. The word “green” is at the heart of the confusion as developing a green economy necessitates the re-engineering and re-alignment of traditional jobs – the outcome is green, but not necessarily the function.

The construction of multi-billion pound wind farms is more about heavy engineering than what might be considered a traditional “green” job. Those at the cutting edge of new energy sources - vibration technology, surface engineering and friction reduction – will deliver the “green revolution” but will hold mechanical engineering degrees not sustainability degrees. The technology required to deliver the Government’s proposed Smart Grid to help families and businesses manage their energy consumption and demand will require some of the best telemetrics, sensoring, and tech minds. And the Green Deal will only install energy efficiency measures throughout homes and offices thanks to skills as wide ranging as construction innovation, plastics and synthetic materials research, and of course practical installation. From heavy engineering, to the white coats in laboratories in our universities, to those who fit cavity wall insulation – all of these job opportunities comprise part of the Green Economy.

And today, the Green Economy is no side show. It is not a niche market but represents a significant part of the UK economy and already secures more jobs than sectors such as ICT, finance and insurance, and the motor trade.[1] It is a growth sector, in 2009/10 with low carbon and environmental goods and services growing by 4.6% in 2009/10.[2] Offshore wind attracted the largest private investment of any infrastructure sector for this financial year and in 2011 employed 11,000 people at every level of skills from apprentices to experienced engineers.[3] 

However the green economy needs to permeate beyond the confines of the energy sector and needs to be adopted as a new economic model – one that drives greater efficiencies through new processes and the supply chain, reduces the cost of inputs and controls the exposure the economy has to fluctuating fossil fuel imports.  It is extraordinary to see that over the last 30 years businesses have had to manage energy costs that have risen by over 120% over inflation, and this will only get more challenging. In the future it will be even more important for business to re-design its processes to compete within the constraints of a resource poor future, not captured by a profligate economic model from the past.

The need to adopt this new economic model is evident. Globally there will be a race for resources – energy, water, and food.  Energy consumption will grow by 33% over the next 20 years with 50% of that growth coming from China and India.[1] [4]Globally, water will be fully costed and charged, adding cost to international products, particularly food. And with a doubling of global calorific intake over the next 20 years, commodity prices will increase significantly.

While every good company looks at their input costs, the next decade will look particularly favourably at those who have really re-engineered their businesses dramatically enough to reduce the impacts of significant inflation in core resources. Sir David King, former Chief Scientific Advisor between 2000 – 2007, said: "Sustainable economic growth is achievable. Those industries that can combine efficiencies with growth will be the winners in the low-carbon economy. And given the rise in global oil prices, those that find alternatives to fossil fuels will be well placed." Even the Governor of the Bank of England is acknowledging that corporate or national exposure to fossil fuels could be considered a risk to financial security.[5] 

The green economy, however, will not be achieved through one set of regulations or one Act of Parliament. It will not be delivered through one technology or the clustering of similar companies on a business park. Nor is it a “hair shirt” and sandals economy or a Luddite nostalgia for the pre-industrial revolution as proposed by the Green Party.

It is a commercial culture change. Any country that is serious about future economic competitiveness will ensure that they limit their reliance on fluctuating, politicised energy imports. Greening the economy is not a “nice to have” but a total necessity.

Greening the Economy

For the green economy to really flourish it requires three core elements – smart consumers, smarter businesses and Governments with real foresight.  

Consumers can help to drive much of the innovation in this sector - from energy demand reduction through to adopting new ways of looking at consumer goods or purchasing products.  Financial constraints are encouraging the consumer to be much more discerning about energy consumption, cost of products and also more inquiring about cost of operation and maintenance of products. There also needs to be a strong focus on sectors that deliver the consumer savings through “smart” white goods and electronics, offering the consumer the ability to regulate their energy consumption. With energy costs rising we will find that energy lite products will become more and more the products of choice for the consumer. 

A vibrant innovative private sector working with universities to develop the most energy efficient products, processes and services will be critical to support the migration from business as usual to a lite carbon economy by designing out risky price fluctuating inputs.

The third most challenging element is a Government backed energy renewal programme building non-fossil fuel domestic production to secure domestic energy supplies and hedge international price volatility.

Private Sector Innovation supported by Government Policy and leadership

While the majority of “change” will emanate from private sector driven innovation, there are three key steps that Government should take: 

• Back Renewables, Substitutes and Re-engineering

• Lead from the front in adoption of new approaches and technologies;

Back Renewables, Substitutes and Re-engineering

We have to focus through research on the widest range of renewable resources – not just energy.  Similar to the support delivered to graphene, we should be supporting synthetic rare earth development, renewable replacements for minerals and of course support the reengineering of some key industrial processes away from high intensive energy consumption.

However, it is not only replacement products that support a greening of the economy but also processes, design and management. We must recognise that the softer business engineers and managers are key to reducing dependency on natural resources – from carbon through to minerals and water.   

Government leading from the Front:

Government cannot choose winners and losers, but it can showcase some of the most effective technologies. Government procures and works with the defence industry to bring longer term research projects to market. The funding of the likes of QinetiQ and BAE Systems are testament to innovation generated from government supported research. What better test-bed than using government procurement to assess some of the more innovative products and processes that could build greater resilience to cost.

The opportunities for Government to profile some of the smartest energy solutions were recently highlighted in a report Chaired by Matthew Hancock MP by Carbon Connect - ‘Leaner and Greener: Putting Buildings to Work.’ Its analysis of local and national Government owned property stock revealed that £7 billion in operational costs could be saved through refitting and efficiencies.[6] Immense savings are on offer for tax payers but here Government has a window of opportunity to set an example to industry and also pilot some of the best technologies and new processes.

The Energy Sector

Ultimately, however, it is our energy sector – the renewal and decarbonisation of our electricity generation – that will determine whether we have a resilient economy designed for the future and hedged from the rising costs of imported fossil fuel. If we are to deliver long term green economic benefits, Government needs to get this right and it is not easy.

Electricity Market Reform constitutes the biggest reshaping of our energy sector since privatisation. I am not sure that any Department has to grapple with such a complex series of competing pressures as the Department for Energy and Climate Change. There are few parts of government that needs to: develop a coherent 30 year policy with all the uncertainties that time horizon presents; needs to attract £200bn investment; and has to create a 3-D energy generation model that pays as much attention to demand reduction as it does to decarbonisation, energy security and affordability.

The UK is already driving forward an innovative system of energy reform – smarter grids, more informed customers, renewable energy from next generation nuclear to wind, wave and tidal, through to challenging demand reduction mechanisms and energy efficiency measures like the Green Deal. In total, £200bn is needed to renew our energy infrastructure after years of underinvestment. Not only will this ensure UK energy security and help keep the lights on, it also offers a huge opportunity to build significant industrial expertise in a range of sectors.

In my constituency of South Thanet, we are the base port for £2bn of wind farm investment and have over 5000 contractors passing through the port. Locally, training courses have been established at the Further Education College and new jobs have been created across the supply chain. With the development of more offshore wind, this engineering capability will be replicated up and down our coastline. And it is these, so often, deprived coastal communities that look set to significantly benefit from growth in the wind sector. An estimated 90,000 new jobs and an extra £100 billion of investment are anticipated in seaside economies.[8]

But while we are ambitious in our investment, are we radical enough in our policy to make the case to the public and deliver them best value for money to the UK?

Licence Requirements: 

The UK Government prides itself on its economic flexibility and I commend this. However, I have been struck by the number of overseas investors in the offshore wind sector who have been surprised by our lack of expectation for local employment. Whether explicitly or implicitly, the majority of our overseas competitors demand direct local employment and the operating company’s reliance on local supply chains, before contracts and licenses are issued.

While local skills gaps might need bridging, from the outset of a deal through to construction and eventual completion of a project, there is ample time for investment in the necessary skills and training to ensure that jobs are created and local economies are maximising the benefits attached to green infrastructure projects.  I hope that this government has recognised this gap because the previous administration sat on its hands while overseas investors were complaining about the lack of skills. 

Transparency about cost of energy and decoupling the different energy sources:

With Ofgem predicting that energy costs could rise by 60 per cent by 2016,[9] Government and politicians must start being explicit with the public that the cost of energy is going to increase significantly. Lifestyle changes and improved household energy efficiency measures might reduce consumption, but the unit cost of energy is only ever going to increase. 

To promote greater public understanding of the need to pursue sustainable alternatives to fossil fuels, Government must publish the fully loaded subsidy on all fuels and their assessments of the cost of different forms of energy supply into the future.  There are misconceptions about subsidies that need to be dispelled.

Initial audits of tax benefits by the OECD suggest that fossil fuels and their associated industries receive 500% more in financial benefits than the renewables sector.[10] The public might be more supportive of Government investment in alternative green technologies if it understands the context of rising fossil fuel prices and the historic levels of financial support offered to traditional conceptions of the energy sector.

In addition I would look to examine how we can start decoupling the wholesale price of domestically produced energy to that of the world market. 

In the future energy should look very different. A more engaged consumer that would be being provided energy by a much more customer centric company that has clear transparent tariffs, and smart technologies that support the consumer to take those energy efficiency measures.  This consumer will have benefited from the Green Deal and be making consumer choices on a range of products dependent on their energy consumption and the cost of maintenance.

UK business should be at the forefront of processes that require the least amount of fluctuating input costs and whose waste throughout their production is reduced to minimal levels.  Cost efficient products and services crucially with stable prices will then offer us a competitive edge in export markets.

And Government will have created a mainly decarbonised energy generation that will deliver energy at a stable price offering the nation a predictable, affordable energy supply.

Conclusion:

While Government cannot be responsible for establishing a green economic model, it does need to be the chief cheerleader in greening the UK’s economy. Ministers across Whitehall must encourage industries relevant to their portfolio to adopt a low carbon, low input business model. For the economic benefits to the taxpayer and as an example to wider industry, Government itself has a duty of responsibility to transition to and showcase this new economic model.

But ultimately, the barometer of success will be when we no longer discuss the Green Economy. We will drop the word ‘renewable’ because renewable will be the norm. Instead, the term “fossil” will be used explicitly.  There will be widespread recognition that this is as much about economic efficiencies, resilience and a modern economic model as it is about the importance of decarbonisation in the face of climate change.

There is a total convergence on what is good for business and what is good for the environment. Transitioning to a low-carbon economy is not just a viable strategy for economic growth; it is a necessity for economic survival.