House of Commons - A Green Economy - Environmental Audit Committee

A Green Economy - Environmental Audit Committee Contents

2 Defining a green economy

Definitions

8. There are many different interpretations of what constitutes a green economy. In the current economic climate many have been focused on developing environmental goods and services—so called 'green growth'. The Packaging Federation believed that the concept of a green economy has been inextricably linked with the steps that are being taken to re-balance the economy and support a regeneration of private sector growth.[15] The Government calculated that the environmental goods and services sector employs over 914,000 people in 52,000 companies in the UK and includes wind power, building technologies and alternative fuels.[16] The UK had a 3.7% share of the £3.2 trillion global market in 2009-10.[17] That global market is predicted to grow to £4 trillion in 2015,[18] and the Government believed that it offers the potential for UK firms to grow their businesses, both in the UK and through increasing exports.[19]

9. Some witnesses however saw a green economy as a new economic model, tackling perceived failures of the current one, and not just a way of stimulating 'growth' in response to the recent global downturn. Dr Alex Bowen of the Grantham Research Institute on Climate Change and the Environment believed that a green economy was "one where the needs of current generations are not fulfilled at the cost of future generations".[20] James Meadway from the New Economics Foundation believed that a definition limited to 'green growth' could be seen as a "barebones minimum" and to address seriously the "environmental problems we are facing" a "far more extensive definition" was needed.[21] Andrew Raingold from the Aldersgate Group told us a green economy was more than just about a flourishing environmental business services sector: "It is also about modernising traditional sectors and transforming conventional business models".[22] Oxfam were looking for a "paradigm shift; a new model of growth and development".[23] Stakeholder Forum believed that "all the tools of economic management need to be reset to steer the economy in a more sustainable direction".[24]

10. Such new economic models seek to recognise that there are 'limits' that the environment places on sustainable economic activity, and potentially that there are certain absolute physical barriers to growth that a genuinely green economy would not overstep.[25] The Stern Review referred to climate change as "present[ing] a unique challenge for economics: it is the greatest and widest-ranging market failure ever seen".[26] The Stockholm Resilience Centre identified nine 'planetary boundaries' in 2009 within which "humanity can operate safely", of which three might already have been exceeded: ecosystem biodiversity, climate change and the nitrogen cycle.[27] Some favoured a definition of a green economy where the natural environment was not just protected, but enhanced.[28]Long-term economic stability and growth is "fundamentally dependent" on the availability of natural resources and ecosystem services.[29]They provide the resources needed to produce goods and services, and absorb and process the unwanted by-products in the form of pollution and waste.[30]

11. The Government's National Ecosystem Assessment identified how the environment is critically important to human well-being. It provides food, water, fibre and other raw materials, but it also benefits us in less obvious ways such as the "breakdown of waste products, controlling water supplies, helping to regulate climate, providing space for recreation and contemplation, and playing a pivotal role in creating a sense of place that underpins the mental and spiritual well-being of many".[31] Nature enhances children's education, personal and social skills, health and well-being, leading to the development of responsible citizens.[32] Natural environments have the potential to improve mental and physical health.[33] The New Economics Foundation publishes a Happy Planet Index which measures the ecological efficiency with which, country by country, people achieve long and happy lives. It found that there are different routes to achieving comparable levels of well-being and that "high levels of resource consumption do not reliably produce high levels of well-being". The UK came 74th in the Index, out of 143 countries.[34]

12. Some of our witnesses emphasised that a green economy was not just about accommodating environmental limits but protecting the social pillar of sustainable development. Molly Scott Cato from Green House believed that "the green economy is not the same sort of economy powered differently. It is an entirely differently structured economy that is ... more about the good life and less about how much stuff you have".[35] Green House believed that "recognising the economy is located within society, which is in turn embedded within the environment" was the key change required.[36] Jules Peck from Abundancy Partners believed that a focus on green growth—"effectively putting a green veneer on what is an obsession with growth"—was creating a "conceptual roadblock" to producing "flourishing lives for everybody".[37]

13. Professor Tim Jackson, a former Commissioner of the Sustainable Development Commission, saw the green economy in terms of 'social justice' and fairness, where "a green economy ... must be one that is consuming resources on a per capita basis that if equitably shared across a population of 7, 9 or 10 billion people could still remain within resource constraints".[38] While well-being flows from the environment, it is also dependent on other factors. The Government's Measuring National Wellbeing Project is seeking to devise a set of well-being indicators that can be used to drive government policy, and the Office for National Statistics has been consulting on indicators that link well-being to relationships, health, what we do, where we live, personal finance, education and skills (paragraph 102).[39]

14. The United Nations Environment Programme links together the environmental and social aspects, seeing the green economy as "one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities".[40] The European Commission's Towards a low carbon economy in 2050 takes a narrower view and looks at how a low carbon economy can be achieved in different sectors.[41] Similarly the OECD's Towards Green Growth report focuses on "fostering economic growth and development while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies".[42]

15. The UN's preparatory work for the Rio+20 Summit is seeking a degree of consistency in the definition of the green economy, and the approach to transitioning to it. It views a green economy very much in the context of sustainable development. The 'zero draft' of an outcomes document to be agreed at the Summit states that a green economy should "contribute to meeting key goals—in particular the priorities of poverty eradication, food security, sound water management, universal access to modern energy services, sustainable cities, management of oceans and improving resilience and disaster preparedness, as well as public health, human resource development and sustained, inclusive and equitable growth that generates employment, including for youth".[43] Being so widely-defined, however, the zero draft does not provide "a rigid set of rules", given the different social, environmental and economic conditions of different countries, but envisages rather a decision-making framework being developed to foster integrated consideration of the three pillars of sustainable development in public and private decision-making.[44]

16. A broad definition of a green economy that encompasses environmental limits, well-being and social justice, will be demanding because it "challenges lifestyles, global commitments, and ideas about global trade".[45] However, a definition of a green economy limited to just growing the environmental goods and services sector is not consistent with all aspects of sustainable development.[46] The whole economy will need to be green and traditional sectors will need to be transformed. This will require the Government taking a longer-term view, driven by a clear definition of a green economy. The Government must set out a clear definition of a green economy that addresses all three interdependent pillars of sustainable development, including 'social' considerations, well-being and environmental limits.

Making a transition to a green economy in the UK

17. Moving to a green economy could be a "multiple win"—protecting the planet, creating jobs and securing energy supplies.[47] As the Rio+20 'zero draft' recognises, the transformation to a green economy should be an opportunity for all countries and a threat to none.[48] Clearly, however, there will be costs as well as benefits.

THE BENEFITS

18. By recognising that the environment might place restrictions on economic activity, a green economy could deliver clear environmental benefits. Aligning the economy to deliver Climate Change Act emissions targets would help demonstrate internationally that the UK is taking a strong stance on climate change.[49] The Government estimates that by 2020 we could be importing 45-60% of the oil we use, and 70% or more of our gas. Significant reductions in oil demand are not expected over the next 20 years and gas demand is expected to increase as gas-powered electricity generation replaces coal-fired power stations.[50] As global demand for oil and gas increase, prices will be volatile.[51] Supporting renewable sources of energy as part of the transition to a green economy will help reduce our dependence on oil and gas imports, thus improving energy security and resilience.[52] Greater stability in energy prices is possible through greater provision of domestic renewable resources,[53] which could bring greater financial stability for both businesses and consumers and attract greater investment in a more resilient economy.[54] Meeting the 2020 renewables targets would displace fossil fuels with a cumulative value of £60 billion to 2020, whilst stimulating domestic investment in renewable energy, thus giving a "significant boost to the UK's balance of trade".[55]

19. The European Commission identified the green economy as one of three 'areas'[56] where there was strong job growth potential as European economies recovered from the recent economic crises and restructured in a changing global economy.[57] WWF believed that there was "strong evidence to show that the renewables industry could generate substantial employment and economic benefits if the UK takes up the opportunity of early action in the sector".[58] Similarly, the Aldersgate Group believed that "acting early will ensure that the UK is well positioned to attract global investment, stimulating job creation and export growth".[59] The Renewable Energy Association and Innovas brought together for the first time employment data on all renewable energy types (and associated supply chains), finding that 110,000 jobs were employed in the industry in 2010-11. This was set to rise to 400,000 jobs in order to meet the 2020 renewable energy targets.[60] The Committee on Climate Change has highlighted that given "adequate funding, new policies and strengthened delivery arrangements" UK firms could lead on development in offshore wind, wave and tidal technologies.[61] WWF considered that building a strong domestic supply chain was the key potential economic benefit, citing Germany where over 367,000 people were employed in its renewables industry.[62] The Government estimates that energy efficiency in particular will boost employment, with 65,000 jobs created in the UK within five years as a result of the proposed Green Deal.[63]

20. Putting the natural environment at the centre of economic decision-making would ensure a more sustainable use of natural resources. The UN's Economics of Ecosystems and Biodiversity study showed that protected natural environments can deliver economic returns that are 100 times greater than the cost of their protection and maintenance.[64] Creating a market that takes account of such costs and returns "could unleash sizeable macroeconomic benefits by boosting private spending, creating jobs, generating tax revenues, and allowing the monetary authorities greater leeway to stimulate demand".[65] The Government announced in the Natural Environment White Paper the creation of an Ecosystem Markets Task Force to review opportunities for UK business from expanding trade in green goods and the market for sustainable natural services. It will report to the Green Economy Council.[66]

21. UNEP calculate that global investment in greening the economy will result in higher growth than an equal amount of 'brown' investment within 5-10 years.[67] A green economy would bring other economic benefits such as fostering innovation by requiring solutions to decarbonise and encourage entrepreneurialism as new markets are created. Action on the green economy would help avoid falling behind in technology, and being shut out of future markets.[68] Increased efficiencies are possible for businesses using less resource inputs, and reduced costs from less waste. Research for Defra estimated that UK businesses could save around £23 billion and 4% of total emissions (29MtCo₂e) annually by using resources more efficiently.[69] The Carbon Trust found that a 35% improvement is possible in the energy efficiency of UK buildings by 2020, and that this would realise over £4bn worth of benefits.[70]

THE COSTS

22. The transition to a green economy will not be easy, however, requiring all sectors of the economy to change, and in the short-term there may be increased costs in some areas. There had been opposition to the Government's support for wind power because of fears of the cost of subsidies.[71] Dr John Constable of the Renewable Energy Foundation believed that the green economy debate had overlooked the downsides: "there is an implication that not only are there multiple simultaneous wins or winners, but that no one loses and there are no losses".[72] He believed that "given the transitional risks, you have a very large churn effect, very large sums of money being dispensed in subsidy", and that the gains would be "small in relation to the risk".[73] At a time when energy costs are increasing there were concerns that a green economy could disproportionately contribute to those price increases.[74] However, Dr Gordon Edge of RenewableUK disputed this.[75] So far, domestic energy price rises had been primarily driven by the global price of gas.[76] Research by the Policy Studies Institute found that recent oil price rises had been driven by global demand, not taxes imposed by Government.[77]

23. Some have expressed concerns about a risk of "technology lock-in" and the "premature adoption of sub-optimal and costly technologies".[78] Policy Exchange considered that "the history of Government 'picking winners' in terms of future export industries is not good, and such policies have often resulted in a huge waste of resources".[79]

24. WWF believed that the transition would be capital-intensive, with high up-front costs for renewable energy systems, smart grids and energy efficiency. As such investment paid dividends over the longer term, it presented a "fundamental challenge for both markets and governments", which focus on performance measured over shorter timeframes.[80] The Grantham Research Institute believed that given some of the transition costs there would be a "small sacrifice of consumption", but that this would "yield substantial gains down the road".[81] John Constable believed that the transition would require a shift in lifestyles, perhaps reduced standards of living, and some people would be relatively disadvantaged.[82]

25. The Stern Review demonstrated that the cost of inaction on climate change was likely to be more over the longer-term than the costs of acting now, because global costs of climate change could be between 5% and 20% of GDP a year if no action were taken. The investment needed would itself have a strong and positive impact on growth and provide further benefits beyond the reduction of the risks of climate change.[83] The Government recognised that "there will be increased costs of some resources, and changing patterns of investment and innovation towards green activity" and that it would "need to take into account the distributional impacts on certain households and sectors".[84]

26. The current economic difficulties offer an opportunity to rebuild the economy with a closer regard to sustainable development. The Grantham Research Institute believed that currently, with high unemployment and low utilisation of plant and equipment, "now is a very good time to accelerate the greening of the UK economy".[85] There would be little risk of 'crowding out' alternative investment, or displacing jobs elsewhere because output was running below capacity and the cost of capital was at historically low levels.[86] The issue was a lack of confidence to invest, rather than a lack of liquidity.[87] (Indeed, as we found in our Green Investment Bank inquiry, significant pension and insurance fund management companies were seeking secure long-term investments.[88]) The Environment Secretary thought that the current economic situation was spurring businesses to embrace the green economy, in particular resource efficiency, as it was essential for their economic survival.[89] That imperative for action was heightened by concerns that the UK, and Europe, is losing ground in the green economy 'race' to other countries, particularly China and India.[90]

THE IMPACT ON EMPLOYMENT

27. The UN Environment Programme identified the potential impact on jobs from a transition to a green economy:

Additional jobs would be created (as for example in the manufacturing of pollution-control devices added to existing production equipment).
Some employment would be substituted (in, for example, shifting from fossil fuels to renewables, or from truck manufacturing to train manufacturing, or from landfill and waste incineration to recycling).
Jobs could be eliminated without direct replacement (as when packaging materials are discouraged or banned and their production is discontinued).
Many existing jobs would simply be transformed and redefined as skill sets, work methods, and profiles are greened (for example plumbers, electricians, metal workers and construction workers).[91]

In a global context UNEP found that overall there were "no significant differences in overall employment between business-as-usual and a green investment scenario".[92]

28. As regards the position in the UK, our predecessor Committee found in 2009 that the Government had not carried out research in the UK to assess the likely overall impact on existing industries and jobs from decarbonisation.[93] There is still a need for such an assessment.[94] The current Government has acknowledged that there is a risk of a loss of jobs as a result of 'carbon leakage' and plans to introduce a package of measures to help "those energy intensive industries whose international competitiveness will be most affected by our energy and climate policies".[95] John Constable of the Renewable Energy Foundation believed that, based on modelling by the European Commission, "the probable impact of renewable energy and climate policies will have only 'slight' net benefits in terms of GDP and employment (numbered in the low hundreds of thousands) in 2020".[96] The churn in the number of jobs, however, would be "enormous".[97] Establishing whether jobs will increase or decrease, is made more difficult because of different methodologies used by industry and the Government for measuring the number of jobs in the green economy.[98] Government data identified 91,000 employees in the wind industry in 2010,[99] significantly above the 9,200 reported by industry bodies.[100] Similarly the Government estimates that 39,200 are employed in the solar photo-voltaic sector,[101] compared to 25,000 estimated by an industry body.[102] Jobs in the green economy can have wider benefits, beyond the numbers involved. The UN Secretary-General's High Level Panel on Global Sustainability found that "employees have reported increased job satisfaction working for companies that embrace or promote sustainability principles".[103]

29. There would be environmental, energy security and economic benefits from making a transition to a green economy. Putting the environment at the centre of the economy would help achieve sustainable use of natural resources. There are clear benefits of acting now, with the costs of inaction far greater if we wait. Expenditure involved in making the transition to a green economy would be an investment, not simply a cost. Investing in renewable sources of energy would increase our energy security by reducing our reliance on imported fossil fuels. Investment in a green economy could deliver more jobs overall than the same investment in the high-carbon economy, but there is little commonly agreed data on this. In order to build public support for a green economy, the Government needs to be clear with business and the public about how the costs of the transition, including the costs of inaction, compare with the benefits. In Part 3 we examine whether the Government is making that case sufficiently clearly.

15 Ev w8 Back

16 BIS, Low Carbon and Environmental Goods and Services report for 2009-10, July 2011. Back

17 Behind the US (20%), China (13%), Japan (6%), India (6%) and Germany (4%). Back

18 HM Government, Enabling the Transition to a Green Economy: Government and business working together, August 2011. Back

19 HM Treasury and BIS, Plan for Growth, March 2011, p. 6. Back

20 Q 50 Back

21 Q 1 Back

22 Q 16 Back

23 Environmental Audit Committee, Eighth Report of Session 2010-12, Preparations for the Rio+20 Summit, HC 1026,
Ev 4. Back

24 Ibid.; Ev 35. Back

25 Q 1 [James Meadway] Back

26 HM Treasury and Cabinet Office, Stern Review: The Economics of Climate Change, 2006. Back