Green Government?

19th October 2011

The new administration was bequeathed the world's first climate change law, plans for feed-in tariffs for renewable energy projects, a ground-breaking proposal for a renewable heat incentive and the Carbon Reduction Scheme (CRC), a revenue neutral way to get large businesses and public sector organisations to become more energy efficient.

From the European Union, it received testing renewable energy targets and a pollution directive that will force the closure of most of its coal-fired power stations by 2015. At the same time, most of our nuclear fleet is approaching its use-by date and we have a half-century old electricity network that needs a comprehensive overhaul.

Since coming to power, the government has taken some positive steps. It has committed to introducing a Green Investment Bank, the Green Deal to encourage energy efficiency measures and a carbon floor price – widely seen as a way to encourage utilities to build more nuclear power stations without having to rely on the public purse but also of benefit to renewable energy projects.

While a number of decisions appear to make some sense in current conditions, taking them all together, it does begin to look like the green sheen is only skin deep. The move to prevent large-scale solar projects from being able to claim Feed-in Tariff (FiT) payments could be seen as a prudent response to the unsustainable commitments other European countries have found themselves saddled with because of excessively generous FiTs.

The CRC was quite complicated and in this period of austerity it does sort of make sense to simplify it and turn it into an energy tax, but the move doesn't exactly promote a feel-good factor in saving energy. Scaling back the ambitions of the Green Investment Bank can also be seen through the lens of austerity.

But at the Tory party conference, George Osborne appeared to reveal the government's true colours and struck at the heart of the UK's climate policy when he told the conference that the UK will cut emissions no faster than its EU neighbours in order not to disadvantage UK businesses. It seems like a reasonable enough statement, but it sends out all the wrong signals to businesses and it contradicts the commitment in the Climate Change Act that the UK will halve its emissions by 2025 compared to 1990 levels and achieve an 80% reduction by 2050.

The government recently agreed to the recommendations for the fourth carbon budget put forward by the Committee on Climate Change, but only at the expense of a Treasury-brokered deal to review the budget in 2014 if other EU countries do not agree similarly ambitious targets. Currently, the EU has pledged only to cut emissions by 20% by 2020.

As Joan Walley, chair of the parliamentary Environmental Audit Committee says: "The long term carbon-cutting commitments set out in the Climate Change Act are supposed to provide certainty that Britain is determined to reduce emissions by 80% by 2050. Unfortunately, the Government's somewhat schizophrenic attitude to climate change seems to be undermining that confidence."

The Chancellor's comments show that the Treasury still doesn't get climate change – or the risk it poses to global stability and economic prosperity, she adds.

Green investment should be seen as a win-win solution to our economic problems; helping to stimulate growth and rebalance the economy, at the same time as reducing pollution, Walley pointed out, and reviewing the carbon budget risks throwing UK climate targets off-course.  

In addition, the Committee on Climate Change has made the point that its recommended carbon budgets should be regarded as an absolute minimum and that less ambitious budgets would make our 2050 climate change targets harder and more costly to achieve.

"The one risk that all investors highlight when they consider putting funds into clean technology is policy change. It is therefore absolutely crucial that policymakers recognise that with the stroke of a pen, they can make a good investment bad," says Tory MP Zac Goldsmith, a member of the committee.

Unfortunately, the government has form in this regard. It is not often that the clean energy sector should view with trepidation a windfall tax imposed on the oil and gas industry, but the tax increase on oil and gas production in the North Sea imposed in the March Budget – to pay for a cut in fuel duty – shows that the possibility of policy changes out of the blue cannot be ignored.

As a report from the Environmental Audit Committee says: "We would expect a ‘greenest government ever' to accept all the recommendations made by the Committee on Climate Change, but it has not done so."

The whole idea of the Committee on Climate Change and carbon budgets is to give investors long-term certainty about the direction of government policy and the government trumpeted its commitment to the committee's recommendations on the carbon budget. To then create the possibility of overturning that commitment in three years time is just inconsistent.

More from Mindful Money:

Green investment or greedy greenwash

The Evolution of Ethical Investing

Give a little, profit a lot

Who invests in SRI and why?

A Brief History of Socially Responsible Investing (SRI)

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