Green Economy

Alan Whitehead Excerpts

Thursday 28th June 2012 Commons Chamber

[Mr Peter Lilley (Hitchin and Harpenden) (Con)]

I oppose the motion. I suspect that I will be the only person to do so. It is not because we cannot have green economy. We could—indeed, we once had a totally green economy. We relied on windmills to grind our flour, on watermills to saw our wood, on horsepower for transport, and on biomass—as burning wood is now called—for heat, but we abandoned those when we discovered that coal could fuel a steam engine, that oil could fuel the internal combustion engine, and that gas and nuclear could give us electricity. Since then, we have enjoyed huge increases in our material standard of living based very largely on comparatively cheap energy from fossil fuels.

The great Victorian economist, Jevons, pointed out nearly a century and a half ago why coal had ousted wind:

“The first great requisite of motive power is that it shall be wholly at our command, to be exerted when, and where, and in what degree we desire. The wind, for instance, as a direct motive power, is wholly inapplicable to a system of machine labour for during a calm season the whole business of the country would be thrown out of gear.”

Much the same can be said about the unreliability of solar and the discontinuity of tidal energy. My hon. Friends may want to return to a mediaeval economy that relies on unreliable, high-cost water, sunshine, wood and wind, but I do not. I am a conservative, not a reactionary. Of course, it may be that some time in the future new sources of energy will become available that are as reliable as, and cheaper than, fossil fuels—perhaps thorium reactors, nuclear fusion or cheaper battery storage, in conjunction with the intermittent renewables that we are developing at the moment. I will rejoice if those come about, but they are some way off.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

Does the right hon. Gentleman accept that since the time of the quote he read out, we have had three further industrial revolutions, which makes his assumptions completely obsolete, and that we are in the middle of a further clean-tech and biotech industrial revolution that will make obsolete the previous assumptions on industrial revolutions? Has he taken that into account in his calculations?

[Mr Lilley]

I do not know which industrial revolutions the hon. Gentleman is referring to, but they certainly did not rely on our subsidising the use of more expensive energy to replace less expensive energy.

There are perfectly respectable, if not entirely convincing, arguments for saying that we have to replace cheap energy with expensive, less reliable energy to reduce carbon emissions, and that that is a price worth paying, to coin a phrase. However, the premise of this debate is that we can generate economic growth by introducing fiscal measures to subsidise and promote green energy. Let us be clear what that means: it means subsidising the replacement of comparatively cheap and reliable energy from fossil fuels with more expensive and intermittent energy from renewables.

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[Dr Alan Whitehead (Southampton, Test) (Lab)]

It is a pleasure to follow someone who can be defined as the Don Quixote of this debate, both figuratively and literally tilting at windmills.

The answer to the speech we have just heard is that the green economy is about not just underwriting one form of energy out at sea, but putting the entire economy on a green footing in terms of resources, energy and demand, and including our homes and our vehicles. As the Government said a little while ago:

“A green economy is not a sub-set of the economy at large—our whole economy needs to be green. A green economy will maximise value and growth across the whole economy, while managing natural assets sustainably.”

That is what a green economy is about. Those are not my words, but the first paragraph of the Government document, “Enabling the Transition to a Green Economy”. There is precisely one paragraph in the document about what the fiscal incentives to move to that green economy might consist of, so this debate is timely. We must ask what fiscal incentives we should put in place to bring about those changes.

Our aim in the economic recovery should not be simply to return the UK economy to business as usual as it was before the crash; it should be consciously to use the opportunity provided by the need to reinvest and to re-engineer our economy to make decisive moves towards the green, sustainable, low-carbon economy that the first paragraph of that document suggests we should be aiming for. We need to be clear about what that entails in how we craft our fiscal policy.

The emergence of a green economy cannot be brought about just by changing the dials on a few economic levers; it is fundamentally asymmetric with what has gone before. Low-carbon sustainable energy, for example, does not have an investment or operational pattern that is anything like what we have been used to for the past 100 years. We cannot construct the next generation of low-carbon power plants and providers on the basis of what has gone before.

We can no longer rely on the assumption that we can generally predict what capacity will be needed and then work out how best to meet it. Future energy policy must be based on investing first in consciously reducing demand and then in decarbonising the remaining demand. In doing that, we have to move to a different paradigm of investment, because demand reduction is a process not an asset, and because low-carbon plants are capital intensive but mean on fuel. In other words, low-carbon plants take a lot of money to construct but, once constructed, use fuel that is either free or recovered from other processes. The model of low and basic construction costs and investment in sourcing, transporting and using fuel, and paying for it as we go, is no longer applicable.

We can no longer rely on the assumption that the purpose of investment in resourcing the economy lies in procuring material into the economy, using it and disposing of the consequences. A linear model of investment and expenditure no longer applies. We will need to move increasingly to a circular-resource economy, in which we do not throw things away—there will be nowhere to throw them. We still throw things away, however. Something like 520 million tonnes of material comes into our economy for domestic consumption, and 200 million tonnes leaves as waste. Only 20% of our material is sourced from secondary inputs.

The changes we need are about investing not just in the green economy, but in jobs. Contrary to what the right hon. Member for Hitchin and Harpenden (Mr Lilley) said, they are real jobs for the future. Moving our resource base to the 70% EU27 recycling target would create something like half a million jobs in the UK by the early 2020s.

[Diana Johnson (Kingston upon Hull North) (Lab)]

I am listening carefully to what my hon. Friend says about jobs. If Hull becomes a wind turbine manufacturing site, 700 jobs will be created directly and up to 10,000 jobs will be created in the supply chain. Those are real jobs for real people in my constituency.

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[Dr Whitehead]

My hon. Friend is absolutely right: not only are the jobs real, but they are long-term, skilled jobs. Other countries are investing heavily in such jobs as that sixth-wave energy and industrial revolution takes off across the world.

My reference in an intervention to the several industrial revolutions since the horse and cart and steam relates to the fact that we are now beyond the information and technology revolution and moving into the clean-tech biotech revolution, which is taking off throughout the world. Who is the world leader in clean energy? We talk about its pollution and energy profligacy, but it is China—a country that is clearly engaged in a conspiracy of useless non-job creation in the green economy.

[Mr Lilley]

I pointed out that the Chinese are allowed to subsidise their manufacturers of, for example, wind turbines, whereas we are not. Is the hon. Gentleman saying that we should subsidise such manufacturers, and how does he propose to alter the EU regulations to enable that?

[Dr Whitehead]

As it happens, EU regulations enable the underwriting of investment in technology that will lead to a lower-carbon economy. The renewables obligation is regarded as state aid, but such investment can be underwritten precisely because it brings new technology to market, reduces its costs and increases its prevalence. That is why the Chinese invested £34 billion in clean energy in 2009, compared with £18 billion in the US. As the hon. Member for St Ives (Andrew George) has said, the goods for low-carbon markets are expected to reach something like £4 trillion by 2015. Put simply, if we are not in that market, we will be sidelined not temporarily, but permanently.

Curiously, the recession gives our country an opportunity to be far more proactive than we might otherwise be. The cost of capital is low and liquidity is high because of the paradox of thrift: there is no danger that investment in green goods, services and plants will crowd out other forms of investment. Fiscally, we can go for it, but in view of the asymmetry, there must be clear and long-term signals.

What might we do? We could invest in decarbonising our homes, for climate change purposes and for demand reduction purposes. We should insulate homes to make them fuel poverty-proof—as we know, the green deal will only scratch the surface. We will get £4 billion per annum over the next 15 years from the EU emissions trading scheme, carbon trading and the carbon floor price. As a fiscal measure—without hypothecating what is in the tax pot—we could invest a large amount of that money in ensuring that our homes are energy-efficient.

We should invest in low-carbon energy provision in the way that I have outlined. If the state wills the ends of that provision, it must underwrite it. That need not mean putting money in the pot, but it does mean underwriting at least some of the risk. It is ridiculous, for example, that there is no state backing for the contracts for difference that will replace the renewables obligation under the Energy Act 2011, and that no demand-side measures, underwritten by feed-in tariffs, are being introduced under the Act. We can get long-term value by taking such fiscal action.

Fiscal policy need not involve underwriting money. Holding the ring on risk and bringing new forms of low-carbon power home is key. To get us to a position in which we have a substantial number of ultra-low carbon vehicles on the road, why not have a “feebate” system, whereby we use, as a fiscal measure, additional fees on high-carbon consuming vehicles to underwrite the new low-carbon vehicles that come on stream? We have a target of 1.7 million ultra-low-carbon vehicles on our roads by the early 2020s. That is the sort of measure we should undertake.

Above all, we should get real about the green investment bank. The bank will have £3 billion as a fund until 2016, or perhaps later, depending on whether the Chancellor decides that it is ready for investment as a whole, yet last year KfW, the German public green investment bank, invested £24 billion—more than a third of its £70 billion —on energy and climate change measures. We can do that if the green investment bank is a bank, but it needs the ability to raise bonds and money at an early stage. That is the sort of fiscal underwriting we need for this green energy, resource and social revolution that we are going through. We need to get on with that urgently, and I urge the House to support the motion to assist with that process.

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[Dr Whitehead]

I am taking up the Minister’s invitation to intervene. Will she consider, even at this late hour, telling us about electricity market reform and how it affects the Treasury at the next meeting of the Select Committee on Energy and Climate Change, which I hope will be held next week? May I assure her that if she does take up our invitation, she will receive a warm welcome and some very straightforward and supportive questions during that discussion?

[Miss Smith]

I thank the hon. Gentleman for his good-natured reiteration of an offer to appear before the Committee. I have not appeared before it because it is scrutinising the draft legislation of another Department. I believe that my right hon. Friend the Secretary of State for Energy and Climate Change, who was also here this afternoon, explained to the Committee this week that he, of course, is representing the Government’s collective position. Although I welcome the hon. Gentleman’s faith in me, I regret that I do not feel that I could usefully add more than that which the Secretary of State has already provided to the Committee. May I also point out that electricity market reform, as my right hon. Friend will have set out, is an early and credible signal to investors that the Government are serious about encouraging investment in low-carbon electricity generation now?

I shall now deal with some of the points made in this debate. My hon. Friend the Member for Sittingbourne and Sheppey exhorted the Government to be clearer on wind energy. I say to him that the Government have been conducting a thorough review of the support provided by the renewables obligation and the Department of Energy and Climate Change will publish the results of it shortly. I know that he and others will take a deep interest in that.

Let me discuss other ways in which the Government have set out action, for example, in the area of accounting for our natural capital. The natural capital committee will help the Government to prioritise actions to support and improve the UK’s natural assets. I reassure the hon. Member for Stoke-on-Trent North that sustainability is considered when developing policy. Her Majesty’s Treasury’s Green Book already does that in guidance, clearly setting out how Departments can take into account natural capital and long-term sustainability issues.

May I further reassure the hon. Members for Southampton, Test and for Glasgow North East (Mr Bain) on the green investment bank? The important point is that the GIB pathfinder—UK Green Investments—is now open for business, with more than 20 individual projects under active consideration, including in renewable energy, waste management and energy-efficiency. All those are large markets with enormous growth potential. Calls have been made this afternoon for it to move forward more quickly and be able to borrow. I wish to reassure the House that it has been given £3 billion in its initial capitalisation and has the potential to borrow from April 2015 when debt is falling as a percentage of GDP—that is a crucial point.

Across the economy, we are focusing on creating the conditions for private sector investment and growth, including through innovation. As Members would expect, that includes supporting private sector investment and focusing on sustainability. I could point out fiscal steps that are in line with the motion, including a new above the line credit to support research and development activity in the UK and increases to the rate of enhanced deductions of SME research and development tax credit. Together with the green investment bank, those measures will play a crucial role in encouraging innovation in the green technology sector, which will have benefits for the wider economy, jobs and growth. Together with the green deal, the measures will help householders both directly and indirectly. I can reassure the hon. Member for Brighton, Pavilion that her calls for a whole-house approach in retrofitting are in line with what the green deal and the ECO aim to achieve. Those schemes also target funding at low-income households, which is very important for the battle against fuel poverty.

Regulation can play an important role in setting common standards and expectations. The Government recently announced that we will introduce mandatory reporting of greenhouse gases for all companies quoted on the London stock exchange. Again, that goes back to the theme of transparency. In this current economic climate, it is crucial to make it simpler for businesses and industry to meet their environmental responsibilities. We will continue to review and amend existing fiscal instruments and regulatory instruments to ensure they remain focused on achieving both economic and environmental objectives. An example of that is the review of the carbon reduction commitment scheme. Budget 2012 announced a consultation on proposals to reduce administrative burdens in that scheme and the Government are considering the responses to the consultation, which has just closed.

Let me return to the importance of this afternoon’s debate. It has been interesting and has demonstrated the importance of appropriate Government action across a breadth of sectors and using various tools. That action must encourage and drive forward an environmentally sustainable and growing economy. It must pay attention to skills, and I was interested to hear the calls for attention to be paid to the high level of skills we can achieve in the British economy in a fully competitive sense. Once again, I welcome the passionate speeches from hon. Friends and hon. Members. I fully agree with those who have said growth and greenness are not mutually exclusive. We can have both. This Government want an economy that is growing, balanced and sustainable, which is good for businesses and for households. The actions that this Government are taking will help us get there and I thank the Backbench Business Committee and the House for raising the issue.