Building a low carbon economy

Preventing climate change is not just about the environment. It is about creating a strong and stable economy for the future. Reforming the global economy and making it low carbon offers new areas of growth and job opportunities for businesses.

To the UK, a green economy means employment and investment opportunities. In a speech about the transition to a global green economy, Chris Huhne, the UK’s Secretary of State for Energy and Climate Change, said:

“What does green growth mean? It means jobs. It means investment pouring into the UK, and exports pouring out. Technologies that can be licensed and spun off to lock-in profits. A more skilled workforce. Able to compete in the global marketplace, furthering our reputation for innovation, boosting British enterprise. And at home, a more sustainable economy. One less prone to the fits and starts of a fragile and volatile energy market, more resilient in the face of global uncertainty. These are the long-term rewards that await us if we have the courage to build our economy anew.”

The UK sees reducing climate emissions as a business and economic opportunity. As well as the financial imperative to cutting carbon, the UK is taking action to reduce emissions because our future economic prosperity and security depends on converting to low carbon living.

The UK has proven that it is possible to achieve economic growth on a low emissions route, and has successfully decoupled economic growth from emissions:

• UK economy has grown by 48% since 1990, whilst actual emissions have fallen by over 20%
• The EU economy has grown by 40% since 1990; whilst emissions have fallen by over 7%
  

Independent research confirms that the low carbon economy is growing – and set to continue to increase.

In 2008-09, a report commissioned by the UK Department for Business Innovation and Skills, found that:

• Global low carbon and environmental goods and services sector are estimated to be worth approximately £3.2 trillion in 2008/09, a £150 billion increase from 2007/08 estimates  
• This growth is forecast to grow approximately 4% per year over next five years
• The global sector is estimated to involve 1.4 million companies and employ over 28 million people 
• US and China account for one third of global market share, followed by Japan, India, Germany, UK, France, Spain, Brazil and Italy 
• UK market share of the global sector is £112 billion in 2008/09, an increase of £5 billion over 2007/08 
• The UK employs an estimated 910,000 people in environmental goods and services sector, an increase of over 28,000 on previous estimates for 07/08.

Note: The figures provided on the size of the global low carbon and environmental goods and services market is partly based on modelling due to incomplete data sources.

Maximising low carbon benefits in UK policy

Some of the key ways that the UK is maximising the opportunities of a low carbon transition include:

Green Investment Bank

In the 2010 Spending Review, the Chancellor announced the creation of a Green Investment Bank. 

“I have set aside in this Spending Review £1 billion of funding for the Bank, but I hope much more will be raised from the private sector and the proceeds of future government asset sales. The aim of all these investment is for Britain to be a leader of the new green economy. Creating jobs, saving energy costs, reducing carbon emissions.”
Chancellor of the Exchequer, the Rt Hon George Osborne MP

The creation of the Bank follows a groundswell of public support, and follows research by the Green Investment Bank Commission which highlighted the urgent need for a new public financial institution to unlock the investment needed for Britain to deliver a timely transition to a low carbon economy.

Energy Bill & Green Deal

The Energy Bill was introduced into the House of Lords with its First Reading in December 2010. The Energy Bill has been designed to provide for a step change in the provision of energy efficiency measures to homes and businesses, and make improvements to our framework to enable and secure, low carbon energy supplies and fair competition in the energy markets.

A major part of the bill is the Green Deal, to update UK housing stock and drive home and business energy efficiency.  Read more about the Green Deal in the explanatory leaflet.  

The Bill also includes:

• Measures to enable investment in low carbon electricity generation include supporting an offshore electricity transmission regime to ensure that wind farms can connect to the grid
• Measures to improve energy security including stronger arrangements to monitor future electricity security; and strengthening market incentive mechanisms for ensuring sufficient gas is available during a Gas Supply Emergency. 
• Measures to give companies improved access to upstream oil and gas infrastructure.
  

Find out more at the UK Department of Energy and Climate Change.

Growth of an international low carbon economy

Internationally, the race for low carbon has begun. Like previous revolutions that have re-shaped our societies (the industrial revolution, the IT revolution), those who engage early will reap longer term benefits.

In a recent visit to Australia, UK Foreign Secretary said:

“We believe the most successful economies of the future will be built on low carbon growth. The challenge is to seize the opportunities that this presents and be one of the leaders of the pack in this regard and some of the countries that don’t do that will end up being left behind.”

Low carbon investment is a huge opportunity for the UK. For example, the UK Government has set up the Capital Markets Climate Initiative, to highlight the City of London’s potential as a global hub for green finance and why low carbon investment is an opportunity for the UK’s financial services industry.

Speaking at the September 2010 launch of the Carbon Markets Climate Initiative, UK Minister Greg Barker said: “The vital role of capital markets in tackling climate change has been overlooked for far too long. The finance needed to help developing countries become low carbon isn’t flowing at the rate and scale needed.” Find out more about the CMCI.

Low carbon growth has also been put firmly at the heart of UK-China bilateral relations. Read about the agreement between UK and China to work together and read about Chris Huhne and David Cameron’s visit to China in late 2010. 

Did you know?

• A Norton Rose report series on the Asia Pacific green revolution found that Asia Pacific is the fastest growing market to climate change related investment in the world.

• Pew Research Centre in the US suggests US$1.7 - $2.3 trillion could be invested in the global clean power opportunity in the next 10 years depending on policy settings. The report also quantifies renewable energy investment in a large range of countries including the UK, US, China, and Australia. 
  

Cost of climate action vs. inaction

The cost of combating climate change depends on when we start, and thus how much time we give ourselves for influencing lifecycles of investment and developing new technologies.  

The cost of acting now against climate change is significantly less than acting when the damage has been done.  In his highly influential 2005 report for the UK Government the Stern Review Report on the Economics of Climate Change, Lord Nicholas Stern said:

"The cost of climate mitigation would be around 1-2% of world GDP per annum by 2050 ... the cost of inaction - that is, business as usual - will incur a loss equivalent to between 5 and 20% of GDP per annum now and forever."

The key findings of the review included:

• There is still time to avoid the worst impacts of climate change, if we take strong action now.
• Climate change could have very serious impacts on growth and development.
• The costs of stabilising the climate are significant but manageable; delay would be dangerous and much more costly.
• Action on climate change is required across all countries, and it need not cap the aspirations for growth of rich or poor countries.
• A range of options exists to cut emissions; strong, deliberate policy action is required to motivate their take-up.
• Climate change demands an international response, based on a shared understanding of long-term goals and agreement on frameworks for action.
  

Read the full report

In a visit to Australia in 2010, Lord Stern said the world needed to embrace what he called the "new industrial revolution'' of low carbon technology and renewables, warning that "Ten or 15 years from now, those that produce in dirty ways are likely to face trade barriers.''

Related links 

"Stern warning for climate sceptics" Article in The Age newspaper following Lord Stern’s visit to Australia in September 2010

Chris Huhne, UK Secretary of State for Energy and Climate Change, outlines the UK vision for green growth and the transition to a sustainable economy at a speech to the London School of Economics in November 2010

The Organisation for Economic Cooperation and Development (OECD) responded to the global financial crisis by highlighting a Green Growth Strategy which shows that, together with innovation, going green can be a long-term driver for economic growth, through, for example, investing in renewable energy and improved efficiency in the use of energy and materials.

A VIVID economics report "The implicit price of carbon in the electricity sector" examines six major Australian trading partners and finds that domestic policies are creating some financial incentive to produce low-carbon electricity and, consequently, an implicit price on carbon.

Research from HSBC bank shows their analysis on the size of the climate economy. (Note that lower figures are due to narrower definition of market and a less optimistic view of the size of some sectors).

The Department for Business, Innovation and Skills is working to help businesses overcome the challenges and grasp the opportunities from the move to a low carbon economy.

The Confederation of British Industry (CBI) is the UK’s peak body for business.  It has been campaigning since 2007 for government and business to work together to deliver emissions reductions and exploit the potential of a low-carbon economy.