As I have argued many times over the years, the most important lesson from The Boy Who Cried Wolf fable is that there is a wolf in the end.
Over the past decade, the UK’s green economy has been rightly accused of exaggerating the competitive threat it has faced. In the run-up to any change of government, fiscal event or political speech, green campaign groups and business lobbyists have warned that without more ambitious and coordinated policies, the UK risks missing out on huge global cleantech opportunities. Ministers responded with their usual patchwork of largely inadequate and often contradictory climate policies. And then stepped back to watch as green investment continued to rise, carbon emissions continued to fall, and economic competitors continued to cling to their own mix of weaker green industrial policies.
Consequently, despite all the missteps and missed opportunities of the past 15 years, the UK remains a true frontrunner in the net-zero transition, with clear leadership in sectors such as offshore wind, advanced R&D and green finance, as well as a solid footing in numerous other key green industries .
And now the wolf has arrived.
Reports this week that the EU is planning legislation requiring 40 per cent of clean technology deployed on the bloc to be produced in EU member states should send shockwaves through Westminster and the UK business community. The White House Inflation Reduction Act (IRA) offers remarkably generous subsidies to green industries choosing to locate in the US, and now Brussels appears to be responding with a similarly ambitious (and equally WTO-breaking) package of its own .
It’s no wonder the Institute of Directors (IoD) — not a natural supporter of bolder climate action — is now begging the government for an urgent response to Biden’s IRA. Eight in ten IoD members think the government should do “a lot more” to boost green investment and innovation in the UK.
In 15 years I can’t remember a time when corporate groups had greater concerns. In some ways, their current concerns run even deeper than they did after the 2008 financial crisis or the Brexit vote. All of their members with an international presence are telling them the same thing: for industries that want to decarbonize – that is, everyone – the US, the EU and China suddenly appear as the more compelling locations for new projects.
After the IRA and EU response, any multinational company contemplating where to locate its next EV factory, hydrogen plant, wind turbine components company or carbon capture project now has some very good reasons, far looking beyond the UK.
Let’s take just one example of hydrogen and carbon capture and storage (CCS). The UK government has been talking for years about creating two world-leading net-zero industrial hubs that could enable the decarbonisation of the energy, chemical, steel and other heavy manufacturing sectors. But these world-leading projects have been stuck in a queue for years as ministers continue to debate how best to implement the contracts and business models – essentially the subsidies – to bring projects to a final investment decision.
Meanwhile, the White House has moved in, now offering generous and predictable payments to companies that can produce low-carbon hydrogen or capture emissions in the US. As we reported earlier this week, the EU now has 38 green steel projects in the pipeline – the UK has one. The same pattern emerges in the sad story of Britain’s effort to secure a battery gigafactory.
It is increasingly unthinkable that these industries will not dominate for decades to come. And Britain is in serious danger of missing out. The problem isn’t just that Britain is at risk of missing out on hydrogen plants and battery factories; such factories are the cornerstones of the modern net-zero emissions economy. When battery factories settle in Spain and Poland and hydrogen factories choose Germany and Denmark, electric vehicle manufacturers, green steel mills and myriad other industries will move close by. It’s the economics of the supply chain, dumbass.
It is entirely plausible that the UK could quickly slip into a period of structural economic decline if it cannot secure part of the coming wave of green investment. Worse still, there is no safe status quo to cling to. Raising the drawbridge and rejecting net zero is a recipe for both geopolitical irrelevance and even faster economic deterioration as other economies accelerate their pursuit of clean energy and demand for polluting products and fuels dwindles.
What should I do?
The first step is to acknowledge that the UK faces a serious economic threat. To do justice to the ministers, the message seems to be getting through. Chancellor Jeremy Hunt last month rightly emphasized the strategic importance of the green economy. He was also right in trying to be at the forefront, stressing that the UK is still at the forefront of this transition and has some significant advantages over the US, starting with the fact that it doesn’t face a Trump-worshiping climate-skeptical opposition is charged.
But, as the IoD and countless others have argued in recent weeks, a meaningful policy response is also needed. The UK may not match the US when it comes to subsidy support for green industries, and willy-nilly it’s not about to circumvent Brussels’ clean-tech rules on domestic content by joining the EU. But it can do what it promises. Remove barriers to clean energy planning, increase investment in energy efficiency, mobilize pension fund investment in low-carbon infrastructure, reform energy markets to drive down electricity prices, complete these carbon capture and hydrogen business models, introduce a zero-emission vehicle mandate for automakers, reform the Implement green farming subsidies, confirm phase-out date for new gas boilers, continue to increase investment in research and development for clean technologies, introduce more robust standards for green products.
If the government is to have any chance of averting the risk of billions of dollars of green investment bypassing the UK, it must do all of this, and do it now. For years, this Conservative government has triangulated with its climate policy, reluctant to go all out in the pursuit of net zero for fear of angering climate-skeptical backbenchers, the Daily Mail and a handful of unconstructed business leaders. But the fear of upsetting some interest groups must now be contrasted with the very real fear of economic irrelevance. If the government is to prevent people from rejecting themselves, they must stop monitoring decline.
The forthcoming spring budget may well prove to be one of the most important in modern British economic history. Hunt may be wary of making big spending pledges after what happened to his predecessor, but without a clear narrative to counter the green subsidy blitz in Washington and Brussels, the UK’s economic competitiveness could be dealt a fatal blow. Sit back and wait another 18 months for a new Labor government to deliver on its promises on green infrastructure spending, and for several key industries it may already be too late to turn things around.
The wolf is at the door. Doing nothing is not an option.
A version of this article first appeared as part of BusinessGreen’s Overnight Briefing email, which is available to all BusinessGreen members.
